Wednesday, November 30, 2011

+167,000 Auto Jobs by 2015, Thanks to 2-Tier Pay That Is Deflating the Unsustainable Wage Bubble

NEW YORK TIMES (DETROIT) — "Employment in the auto industry will return to prerecession levels by 2015, with carmakers and their suppliers adding about 167,000 jobs by then, according to estimates by an auto industry research firm.

The job growth would represent a 28 percent increase over current levels but would still replace only about a third of the jobs lost in the last decade. And much of the increase is made possible by labor agreements ratified this fall that allow the Detroit automakers to hire more workers on the lower of their two pay scales.

The industry group, the Center for Automotive Research in Ann Arbor, Mich., said it expected the Detroit automakers to hire 14,750 hourly employees in the next four years. They would receive entry-level wages of $16 to $19 an hour. Workers hired before 2007 earn about $29 an hour. The group projected that about 15 percent of the new jobs would be at Detroit automakers, and nearly 80 percent would be at suppliers. Foreign automakers would account for the rest. 

The two-tier system was created in 2007 to help the automakers cut labor costs as they were hemorrhaging money, but only recently were they able to begin hiring new workers in large enough numbers for the savings to have a noticeable effect on the bottom line. 

About 590,000 people now work in the auto industry, 13 percent more than in July 2009, when G.M. emerged from bankruptcy. That figure is expected to grow to 756,800 in 2015. Much of the job growth will happen in Michigan, where the three Detroit automakers cut more than half of their jobs since 2001."

MP: One way to think about U.S. auto manufacturing over the last several decades is to consider that it was suffering from an "unsustainable wage bubble" (thank to Tim Kane for that reference), especially for the UAW wages paid by Detroit automakers.  Now that auto wages are more realistic, competitive, and more closely aligned with market forces with the new 2-tiered wage structure, the wage bubble has burst and the auto jobs are coming back.


18 Comments:

At 11/30/2011 10:07 AM, Blogger seekingtraceevidence said...

I believe that these newer lower paid positions come with sizable profit sharing incentives which make the wage cost flexible. This is a feature of most Lean Mfg processes that are sweeping the country.

 
At 11/30/2011 10:09 AM, Blogger Buddy R Pacifico said...

Ford and GM have just signed four year deals with the United Auto Workers union. Labor costs are to rise just 1% over the life of the contract. Why did union members do this?

At Ford, signing bonuses and profit-sharing as high as $16,700 per worker probably helped. Labor contracts based on profitability, and not increases in base wages, is the game changer for Detroit.

 
At 11/30/2011 11:35 AM, Blogger Benjamin said...

Still, I am old enough to remember the 1950s-70s. Back then, the American Right used to brag about the good wages made in the USA, and compare them to the USSR.

Now, the American Right brags that wages are going down, and that workers make half or less what they used to.

It's been a long time since a GOP leader bragged that American workers all own houses with swimming pools. Now they brag that they broke the unions, and wages are down by half.

Interesting times.

 
At 11/30/2011 12:02 PM, Blogger Walt G. said...

"Labor costs are to rise just 1% over the life of the contract. Why did union members do this?"

1% of something is worth more than a greater % of nothing. Jobs first--pay second.

 
At 11/30/2011 12:16 PM, Blogger Marko said...

I have seen a trend in liberal thought over the years - it seems they would prefer that people have no job at all rather than one they did not consider to pay "enough."

For example, I have watched a parade of Dem senators and congressmen visit factories around the world, say how little people were making in those factories, and declaim "this must stop." Lots of people would rather have something than nothing, and they just don't seem to get that.

 
At 11/30/2011 12:24 PM, Blogger marmico said...

What a group of morons!

 
At 11/30/2011 1:01 PM, Blogger Buddy R Pacifico said...

Walt wrote:

"1% of something is worth more than a greater % of nothing. Jobs first--pay second."

Walt, were most of the people you work with in favor of the new contract? Is pay second?

Profit sharing is certainly a form of pay, and a much better incentive for the overall health of the company and its employees.

 
At 11/30/2011 1:53 PM, Blogger Walt G. said...

Marko,

We tend to measure how well we think we are doing by what our neighbor has. Global viewpoints are not real big outside of an economic or academic setting. I don't know if that is good or bad--it is what it is.

 
At 11/30/2011 2:08 PM, Blogger Buddy R Pacifico said...

Labor and Boeing agree on new four-year contract ensuring labor peace and...

new 737 Max to be built in Renton, WA...

Hmmm, seem to be a theme here.

 
At 11/30/2011 2:47 PM, Blogger Che is dead said...

According to this report, "... the $14 an hour is not something new employees will endure for a few years while their pay is gradually stepped up to full scale over a 3- to 5-year period, as has been the case in several previous "two-tiered" contracts. The "lower starting wage" is for all practical purposes a "permanently lower wage."

Of course, they will have the privilege of paying full union dues which could be between 2.5 - 3.3 percent of base pay for a compensation package that is lower than those paid by non-unionized Toyota. So, what exactly is the UAW doing for these new workers, besides funneling their hard earned money into the coffers of the Democrat Party?

The UAW is like a cancer slowly destroying the US auto industry. The only question is how many billions of taxpayer dollars the Democrats and their union cronies will be able to steal before these companies finally disappear.

 
At 11/30/2011 4:54 PM, Blogger DadIsInTheHouse said...

Call me a commie but based on past experience I still won't purchase an American made car.

 
At 11/30/2011 5:42 PM, Blogger Walt G. said...

DadIsInTheHouse,

If you base all of your current decisions on how things were in the past, how do you substantially differ from the people whom you say you don't want to patronize?

 
At 11/30/2011 6:03 PM, Blogger Jim said...

Both Taylor and Marx deserve a kick in the ass for proposing the us versus them mentality of work.

If the unions had any brains, they would have argued for profit sharing all these decades rather than seniority and security.

Of course there are other issues with the big 3; management really has been staid and stupid, all the foreign manufacturers that built car plants in USA in the last two decades received 100s of millions in tax breaks, Cafe Laws naturally favor manufacturers selling low priced cars, etc.

 
At 11/30/2011 7:18 PM, Blogger Marko said...

Another benefit of the lower pay tier is that workers who should be going to sectors where they will earn more based on market forces will no longer be seduced into skipping college and taking low skill manufacturing jobs.

Inflated wages distorts the labor market on both sides!

 
At 11/30/2011 8:08 PM, Blogger juandos said...

I predict that this bit of propaganda by the leftist rag that heavily invested itself in Obama is hot, sweaty spin...

After all their investment is looking pretty lame right now...

 
At 12/01/2011 6:55 AM, Blogger geoih said...

Talk about a recipe for a civil war within the Union. Have to wonder what will happen when the next economic 'crisis' arises and the majority of the workers are on the lower tier. Any guesses as to how long it will take for the lower tier majority to agree that the upper tier should also be on the lower tier (you know, because they're doing the same job)?

 
At 12/01/2011 7:25 AM, Blogger Walt G. said...

geoih,

You have to bargain with conditions the way they are and not the way you wish them to be. The hope is next time you will have more bargaining chips, but you have to make it to the next time.

There will always be the following multiple competing stakeholders for the same available resources at GM: stockholders, executive management, lower-level management, active tier-one union employees, active tier-two union employees, retired union employees, and retired management. As you stated, there will inevitably be some difference of opinion about who gets what and when. Let's just hope everyone realizes a long-term profitable company is a mutual concern.

 
At 12/02/2011 11:25 AM, Blogger VangelV said...

Employment in the auto industry will return to prerecession levels by 2015, with carmakers and their suppliers adding about 167,000 jobs by then, according to ESTIMATES by an auto industry research firm.

This statement is totally worthless. It comes from empty suits who think that they know more than they actually do. Why not 168,000 jobs created. Or 167,000 jobs lost?

If you look at the games being played by the domestic auto makers you see a lot of inventories building and incentive costs rising. That is not a good think for the health of the domestic manufacturers at a time when labor participation rates are at historical lows and falling, housing is still in trouble, and the federal, state, and local governments are broke.

If the financial crisis continues and the bond market weakens we are looking at a possibility of many lost jobs, not a projected gain. What the US needs is the liquidation of malinvestments so that the real economy can start to build from a sustainable base.

 

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