From Each According to His Ability, to Each According to His Warped, Unrealistic Desires
December 12th, 2008Even Karl Marx Did Not go This Far
I am looking at the carmaker bailout story. Money quote:
Republicans, breaking sharply with President George W. Bush as his term draws to a close, refused to back federal aid for Detroit’s beleaguered Big Three without a guarantee that the United Auto Workers would agree by the end of next year to wage cuts to bring their pay into line with Japanese carmakers. The UAW refused to do so before its current contract with the automakers expires in 2011.
Here’s what’s interesting about this. The pundits all say that bankruptcy is the only alternative to a bailout, and that bankruptcy will nullify the collective bargaining agreements currently in place. So when bankruptcy is declared, auto workers will no longer have contracts, and when the companies are reorganized, presumably, the unions are going to get new contracts with much lower wages. How do they benefit from rejecting the bailout?
I suppose the answer must be that they hope their new contracts will be better than what the bailout offered. In the meantime, they may suffer unemployment and plant closings.
I am not sympathetic. They earn something like five times what comparable workers (not limited to auto workers) earn without insane union contracts. If they were paid what the Japanese companies pay, they would still be highly, highly overpaid. When you bring home $145,000 worth of wages and benefits every year, from a job for which you ought to be thrilled to get $30,000, you can’t really expect taxpayers who earn realistic wages to let the government take their money and give it to you, to preserve your wildly unrealistic and unsustainable situation.
Here’s something no one ever seems to ask the auto executives. Let’s take the amount of money you overpaid your workers over the last twenty years. Let’s compare it to the $14 billion you expect the public to give you, so you can continue to overpay them and make overpriced products and lose market share.
Which figure is bigger?
I don’t know the answer, but I would be utterly shocked if the overpayment were not considerably larger.
December 12th, 2008 at 10:45 AM
The wage differential between Big Three workers and other domestic auto workers is about $10 per hour, or something like 18%. Even with all the retirement benefits added in (which includes the cost of benefits already being paid to the existing pool of retirees), the difference is about $28 per hour. And labor is only 10% of the total cost pool for these manufacturers.
I’m not saying that there isn’t a problem. But the idea that the Big Three workers are making “five times what comparable workers earn” is just not correct.
December 12th, 2008 at 10:51 AM
ISTR that the price differential between Toyota and GM employees is, on average, only about $30K ($73K/yr at GM vs. $45K/yr at Toyota), including all benefits. Granted, it’s hard to tell how much wages at other domestic auto manufacturers are inflated because of wages at GM, Ford and Chrysler.
I’m sure the UAW is expecting to be able to pressure a Democrat-led Congress for a sweetheart deal after the new year, and I find it hard to argue that conditions would not be more favorable to them.
December 12th, 2008 at 11:06 AM
“But the idea that the Big Three workers are making “five times what comparable workers earn” is just not correct.”
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It is completely correct. You’re comparing them to other auto workers. Try comparing them to the vast majority of American workers of similar skill.
December 12th, 2008 at 11:09 AM
“ISTR that the price differential between Toyota and GM employees is, on average, only about $30K ($73K/yr at GM vs. $45K/yr at Toyota), including all benefits. ”
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The figure repeatedly cited by the media is $72-75 per hour, including benefits, which is $144-150,000 per year. And again, it makes no sense to put auto workers in a unique class. They should be compared to other factory workers.
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I think I see the problem. I’ll edit the piece.
December 12th, 2008 at 12:00 PM
I’m not 100% certain that wages are directly comparable across industries. A worker in a cigarette factory probably isn’t subjected to quite the same physical strain as one in an auto factory, though both are factory workers. Still, googling for ‘wages american factory worker’ seems to indicate that $75/hr only around 3 times the wages of the average American factory worker, probably without accounting for average schmoe’s additional compensation.
You’re right about my numbers, though: I’m getting my yearly vs. hourly figures confused, which put me off by a factor of 2 in terms of absolute dollars.
Not that I disagree with your general thesis.
December 12th, 2008 at 12:02 PM
To me, “about five” and “three” are synonymous.
December 12th, 2008 at 12:56 PM
$25/hr. is the median wage in the U.S. That includes a lot of low-paid retail workers, so my guess is that the average factory wage is higher than that. In any case, the actual hourly compensation figures for GM and Toyota are $55/hr. and $45/hr. respectively, leaving aside benefits calculations. As I noted above, a HUGE component of that $73/hr. is benefits being paid to current retirees. So in terms of actual hourly wages, these guys are not too far above the national average (for manufacturing), and for all we know, their work could be hard/boring/dangerous/stressful in ways that we cannot imagine. I myself have two college degrees and work in a white collar environment, but I am more respectful of my fellow Americans than to assume anyone who doesn’t needs to be making Wal Mart wages (which is where your “five times” calculation would leave them).
In any case, when I want somene to tell me what these people should be making, I would say that it makes sense to listen to the folks at Toyota. And they say $45/hr.
December 12th, 2008 at 1:08 PM
Where can I get paid $25/hr for “low-paid” retail work? The highest amount of money I’ve ever made is $12.79 per hour as an office worker who regularly helped two other departments besides my own.
December 12th, 2008 at 1:10 PM
“As I noted above, a HUGE component of that $73/hr. is benefits being paid to current retirees”
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Except that’s wrong. It’s going to go to the current crop of employees when they retire. That information comes from the Heritage Foundation. Their effective wage, including benefits, is over $70 per hour. Nobody would say that if the money were not going to current workers. There’s a good chance GM’s pensioners will end up relying on federal insurance to cover their stipends.
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A casual look around the web will reveal that factory workers in the Northeast (where wages tend to be higher) get a wage very close to the $25 you mention, and you better believe the non-union employees aren’t getting the kind of benefits the UAW gets.
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I’ve represented factory workers here in Miami, and many of them, with skills on a par with many auto workers, start at something like $15K per year with zero benefits.
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The UAW is WAY out of line with other employers, and the other auto makers are damned generous. You say Toyota is qualified to set the wage. Well, they’re in deep trouble, too, so apparently, they aren’t doing a great job of managing costs.
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The correct reference is the free market, and the free market says the UAW is going to lose.
December 12th, 2008 at 1:28 PM
Seriously, Andrea. Maybe the Rust Belt and our other industrial areas are underrated. Where else would people complain about over-Wal-Mart wages for jobs involving sub-Wal-Mart skills? Nobody should make $70+ or even $45 an hour for turning the same nut over and over.
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I still remember the University of Texas offering me $7.00 per hour to try to get their football monkeys through basic physics. Granted, that was a decade ago, but even if you double it, it’s nowhere near $25 per hour, and I had a college degree. When I started clerking in law school, in one of the highest-paid specialties, my boss paid $15 per hour, and that was about what public-sector attorneys made at the starting level.
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It says something about American prosperity, that we have been able to overpay so many people for so long. But the free market is going to win, one way or the other.
December 12th, 2008 at 2:02 PM
Andrea: I did not say (or even imply) that “low paid” retail work paid $25/hr. If Steve is correct and $73/hr is five times too much, then the wage he is recommending for auto workers is close to what you used to make. It is also what a lot of retail workers make.
As far as the $73/hr. figure, I read someplace recently that a significant part of that figure was benefits being paid to workers that are already retired. That clearly contradicts your Heritage Foundation information, and I will have to go back and check my source later today. One or the other is wrong.
Still, you haven’t explained why Toyota, operating in a union-free environment, chooses to pay $45/hr. I know how their HR departments work; they have certainly done actual comparable work studies, and know something about these jobs that you don’t.
For what it’s worth, I was grossly underpaid in college, too. Computer programmer for the neurosciences department, at the stupendous wage of $4.38/hr. I’m doing a bit better now, though.
December 12th, 2008 at 2:08 PM
We are now officially going in circles. Your confidence in Toyota contrasts sharply with their current financial situation, as noted earlier.
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For the kind of unskilled labor many auto workers do, a fifth of $75 per hour is not only sufficient, but generous. Check your local employment ads, and you will find many jobs paying about that much, or a few dollars more, to people with college degrees.
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I remember trying to get my father and his former partner to hire a patent paralegal. She spoke seven languages fluently and understood the entire ten-pound manual published by the PTO. She was superhuman. I could not persuade them to give her $35K. She eventually got a job with Motorola, and I believe they paid her $50K. On the worst day she ever had, she was worth fifty sorry, shiftless UAW members, but paralegals just don’t get obscene wages like union members do.
December 12th, 2008 at 2:55 PM
To me, “about five” and “three” are synonymous.
You obviously aren’t paying private school tuitions for kids.
December 12th, 2008 at 4:27 PM
HT: this is what you said — “$25/hr. is the median wage in the U.S. That includes a lot of low-paid retail workers…” I interpreted that to mean that $25.00 per hour is what low-paid retail workers get paid somewhere. I guess what you mean is that wages up to $25.00 per hour include retail work, which pays (AFAIK) $7.00 per hour or so. That makes more sense, but the way you phrased your statement made it look like “low-paid” retail workers make $25.00 per hour.
Still, I bet you up in the horrid rust belt, where I would never live, they pay that much. I’ve heard wages are grossly inflated in places like New York City, or else the average rent there of $2,000 per month for an 8×10 broom closet wouldn’t make any sense. On the other hand, like Steve says a lot of people are simply not paid what they are worth. I’m not one to brag but compared to people I have worked with doing just what I can do, I’m one of the better administrative secretaries out there. But I can’t get hired for more than $10.00 an hour. (My last long-term “permanent” job started at $10.00 an hour and it took me four years to winch up to $12.79, and then I got laid off in the big housing collapse.) I can live on $10.00 an hour, but I don’t have kids or a new car. And I’m currently on unemployment, which comes out to $6.88 per hour. I’m grateful to have anything at all, but that barely pays my bills. And I won’t make much more of that working retail — I’ve checked. Sometimes I wish I’d gone to work at a factory — I’d probably be making more money.
December 12th, 2008 at 6:10 PM
I’m with you Andrea…..I have not busted $12.00 an hour and I’ve been here for 7 years. I started at $10.00 an hour. I am quite computer literate and I handle a multitude of jobs, somewhat similar to an Administrative Assistant or Secretary.
December 12th, 2008 at 6:25 PM
In the Detroit Metropolitan area, a non-union skilled production person who can be entrusted with set-up and operation of production equipment, changeovers and corrections to the process makes between $15 and $20 an hour. A non-union skilled maintenance person will make between $18 and $25 an hour. A line rat at GM will make $30 an hour, and not have anywhere near the responsibility.
For all I know, not getting the bailout will be better for the companies.
Stigma of bankruptcy? Everyone knows they are broke.
Let Washington design your business plan? That’s horrible! Better to go the bankruptcy route quicker than later (later: after you’ve built a government mandated line-up no one wants.)
Will the UAW (U Ain’t Workin’) strike a bankruptcy ruling?
What made them think they’ll get a better deal?
Will Bankruptcy make available credit to the Detroit 3?
Inquiring minds want to know.
December 12th, 2008 at 9:19 PM
I am a line rat at Toyota. Toyota is not bleeding red; we are still in the black. As for being overpaid (and no, we are not paid anywhere near what UAW people are) I don’t think so. We work rotating shifts, are responsible for quality in production, come up with new production methods, equipment fabrication and maintenance…a lot more than just sticking a bolt in a hole. Not to mention the physical stress on the job. If you want a decent vehicle, you are not gonna get it if you pay someone 9.00 an hour with no benefits. From another perspective: Ditch digging with a shovel does not require a Ph.D. But how many people are gonna take such a tough job if you pay them 6.00 an hour?
December 13th, 2008 at 9:03 AM
Joseph, please don’t take the term “line rat” as deprecatory towards you. It’s what we all called ourselves at GM.
You’re in the south by definition: Toyota. I resent that they built there because of the UAW. I’m sure you don’t.
I remember when was stationed in South Carolina, and how my fiancee remarked that living expenses were so much lower there.
I also remember visiting Spring Hill when it opened and thinking about the effect of all those UAW wages on the local economy. It couldn’t have been pretty.
I believe, from what you say, that your responsibilities are similar to how I described non-union production workers up here.
December 13th, 2008 at 11:37 AM
Ed,
I don’t take it as deprecatory, don’t worry. Believe me, after a work day in August we do look like drowned rats! (The plant is cooled, but not air conditioned) For the most part, we don’t want a union here; many of us (including me) have been in unions, and were not very impressed by them. I think the UAW members would be better served by retaining their jobs, rather than being forced into unemployment. This comes from someone who has three times been laid off in the commercial aviation industry. Toyota has a 60 year history of no layoffs, and is doing everything it can to avoid them. I know one reason is that publicity wise, to lay off employees would cause buyers to wonder if Toyota is going to go under as well. I sure don’t envy the UAW members.
December 13th, 2008 at 11:45 AM
And I am not sure if the dollar figures being quoted include overtime or not. Overtime is extremely variable; at my plant we have not seen any overtime in 10 months. And we won’t for some time. We don’t expect to see any until 2010 at the earliest. (That is rank and file estimates).
December 15th, 2008 at 9:40 AM
The overpayment is the lubricant that keeps the assembly line running. The auto companies haven’t been willing, in 50 years, to let the union stand on the hose for even a second.
December 15th, 2008 at 10:18 PM
And labor is only 10% of the total cost pool for these manufacturers.
That’s only the case if you think the Big 3 parts makers (which the UAW requires to be organized by them) don’t use any labor during the parts making process. The principal reason American cars and spare parts are so shoddy is because they have to be, in order to pay UAW workers at the Big 3 and their parts makers inflated UAW wages.
December 16th, 2008 at 5:15 AM
Simply enough, it is my understanding that it costs more to build the car(due to wages, etc) than they can practically sell it for. This is why the Big 3 are in such hurting status.
December 16th, 2008 at 5:19 AM
And then the rest of my thought. Management needs to say “We’re going chapter 11. The only way we can stay afloat. If you want to continue to draw a paycheck at all, you’ll have to settle for less. If you refuse, we’re closing. Then you don’t get squat.” Think the fact of “less is better than nothing” might make them think?