Friday, November 14, 2008

A Cancer on the Big Three: The $29/Hr. Pay Gap

Why is GM (and Ford and Chrysler) seeking taxpayer subsidies when Toyota, Honda, Nissan, Kia, BMW, Daimler, Hyundai and other foreign nameplate producers, who are facing the same contracting demand and credit crunch quietly weathering the storm, are not? Because the latter have costs structures that haven’t been made obsolete and uneconomic by ludicrous union demands (see chart above, data here). And, of course, they make cars that Americans want to buy.

~Dan Ikenson, Associate Director of Cato Institute's Center for Trade Policy Studies

57 Comments:

At 11/14/2008 8:52 AM, Anonymous Lars said...

Maybe the Goverment can nationalize the big three and start making a car like the Trabant. Very popular in communist countries in the 60s.

 
At 11/14/2008 9:28 AM, Anonymous Anonymous said...

Even if you are a union wonk, it is very hard to argue with those numbers.

 
At 11/14/2008 9:34 AM, Blogger Jen said...

I have a few thoughts - two points were made: ludicrous demands of the UAW and competitors make cars Americans want to buy.

I think about the automotive industry and consider I've never run into anyone that has devoted more than 20 years to a single organization - (other than the military). Wouldn't labor retention be a factor in the early successes of the big three? Train them and keep them...

I've never had a factory job - but I don't think the work would be personally rewarding - day after day - the same job - the same motion. What is my motivation to stay? Is it the benefits - the thought that after 20 years the company will reward me with a lifetime of benefits? The union negotiated the contract - each side must've agreed!

I don't believe the ultimate blame can be placed on the UAW or those that put in their time and now are being blamed for reaping the reward of their work! I do feel, since the 70s the automotive industry has really missed out on finding what America would and should drive - bigger must always be better eh?

We need to pause, stop pointing fingers and get back to the true American spirit, where anything is possible with a bit of sweat, hard work and a few uphill battles. We should also consider the role of the labor union - who gave us the 40 hour work week and humane working conditions! Or we could just give up - but that isn't the American way.

 
At 11/14/2008 9:42 AM, Anonymous Machiavelli999 said...

jen,

I agree with you that unions are not directly to blame. They put out a contract and as you say both sides agreed.

But it was a bad decision and the company is broke and should go bankrupt. There is nothing illegal or criminal in what happened. It is what it is.

Perhaps you are on to something. Perhaps the lucrative retirement package has workers at GM focused on just making it to the end to get that retirement package instead of innovating and creating good cars.

 
At 11/14/2008 9:57 AM, Anonymous Michael Smith said...

We should also consider the role of the labor union - who gave us the 40 hour work week and humane working conditions!

The 40 hour work week, along with improved standards of living and working, was made possible by advances in industrial technology that drastically boosted worker productivity. Henry Ford, for instance, introduced the 40 hour work week after making massive improvements to his worker's productivity -- unions had nothing to do with it.

These productivity improvements were made possible by the growing accumulation of capital to fund such improvements -- and again, unions contributed nothing to that process.

In fact, unions generally create nothing. They can succeed, in some instances, in forcing a transfer of wealth away from its rightful owner and into their pockets. As is the case with the big three, the unions have managed to force wages above market, thereby transferring into the pockets of their members (the ones still working, anyway)wealth that actually belonged to the owners of those companies.

And in pushing for a bailout, unions may even suceed in transferring more wealth from the taxpayers pockets into their own.

But don't kid yourself that unions are actually adding anything to the process of creating wealth. They are only there to use threat of violence to coerce terms and conditions of employment that they cannot win under truly free bargaining.

 
At 11/14/2008 10:33 AM, Anonymous Anonymous said...

"But don't kid yourself that unions are actually adding anything to the process of creating wealth. They are only there to use threat of violence to coerce terms and conditions of employment that they cannot win under truly free bargaining."

Very well said, Michael.-db

 
At 11/14/2008 11:08 AM, Anonymous Anonymous said...

Who provides health care and retirement in Japan?

Hydra

 
At 11/14/2008 11:15 AM, Anonymous Anonymous said...

"They are only there to use threat of violence to coerce terms and conditions of employment that they cannot win under truly free bargaining."


The company is organized. Why shouldn't labor have an opportunity to play on the same field?

Labor, after all owns labor, and they can organize to sell it under whatever terms they want. Management owns the rest of the basis for productivity, but they do not own labor, or workers. Labor, therefore, is doing nothing to "force a transfer of wealth away from its rightful owner."

The company can buy under those terms or not. You need to rethink who it is that owns what property.

Hydra

 
At 11/14/2008 12:36 PM, Anonymous Anonymous said...

Instead of subsidizing the big three - and thereby sending the government further into debt - why not impose a surtax on sales by efficient companies. This will, of course, be passed on to consumer, levelling the playing field between the competent and the incompetent (and justice requires that incompetence not be penalized, while fairness requires that competence not be rewarded). In this way, the government can project higher revenues and a reduced defecit.

 
At 11/14/2008 12:43 PM, Anonymous Anonymous said...

Sorry, just a question on the data used to comprise these results. Are the wages calculated for their entire corporate structure in the US or does it include their operations stationed outside the US?

Another item I thought of when I've seen this issue addressed is whether anyone has compared the overall cost of a vehicle sold by a domestic manufacturer versus their overseas competitor. Put another way, how big of a hurdle are the legacy costs if GM sells a sedan for 20,000, but Honda sells the same for $25,000 (assuming the models are equivalent). The point being that if GM can't match the price, while legacy costs might be a problem, another (arguably more significant) problem exists with their underlying business strategy/production.

 
At 11/14/2008 1:06 PM, Anonymous Anonymous said...

The company can buy under those terms or not.

That's right. It's a completely free market decision. No government regulations at all that would cause your statement to be false.

 
At 11/14/2008 1:41 PM, Anonymous Michael Smith said...

Labor, therefore, is doing nothing to "force a transfer of wealth away from its rightful owner."

Of course they are. The union’s first use of force occurs when the majority of the workers force the minority into the union against their will. That the law allows them to do this is an egregious violation of the right of each individual to decide for his or herself whether to bargain with management directly or appoint a representative.

The second use of force occurs when the law forces the business to negotiate with the union whether it wants to or not. No union would ever agree that its members should be restricted, by force of law, to negotiate solely with one business; the union would insist (quite rightly) that all employees have the right to quit that job, at any time they choose and for any reason they choose, be it to take a better job elsewhere or just because they don’t happen to like the boss. But by force of law, the union denies this right to the business -- the business is stuck with the unionized employees, even if better employees come along and offer to work for less.

The third use of force occurs when the majority forces the minority to go out on strike.

The fourth use of force is the strike itself. The threat of a strike is never simply the threat of withholding one's labor (which everyone has an absolute right to do). If that were the extent of the threat, the strikers would simply stay at home.

But that is not what happens in a strike. The strikers form a picket line and use whatever techniques of intimidation and whatever threats of force they can muster to create fear of physical violence in anyone the company brings in to replace them. Tomatoes are thrown, then bricks, then tires are flattened, then cars are “keyed”, widows are smashed, threatening phone calls are made to the homes of “scabs” etc.

The whole set-up is a blatant initiation of force to win agreement to terms that would not be agreed to in a fully free, completely non-coercive negotiation.

What’s more, unions are always lobbying for greater freedom to use force and threats of force to get their way. They have always lobbied to have the hiring of replacement workers prohibited by force of law. Now they are lobbying for the elimination of the secret ballot so that intimidation and threats can be brought directly on those who don’t want a union.

 
At 11/14/2008 1:50 PM, Blogger MikeJ said...

"The U.S. Census Bureau announced today that Motor vehicle and parts dealers sales were down 23.4 percent (±2.1%) from October 2007"

Bailing out the big 3 without renegotiating labor contracts and a debt/equity swap will do nothing but postpone their failure. The Big Three's dependence on economies of scale to overcome higher costs (most notability spurring demand by facilitating easy credit) will not work in the new environment we are emerging. The great credit bubble is popping and frugality is the future for consumers.

 
At 11/14/2008 2:26 PM, Anonymous Anonymous said...

"Who provides health care and retirement in Japan?" - Hydra

Those who work for it. They either pay for it through lower cash wages or through increased taxes. It is never "free".

 
At 11/14/2008 2:37 PM, Anonymous Anonymous said...

"The company is organized. Why shouldn't labor have an opportunity to play on the same field?"

"Labor, after all owns labor, and they can organize to sell it under whatever terms they want."

- Hydra

With regard to the company, the union seeks a monopoly on labor. The union enforces that monopoly through threat of violence and political corruption. It is this destruction of the free market for labor that results in an unsustainable misallocation of resources and the erosion of the companies ability to compete. Competition with non-union labor is exactly what the union seeks to eliminate.

 
At 11/14/2008 3:57 PM, Anonymous Anonymous said...

Professor Perry,

Did you know you were featured in this Yahoo Finance article? Pretty cool to see your name while reading!

http://finance.yahoo.com/expert/article/stockblogs/122165

 
At 11/14/2008 6:21 PM, Blogger the buggy professor said...

(i.) Mark, many thanks for these posts the last few days about the wage differentials between the US Big-3 auto-makers and Japanese transplants. The difference is striking, no? And especially since labor productivity levels in Japanese transplants are still slightly higher than in the Big-3.

....

(ii.) I took off a few minutes to run some google searches for at least part of the explanation for these wage-differences.

Here are some informative links:

1. Overall, as of the summer of 2007, the US was a much more competitive country for doing business in than either Japan or West Europe . . . what with the dollar/euro and dollar/yen ratios.

Click here

--- Needless to say, the rise of the dollar against the euro since then will have erased most of that American advantage. Not, however, against the Japanese, whose yen-currency has actually risen in the year interval (with some ups and downs) against the dollar.

--- And so? Well, though health costs (including insurance costs) are higher in the US by far than in Japan, it's important to remember that the overall costs of doing business in the US for Japanese transplants are probably lower here than if they produced in Japan. (Only fair to add there are multiple reasons for multinationals to produce abroad rather than in a home base above and beyond relative labor-costs . . . such as being near a good customer-market, catering to local tastes, and offsetting economic nationalist retaliation in the foreign markets (in this case, the US).

.....




2) Here, before looking just at comparative health-costs as part of an overall problem for the Big-3, is a good fast-moving survey of Japan's country-and-economic profile compared to the US's:

Click here


......

3) Next, here's a look at how health-costs are in the US compared to other OECD countries, including the Japanese:


Click here


......

And here is a specific --- if not very analytical --- article on how the Japanese, faced with rising health costs for an elderly population, have been trying to offset this rise . . . particularly since their population is far older on average than the US's, with a big problem looming in the future as the ratio of active workers/retirees declines noticeably in the decades to come. (A problem shared by the Europeans, compared to the US too).



Click here

.......

5) Finally, here's a very tantalizing and informative article about the negotiations last year between the UAW and GM. GM wanted to transfer the costs of health-care to the UAW, with some subsidies . . . something worked out contractually between Goodyear and the Steelworkers Union.

http://blog.cleveland.com/business/2007/09/near_the_top_of_the.html


....

Maybe Walt G --- whose perspective as a union representative who works with auto-management --- would be willing to comment extensively on these negotiations: what happened to them, could GM and Ford and Chrysler survive without some such deal, and so on?

Not that the Big-3's problems start and end with higher health costs, right?


.......

6) On a much larger plane, our country will have to find some way to reign in the noticeably higher percentage of GDP that we spend on health care compared to Japan and the West Europeans.

Some of what Mark has published in earlier months about Walmart and similar companies having walk-in clinics --- or just start-up walk-in clinics created by doctors themselves --- seem encouraging, if only a start.

.....

Michael Gordon, Aka, the buggy professor

 
At 11/14/2008 6:32 PM, Blogger the buggy professor said...

"And especially since labor productivity levels in Japanese transplants are still slightly higher than in the Big-3" -- buggy

....

Just dawned on me: should have given a concrete link to accurate, up-to-date data on the narrowing of the productivity differences between Toyota and Honda on one side and the Big-3 on the other.



Click here

 
At 11/14/2008 11:12 PM, Anonymous qt said...

Buggy Prof.,

Good links.

 
At 11/15/2008 11:25 AM, Blogger Bill said...

Lets not forget what unions do. They contribute large amounts of cash to congress. They build large opulent building to house their executives. They pay these executives large amounts of cash to live in the lap of luxury. The proper thing to do would be to let the big three go bankrupt and re-organize .

 
At 11/16/2008 11:48 AM, Anonymous Anonymous said...

"Lets not forget what unions do. They contribute large amounts of cash to congress. They build large opulent building to house their executives. They pay these executives large amounts of cash to live in the lap of luxury."

How is this any different from the habits of any American corporation? Paint unions how you will, they don't act any differently that the companies with which they deal. When I hear you complain about corporate executive salaries and perks maybe I'll take your criticism of union executive compensation seriously. Special pleading for corporate executives shows weak logic and even weaker moral fiber.

 
At 11/16/2008 12:15 PM, Blogger dWj said...

Indeed, unions are a lot like companies, except that they are the state-enforced monopoly supplier of one of the inputs to certain other companies.

If the current pay difference and legacy costs are, in fact, the only things keeping the big 3 unprofitable, then lowering current costs to market levels and getting rid of a lot of bad decisions built up decades ago should solve the problem. The US government should offer $5B to each automaker -- in DIP financing.

 
At 11/16/2008 1:24 PM, Anonymous Ken said...

To show cost differences based on Total compensation per hour (in this case transplants) is completely innapropriate.
There are other insightful illustrations that help to shed light why the big three are struggling. You should start with the structure and the process of production. The Japanese are much better on this. Reliability as a result of engeneering perfection. The strategy of Japanese automakers since 1980. Focus on fuel efficient (compact) cars while the americans insisted in producing monsters that are completely inneficent.
The big three failed to 'abosorb' the oil shock during the 70's and believed that a world with low gas prices would remain forever. Just another mistake.
We got another oil shock and this just exacerbated the low demand for 'american' cars.
To summarize, it was a failure of management adopting the wrong strategy. Now it may be too late to change the history.

 
At 11/16/2008 4:40 PM, Anonymous Anonymous said...

I think you forgot that while the japs have cars go easy on the oil, most of the cars manufactured in the US are gas guzzlers.

 
At 11/16/2008 5:28 PM, Blogger marksany said...

What is being discussed here is the difference in costs between plants in the US operated by the US Big 3 and those plants in the US Operated by Japanese companies. It is not about health care costs in USA vs. Japan, for example.

The reason big 3 costs are higher is that the basic labor contracts were established in the 70's and early 80's, when the car companies were making huge quantities of money making any old cars. The union wanted a slice of the profits for their workers, and with the profits made by plants; strikes were an effective way to get the contracts and affordable for the car companies. That's why they call it "legacy" costs - it is a legacy from the good old days, when the streets of Detroit were paved with gold.

The Japanese transplants were set up more recently in times when the UAW contracts were already looking expensive. They located in the south in areas of high unemployment but no automotive tradition, so costs are lower.

As the economy has got worse, the difference in costs has grown and so has the impact.

US car companies have been working on reducing their costs, as a drive through metro Detroit will tell you. But they are still stuck with Labor contracts in car plants. Now they can afford to shutter plants, in fact they have to, they can re-write their contracts with the UAW and get a sustainable business model.

 
At 11/16/2008 7:07 PM, Blogger Matthew said...

Unions are simply not the same as an "organized" corporation and such comparisons are ludicrous.

A corporation runs on behalf of shareholders and debt-holders, who can withdraw funds at any time for bad management. There are no laws forcing shareholders to only give to a select set of corporations if they wish to make any investments. Furthermore, no corporations can go around this system and offer better rates of return than the corporations of this select group.

It is a stretched metaphor, but it works nevertheless. In short, a union is a monopoly on labor for producers, just as a typical monopoly is a firm with a monopoly on production of a certain good.

Like how Mugabe got rich from extorting funds from well-to-do white farmers, unions can temporarily get rich while offering an inferior profit by expropriating company profits. They benefit for a time from consumers who haven't wisened up to how the Japanese companies produce better cars. The company goes along with it instead of letting a strike happen to keep the unsustainable profits rolling in.

But in bad economic times, the well-managed firms rise to the top. The big 3, as well as the exorbitant union wages, cannot continue without extorting further, this time from taxpayers with a bailout package.

 
At 11/16/2008 7:08 PM, Blogger Matthew said...

Inferior profit should been inferior product in the last post. My apologies.

 
At 11/17/2008 5:41 AM, Anonymous luigibio said...

and the cost per hour in bmw?

 
At 11/17/2008 10:26 AM, Blogger Sarah said...

The cost per hour in Germany for BMW in $42, which is really high for Germany. It is potentially smaller at the domestic plant here in SC because we have no labor laws. For example, entry level workers at BMW start around $12 per hour and go up from there depending on position and experience. (hourly vs salary and the like) Also, the major chunk of BMW's workforce, hourly workers, are paid an average of 42,000 per year. Of course, that number is only one expense paid by BMW, and does not include any taxes the company pays for each employee or operating expenses, but if you compare that basic number with average annual compensation of the big 3's hourly workers, you can see a huge diference in compensation levels. And these people are doing the same type of work. You can see the beginnings of the issue right away. Just a side note on my figures: I worked for the staffing company that holds the contract with BMW for entry level and regular hourly workers, so as of last year at this time, these pay levels were accurate. I highly doubt they've increased much over the past year. This just gives you a very basic, very simple idea as to why the unions and negotiated contracts can have such a huge, potentially negative impact on all industries, not just automakers. I'm not entirely against unions, but I do think that some of the practices make no sense for the companies or the members in the long run. They can argue for higher wages, health benefits, and pensions all day long, but when the company folds due to these outrageous demands, they are all screwed in the end.

 
At 11/17/2008 12:08 PM, Anonymous jdubya said...

I stumbled across this page this morning. I appreciated the breakdown of the numbers on one of the links in the article. I saw the numbers earlier over the weekend and wondered where the specific contributions to the hourly came about. Excellent work.

Now to some of the comments I read from the commentary:

Although I do not know the UAW specifically, I have worked with the steelworker and pipefitter unions and can say that unions are past their prime. These people are lazy, inept, or crooked in their business practices.

These unions are one of the reasons projects encounter cost overruns. It has nothing to do with safety, it has more to do with stalwart tactics. In the case of pipefitters, I encountered a major project in a new factory. This factory, if completed a mere weeks past its scheduled completion, could produce at 110% capacity and still not make up enough to be profitable. The unions spent the days arguing about their "safety" issues, relaxing their complaints and allowing work to proceed after 5pm. This allows their cronies to get double and triple time rates. They did this for months, depleting a lot of the working capital the main contractor had to build the facility. I can name several more.

Those of you who feel that unions get the short end of the stick are either ignorant or have some relationship to the unions, through friends family, or you just have no clue about the tactics these people conduct. The mere fact that they freely use force and violence should shock everyone. These are not highly intelligent or even skilled people. They are nothing more than toadies for some corrupt politician/thug who seek to gain power by alterior means.

Regarding the comment about health care in Japan, trust me, it is not even remotely close to this country's programs. I have traveled the world for high tech manufacturing. I have been sick in many countries and even though Japan is very high tech in many aspects, its health care industry is circa Marcus Welby 1950s/1960s. Good luck finding Tylenol, seriously.

Again, remarking Asia health care and dwindling opportunities here, the unions price everything out of the market. When products originally made in the US are suffering (like cars, appliances, durables, etc.) they have no choice but to find new regions to manufacture. The biggest costs associated to these goods are the overhead costs and labor. Overhead or cost of goods are pretty fixed and finding ways to decrease these costs usually reduce quality. Reducing labor means less production, so it is easier to ship jobs overseas. This is due to union philosophy of "better to be unemployed than take a paycut". And with jobs going overseas, quality still decays as there is no pride in the product built.

Unions should have taken a better stance on their position back in the 1970s with the steel industry as an example. They did not and since every other industry has suffered.

 
At 11/17/2008 1:34 PM, Blogger dunesea said...

The chart is worthless. Are we comparing blue collar worker to blue collar worker compensation or is it an average compensation for the whole company (management included). During the Bush years there has been a concentration of wealth to the top and including those compensation packages skews the average. I don't think Japanese auto makers reward their upper management as well as their American counterparts.

 
At 11/17/2008 5:50 PM, Blogger OBloodyHell said...

> When I hear you complain about corporate executive salaries and perks maybe I'll take your criticism of union executive compensation seriously. Special pleading for corporate executives shows weak logic and even weaker moral fiber.

When the unions actually contribute to the quality and price of resulting product as a significant part of what they do* as a function, then you can make this comparison and not be an idiot.

Until then... you're an idiot.

==================================

* And I would consider this a reasonable part of a union's goals, were they not entirely short-term and self-oriented, but instead were oriented towards the long-term benefits of the workers -- after all, one crucial element of that is the long-term health of the companies they deal with.

That's one of the differences defining a "good" union -- long term goals in addition to short-term goals. JUST like a good business vs. a bad business. When either gets focussed entirely on the short term, the result is substandard and shoddy.

==================================

"...so here's what the sausage game is: You win yourself a market with a nice all-meat sausage, the best sausage you can make. People eat that sausage and they say 'mmm-hmmm!' So now you've established the product, right? Now you can afford to start slipping in a little sawdust. Add the sawdust by small enough increments and no one'll even notice. People will still say 'mmm-hmmm!', because people are creatures of habit. Of course, five or six increments down the road, you'll end up with a product that bears little or no resemblance to what you started with, but you'll get away with it, for a while, at least. Your market share will hold, your profit margin will increase, and everybody will think you're smart."
- Leonard Caust -

The problem is, Big Labor has been pushing an all-sawdust product for decades now.

 
At 11/17/2008 5:55 PM, Blogger OBloodyHell said...

This comment has been removed by the author.

 
At 11/17/2008 5:57 PM, Blogger OBloodyHell said...

> The union wanted a slice of the profits for their workers, and with the profits made by plants;

And, had they gone for that in the form of stock options, etc., which is the standard means for getting "A piece of the action", then that would probably have been a good thing.

Instead, they demanded higher fixed wages, which now can't be cut and thus renders the union members into bloodsucking leeches on an expiring body.

Cut off the leeches, and they might survive. I don't see anyone "In Charge" figuring that part out, though.

 
At 11/17/2008 8:07 PM, Blogger Scott Riley said...

I am tired of subsidizing consistent failure and the survival of the unfit. We should let market driven forces dictate labor prices and the demand for better product, or we will continue to be come weaker and weaker.

 
At 11/18/2008 9:20 AM, Anonymous schmichael schmith said...

Eight-Hour Movement


When the Chicago labor movement emerged in 1864, the eight-hour day quickly became its central demand. Exhausted by 12 to 14 hours a day of work, six days a week, workers throughout the city and state organized to secure a law limiting the workday to eight hours. In 1867, the Illinois legislature passed such a law but allowed a huge loophole that permitted employers to contract with their employees for longer hours. Trying to eliminate that option, Chicago labor called for a citywide strike that began on May 1, 1867, and practically shut down the city's economy for a week. When the strike collapsed, the law collapsed with it and workers were left unprotected.

In the 1880s, the issue resurfaced and became the key demand of a movement that shook the city and the nation. In 1884, the Federation of Organized Trades and Labor Unions—predecessor of the American Federation of Labor—urged American workers to observe an eight-hour day beginning May 1, 1886. Implying direct rather than legislative action, the eight-hour movement united skilled and unskilled workers of all nationalities. Chicago anarchists, trade unionists, and the Knights of Labor, despite the coolness of their national organizations, actively promoted and profited from the movement, and made Chicago its national center.

In the midst of that scheduled agitation, the bomb exploded at Haymarket, giving the movement its martyrs and diverting and defeating the larger movement of which it had been a part. After Haymarket, the eight-hour day became one among a menu of issues promoted by the labor movement, rather than the key catalytic goal around which a movement organized. Under pressure from newly stable labor institutions, different industries gradually decreased hours, giving workers more time for leisure activities. The eight-hour day finally became a reality in 1938, when the New Deal's Fair Labor Standards Act made it a legal day's work throughout the nation.

John B. Jentz

Bibliography
Roediger, David R., and Philip S. Foner. Our Own Time: A History of American Labor and the Working Day. 1989.
Schneirov, Richard. “Political Cultures and the Role of the State in Labor's Republic: The View from Chicago, 1814–1877.” Labor History 32.3 (Summer 1991): 401–421.
Nelson, Bruce C. Beyond the Martyrs: A Social History of Chicago's Anarchists, 1870–1900. 1988.

 
At 11/18/2008 6:58 PM, Blogger Tom Grey said...

Great charts, based on fine Chrysler data (OK, estimates for other carmakers).

Instead of a bailout, what should be the focus of discussion is the post-bankruptcy business plan for the car factories and the workers.

The gov't should probably offer matching loan dollars to the highest equity bidder for buying the factories, at an ARM starting at current Fed rates (of 1%) plus 1%, or some such.

What I don't know is whether union pension debt comes before or after bond holders in bankruptcy -- I know that equity investors get wiped out. And they should.

 
At 11/19/2008 3:44 AM, Blogger James said...

Dr. Perry,

Felix Salmon is criticizing you over what he calls "the $70 per hour meme". I'd like to see your response to his criticism.

 
At 11/19/2008 11:59 AM, Anonymous Anonymous said...

Does this data compare apples to apples? Do the average labor costs of Toyota assembly plants in the US include the wages and salaries of designers, engineers, marketing people, etc. etc. or are those costs back in Japan? I don't see a $29 pay gap for assmebly plant workers.

 
At 11/20/2008 8:50 PM, Anonymous Tom said...

http://www.redstate.com/diaries/bluey/2008/nov/19/uaw-workers-earn-130000-a-year/

Ripped you off?

 
At 11/20/2008 9:34 PM, Anonymous Anonymous said...

When the unions go on strike they do not consider the trickle down effect or they do not care. What about the dealerships they hurt? The secretaries, the sales people, the entire workstaff of these dealerships who cannot offer parts, service or vehicles. Their stikes hurt dealerships, parts suppliers, tire manufacturers and all of the other companies who supples the needed materials to build these cars. Get rid of the CEO's and the unions and regroup.

 
At 11/20/2008 9:40 PM, Anonymous Anonymous said...

I would like for someone to find me a car salesman who makes the kind of salary these union workers make or recieves the benefits union workers make. If the sales people went on strike where would these union workers be? Someone from the UAW was quoted as saying the Big 3 could go bankrupt before they gave in to any demands. That is thinking of all of the people who depend on the Big 3 for their living and are not union workers.

 
At 11/21/2008 3:44 AM, Anonymous McDruid said...

This data is crap. Looking at the data source, you find that somehow the author leveraged an average hourly of about $30 into a $74k-a-year income.

How did he do it? It is kind of hard to figure from his poorly written document, but in one section he has a Total Hourly Rate for an Electrician at $33.43, and claims that the 2006 Total Annual Compensation for an employee averaging 32 hours a week is almost $75k:

$33/hr * 32hrs/wk = $74,800

One trick to this equation is to add in 2005 profit sharing because the 2006 number was zero.

Another trick, apparently, is to include all payments to retirees (and dependents) in the costs, but not in the number of workers. From the chart, it appears that there are twice as many retirees as current workers. That's a good way to inflate costs.

I wouldn't be surprised if the author also used the old "give the mean rather than the median" dodge, which, along with only counting 40+ hour/week workers, is how you can claim longshoremen make $100k/year.

I suppose, in some dubious libertarian fantasy world, these numbers could be seen as labor costs to the car manufacturer. However, these numbers are being reported as what the workers get paid - a real perversion of math and economics.

 
At 11/21/2008 11:23 PM, Anonymous Anonymous said...

The dollar figures in this comparison reflect pension costs and other fringe, including worker and retiree healthcare. Right? The foreign competitors, regardless of quality and efficiency, do not have these legacy responsibilities on the same scale, largely because they have not been operating in the US long enough to have such obligations. And obligations they are, since our society hasn't properly structured the economy to support all members. Capice?

Well probably no. I would hope that such a water carrier for the right wing would understand noblese oblige, but apparently American royalty, and you its defender, doesn't have the proper experience of real class warfare (ya know, revolution) to realize the danger of our recent policies.

Now we have the means to salvage the auto industry with bailout funds, properly applied with correct oversight of their poor management, and instead I hear great concern for improper use of taxpayer resources, from the same people that authorized $300B or so to Wall Street. Oh, yeah, that's the same crowd whose potential liabilities in the form of arcane financial contract instruments (CDS, etc; crazy gambles really) dwarf the actual economy. Spending several hundred billion on a $14 trillion economy might seem foolish enough, when the figure that applies to the exotic instruments likely runs to a hundred trillion dollars or more. We're not in some trouble we're in real trouble.

In that sense, an apt analogy for the use of bailout funds to date would be the captain of a yacht pissing in the ocean to raise his stranded vessel off a grounding. Better results would derive from waiting for the tide to change and fishing in the interim. And better results would arise from less nefarious expenditure of the bailout until our political tide turns.

I don’t digress as you might expect: Instead of destroying unions with domestic auto bankruptcy as the last paroxysm of reactionary politics, expenditure of several tens of billions on saving a bedrock American industry could be fishing well-executed while awaiting the rising tide of nationalized healthcare and other progressive programs that ARE coming and that WILL make the general business climate more amenable.

 
At 11/22/2008 11:12 PM, Anonymous Anonymous said...

Please include all facts about UAW wages before making these types of comments and reports!! This link could really help a lot of you understand more clearly why the American UAW worker makes more!!!

http://www.dailykos.com/storyonly/2008/11/22/15202/495/359/664761

 
At 11/23/2008 10:56 AM, Anonymous Anonymous said...

Years ago I read a article in the Atlantic or Harpers that dealt with the bad effects of seniority on union behavior. The members who have seniority will always be the toughest in holding-out because they know the would be the last to be laid-off. They would be a lot more reasonable if lay-offs were random.

 
At 11/23/2008 12:13 PM, Anonymous Anonymous said...

From Felix Salmon http://seekingalpha.com/article/106828-the-return-of-the-70-per-hour-meme
"The return of the 70 per hour meme
You might expect it from right-leaning commentators like Will Wilkinson. You wouldn’t expect it from someone like Mark Perry, who lives in Flint, Michigan. And you certainly wouldn’t expect to see it in the New York Times, from the likes of Andrew Ross Sorkin. But all of them are perpetuating the meme that the average GM worker costs more than $70 an hour, once you include health and pension costs.

It’s not true.

The average GM assembly-line worker makes about $28 per hour in wages, and I can assure you that GM is not paying $42 an hour in health insurance and pension plan contributions. Rather, the $70 per hour figure (or $73 an hour, or whatever) is a ridiculous number obtained by adding up GM’s total labor, health, and pension costs, and then dividing by the total number of hours worked. In other words, it includes all the healthcare and retirement costs of retired workers.

Now that GM’s healthcare obligations are being moved to a UAW-run trust, even that fictitious number is going to fall sharply. But anybody who uses it as a rhetorical device suggesting that US car companies are run inefficiently is being disingenuous. As of 2007, the UAW represented 180,681 members at Chrysler, Ford and General Motors; it also represented 419,621 retired members and 120,723 surviving spouses. If you take the costs associated with 721,025 individuals and then divide those costs by the hours worked by 180,681 individuals, you’re going to end up with a very large hourly rate. But it won’t mean anything, unless you’re trying to be deceptive."

 
At 11/25/2008 9:57 PM, Blogger RDM blogs said...

Since when did it become a crime to earn a fair wage?

$29 hr @ $60,000 per year is NOT exorbitant by no means. It is called 'middle class', Mr. Professor.

Are you aware of the costs in our society today?? Trust me, UAW employees are NOT getting rich.

Yes, of course there are problems with the unions (as with anything else) and we are doing our share and shall continue to do so, but trying to place the blame on those of us who are simply trying to earn a decent and honest living is shear nonsense!

GO BACK TO SCHOOL !!

GET THE FACTS!
www.JoeTheAutoworker.com

 
At 11/26/2008 12:00 PM, Anonymous hoosierliberal said...

In one of your previous blogs you mentioned that it cost Honda $550 million to start up their new plant near Greensburg, Indiana. Did it really? Or have you bothered to consider the infrastructure costs that the state of Indiana kicked in? And my oh my, are all 92 Indiana counties represented at this plant that they helped pay for? No!!! Honda only accepted applications from and offered employment to residents of 20 counties in southeastern Indiana. There were stipulations on how long one had to be a resident of those counties which meant that it was impossible to apply for a job and then move in to one of the eligible counties. Those of us in the northern and western 72 counties of the state where unemployment is the worst were shut out of the process, even though our tax dollars supported Honda. Southeastern Indiana is extremely non-union and extremely white, much like the cast of characters who routinely elect Richard Shelby to the Senate from Alabama.

By the way, you're from Flint. I'm sure you're well compensated for your professorial gig. I'd like to pose a question. If you were at North Dakota State, for example, would you be compensated as well as you are, living at the birthplace of GM and living off the fat of the land, the "legacy" of what hundreds of thousands of GM workers have left for you? Would there even be a U of M at Flint? Will you have a pension? Do you have healthcare through the U of M? What other kind of perks and bennies do you have? How much is YOUR total compensation per hour, that, I might add, is paid for through taxpayer, and a lot of AUTOWORKERS' taxes?

 
At 12/02/2008 4:41 PM, Blogger Vmax10 said...

I f the Big 3 wants money, then the unions should be abolished. There used to be a time for unions, but now they just suck companies dry. The government should give money only if the unions become regular workers for a fair pay and fair vacations, etc. The unions are a corrupt facility and no longer deserve to be rewarded. There are many people out there who would be glad to be working for a fair wage, the Big 3 would have no problem hiring new employee's if the union employee's do not want to conform. The unions made this problem, no one else. Union costs reflect car prices. Thanks alot UNION. I am an owner of an American car, but not for much longer if things don't change.

 
At 12/09/2008 3:19 PM, Anonymous Jim said...

Maybe because the transplants have only been here 25 years and don't have any retirees yet.American companies have been here 100 years and have 700,000 retirees.Give the transplants another 25 years and their cost will be higher than the big 3 with the new labor contract signed by the UAW and big 3.That the way big business was run 50 years ago with pension and healthcare to workers.

 
At 12/11/2008 2:12 PM, Anonymous plbjunior said...

We keep focusing on the cost differences of blue collar workers. What, if any, are the differences in pay for white collar workers of the big 3 and their competitors? Does the CEO of Toyota make more or less than the CEO of GM? How about plant managers? How do they compare? Design engineers? How about them.

Another point. There is a Chrysler plant near where I live that made the original Durango. This midsized SUV sold well and the plant was running at full capacity. Then a decision was made by someone to turn a well selling midsized vehicle into some bloated monstrocity. Well guess what, sales dropped, production slowed, and the plant eventually had to add another vehicle. That vehicle was the Aspen, another bloated SUV. Now the plant is scheduled to close because nobody is buying these cars. Where are the people responsible for remodeling the Durango? Have they lost their jobs because of poor managerial decisions? Would the original Durango still be selling? Maybe not. But let's hold everyone responsible for this mess.

 
At 12/11/2008 2:15 PM, Blogger marksany said...

Toyota and Nissan have design centres in the Detroit area, and they pay white collar workers similarly to Ford & GM, as they are competing for the same design engineers

 
At 12/11/2008 11:28 PM, Anonymous Anonymous said...

Unions...

First off, the "agreement" some have talked about is not really an agrement at all. The UAW relies on force to get what it wants. I would not call a selective strike, jobs banks and walk outs a cooperative barganing tool. Don't get me wrong, I agree, the worker should get the best deal he can for himself, but the UAW does it in mass. Hey, shut the company down for 2 months and let them feel the pain, they will cave. And they usually do. I read an article by Steve Miller once (CEO of Delphi, etc) that he wrote when he was at Chrysler in the 80's. In the article he talked about a strike at one of the plants over a Union request (i forget the issue). To do what the Union wanted, which I do recall was unreasonable, would cost 200k, so management sad no. The UAW went on strike, and 45 days and 100's of million in losses later, management caved. Steve comment was, "wow, that hurt". He never thought the UAW would FORCE such a silly thing. The point here is this... I can not blame the UAW for all the problems with the Big 3, but you can admit the UAW did help them get to where they are today.

One more point... I agree with others who said the US Goverenment idiots need to consider the legacy costs involved. In the US we do have pensions, health care and such that the Big 3 have to pay for in addition to wages and benefits. This is how it has been done for decades and it can not be changed overnight. If congress wants works on the same playing field with foriegn company workers, then congress needs to step up and help the Big 3 dump the pension and health care cost off the books, then GM, Ford and Chrysler can compete and I bet, kick Japans ass all over. Let face it, our cars are better. They were not in the 80's, but they are now.

 
At 12/12/2008 9:54 AM, Anonymous Anonymous said...

Let's do the very simple math - at $75 and change per hour these workers are making $157,788 per year, if they do not work one hour of over time. I'm sure if they do work overtime the union is demanding at least double time. Does everyone understand that there are people with MD after their name that do not even make that amount? This is disgusting! I, myself have a masters, and do not even make close to that. They had their chance to make concessions, but the union, being their greedy selves declined and the senate said good bye. I don't know if they are that arrogant or just stupid.

 
At 12/14/2008 1:52 AM, Anonymous Anonymous said...

The problem is the UNION, It was the UNION that demanded that the workers get a "good salary, (otherwise they went on "STRIKE" I remember when I was still in school and the Union car makers were making well above what everyone else was making. The Government should not bail out the Automakers they deserve what happens to them. Yes the executives also need to give-up there "golden Parachutes" when they retire and take what everyone else gets a simple retirement check. Unions were truly working for themselves. The union really "only helped the deadbeat on the job.

 
At 12/15/2008 9:01 AM, Anonymous Anonymous said...

The average GM assembly-line worker makes about $28 per hour in wages, and I can assure you that GM is not paying $42 an hour in health insurance and pension plan contributions. Rather, the $70 per hour figure (or $73 an hour, or whatever) is a ridiculous number obtained by adding up GM's total labor, health, and pension costs, and then dividing by the total number of hours worked. In other words, it includes all the healthcare and retirement costs of retired workers.

 

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