Wednesday, December 10, 2008

Circling back on UAW wages, legacy costs and the Big 3

On Monday I posted about a lengthy diary at ColoradoPols that, in my opinion, unfairly and dishonestly attacked the United Auto Workers and their members in Detroit's Big 3. A vigorous debate ensued but it appeared that the diaries author, Laughing Boy, and I had reached a bit of an impasse. He was still pushing the meme that UAW workers in Detroit were pulling in wages of $73/hr and that such over-generous wages and benefits were the source of the collapse of Detroit. I made several honest attempts to change his mind to no avail and the debate reached a stalemate.

This morning though David Leonhardt of The New York Times helpfully addresses this issue again. He not only swats down the $73/hr lie but he also places wages in the context of their relative costs to Detroits business. First lets look at the break down of the $73/hr figure,

Seventy-three dollars an hour.

That figure — repeated on television and in newspapers as the average pay of a Big Three autoworker — has become a big symbol in the fight over what should happen to Detroit. To critics, it is a neat encapsulation of everything that’s wrong with bloated car companies and their entitled workers.

To the Big Three’s defenders, meanwhile, the number has become proof positive that autoworkers are being unfairly blamed for Detroit’s decline. “We’ve heard this garbage about 73 bucks an hour,” Senator Bob Casey, a Pennsylvania Democrat, said last week. “It’s a total lie. I think some people have perpetrated that deliberately, in a calculated way, to mislead the American people about what we’re doing here.”

So what is the reality behind the number? Detroit’s defenders are right that the number is basically wrong. Big Three workers aren’t making anything close to $73 an hour (which would translate to about $150,000 a year)...

The $73-an-hour figure comes from the car companies themselves. As part of their public relations strategy during labor negotiations, the companies put out various charts and reports explaining what they paid their workers. Wall Street analysts have done similar calculations.

The calculations show, accurately enough, that for every hour a unionized worker puts in, one of the Big Three really does spend about $73 on compensation. So the number isn’t made up. But it is the combination of three very different categories.

The first category is simply cash payments, which is what many people imagine when they hear the word “compensation.” It includes wages, overtime and vacation pay, and comes to about $40 an hour. (The numbers vary a bit by company and year. That’s why $73 is sometimes $70 or $77.)

The second category is fringe benefits, like health insurance and pensions. These benefits have real value, even if they don’t show up on a weekly paycheck. At the Big Three, the benefits amount to $15 an hour or so.

Add the two together, and you get the true hourly compensation of Detroit’s unionized work force: roughly $55 an hour. It’s a little more than twice as much as the typical American worker makes, benefits included. The more relevant comparison, though, is probably to Honda’s or Toyota’s (nonunionized) workers. They make in the neighborhood of $45 an hour, and most of the gap stems from their less generous benefits.

The third category is the cost of benefits for retirees. These are essentially fixed costs that have no relation to how many vehicles the companies make. But they are a real cost, so the companies add them into the mix — dividing those costs by the total hours of the current work force, to get a figure of $15 or so — and end up at roughly $70 an hour.

Emphasis mine. This is an argument that Laughing Boy made and one that I quickly conceded, these payments to retirees are a real cost and they must be accounted for. I just think that its dishonest to account for them as wages being paid to current workers. It's a gross distortion of their actual compensation and is done not to enlighten the discussion or in the name of forging a compromise but rather to demonize the workers and their union.

But they are still real costs and so the issue is still the same, over-generous benefits for auto workers and retirees. Right? Not so fast says Leonhardt,

The crucial point, though, is this $15 isn’t mainly a reflection of how generous the retiree benefits are. It’s a reflection of how many retirees there are. The Big Three built up a huge pool of retirees long before Honda and Toyota opened plants in this country. You’d never know this by looking at the graphic behind Wolf Blitzer on CNN last week, contrasting the “$73/hour” pay of Detroit’s workers with the “up to $48/hour” pay of workers at the Japanese companies.

These retirees make up arguably Detroit’s best case for a bailout. The Big Three and the U.A.W. had the bad luck of helping to create the middle class in a country where individual companies — as opposed to all of society — must shoulder much of the burden of paying for retirement.

This drives a dagger through the heart of the right-wing attack narrative that greedy union members negotiated benefits packages that drove their employers out of business. Toyota et al. don't have the same legacy costs because they don't have anywhere near the same number of American retirees. The benefits that Detroit retirees recieve are a result of our country's inistence that employers shoulder the burden for pensions and health care for our retirees. This system isn't in place because labor unions and the left wanted it this way, it's a system that the right-wing has fought to maintain in the name of preventing "socialism" in the United States. Ignoring the fact that the status quo would place American inudstry at an increasing competitive disadvantage the right has fought vigorously to prevent a national health care system and to weaken Social Security.

This isn't about pampered and over-paid workers. This is about a benefit system that is broken and an economic mantra ("Free trade") that leaves our workers and industries hopelessly exposed. This is also about a powerful conservative movement that has sought to prevent any change for the better from our status quo while at times seeking the active destruction of what protections and benefits do exist.

Leonhardt continues by placing the wages of Detroits workers in perspective,

So here’s a little experiment. Imagine that a Congressional bailout effectively pays for $10 an hour of the retiree benefits. That’s roughly the gap between the Big Three’s retiree costs and those of the Japanese-owned plants in this country. Imagine, also, that the U.A.W. agrees to reduce pay and benefits for current workers to $45 an hour — the same as at Honda and Toyota.

Do you know how much that would reduce the cost of producing a Big Three vehicle? Only about $800.

That’s because labor costs, for all the attention they have been receiving, make up only about 10 percent of the cost of making a vehicle. An extra $800 per vehicle would certainly help Detroit, but the Big Three already often sell their cars for about $2,500 less than equivalent cars from Japanese companies, analysts at the International Motor Vehicle Program say. Even so, many Americans no longer want to own the cars being made by General Motors, Ford and Chrysler.

The assembly line worker in Detroit isn't to blame for the collapse of the brand image in Detroit. A retiree receiving their monthly pension check isn't to blame for the current crisis at Chrysler. A workers sick child accessing health care through their fathers insurance didn't bring down General Motors.

Right-wing loathing of the American worker and middle-class borders on the pathological. It has no basis in reality, it no basis in logic nor fact. It's instead reflexive and instictual. We've witnessed an Orwellian Two Minute Hate be unleashed towards workers who've done nothing but negotiate in good faith, show up to the factory every day and do their jobs.

Perhaps Laughing Boy was right and the sit-down strike in Chicago really is a turning point, maybe for the first time in a generation or more we will see the American worker begin to stand up for themselves. To push back against the smears and hit jobs and to demand that their rights be respected and their contracts honored.

Cross-posted at ColoradoPols


simpdawg said...

just a quick note to say thanks for this understanding of the bailout is very limited but in this post you touched on a lot of the important factors in a way that put it all into perspective for me...while i still don't grasp enough of it to form an opinion...well, they say opinions may be like assholes in that everyone has one, so while i can't quite find my asshole i can at least smell it so i know it's there.

simpdawg said...