More on the Myth of the $73/hour Auto Worker

by Chris Sturr | December 12, 2008

Hat-tip to D&S collective member, Dave Ryan (exiled on the West Coast) for two more responses to the claim bandied about in the MSS that auto workers make upwards of $70/hour.

First is this piece from Eric Boehlert at Media Matters for America:

The media myth: Detroit’s $70-an-hour autoworker

It’s been one week since New York Times financial columnist Andrew Ross Sorkin wrote that at General Motors, “the average worker was paid about $70 an hour, including health care and pension costs.”

The nugget was part of a column in which Sorkin argued that the government should not bail out the ailing Big Three automakers and that they instead should embrace bankruptcy.

Sorkin’s point was that labor costs were out of control — workers enjoyed “gold-plated benefits” — and that during bankruptcy, the auto companies could address those runaway wages.

As I mentioned, it’s been one week since the column appeared, which seems like plenty of time for Sorkin and the Times to correct the misleading $70-an-hour claim. But to date, there’s been no clarification from the newspaper of record or from Sorkin himself.

And he isn’t alone. Appearing on NPR last week, Times senior business correspondent Micheline Maynard told listeners that the “hourly wage” of Detroit’s union autoworkers had been driven up “towards $80 an hour.”

Click here for the rest of the article.

The New York Times did end up debunking the myth, but it was a couple of days ago in David Leonhardt’s often excellent column “Economic Scene”. Here is the crucial bit from the column, $73 an Hour: Adding It Up:

Let’s start with the numbers. 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.

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.

Of course, another way to address these costs would be to have universal, single-payer health care.

Dean Baker pointed out, on his blog Beat the Press, the weaknesses in the argument that the high costs of a unionized workforce is to blame for the Big Three’s failure:

The U.S. auto industry is on life-support and the Post knows who the culprits are: the unions. It told readers that: “over the past three decades, they have lost ground to more agile foreign rivals that favored smaller cars built by non-unionized labor at lower wages.”

Actually, many of these cars were built in unionized factories in Japan, South Korea, and Germany. Unions didn’t keep foreign manufacturers from producing high-quality popular cars in these countries. Even when these companies set up shop in the U.S. they have been able to work well with unions. Toyota operated a plant in California where the workers were represented by the UAW for decades (it may still be open).

There may have been problems with the way the Big Three management dealt with unions, but other car companies have been able to operate very effectively with a unionized workforce.

2 comments

Comments (2)

  1. If the big 3 still have to pay these benefits to the retirees,then it is still the cost of doing business.If the big 3 start $1500 in the whole on every car they build then they will never become profitable in the new global economy.It is up to the UAW who had a great run for it’s workers but time’s change and inm order to keep working,and the key to this is “working”,they are going to have to give up hope of waiting for Obama to repay them for the millions they spent to help get him elected and come into the real world where no one except politicians get health care benefits for life.I also believe that there are a lot of other unions in this country that helped create the middle class.

  2. I agree that the UAW is not the only union that built the middle class (though < HREF="http://www.dollarsandsense.org/blog/2008/12/destroying-what-uaw-built_18.html" REL="nofollow">this item<> we just posted makes a good case that the UAW was central). And I agree that unions’ political support for Obama and other Democrats might better have been better spent elsewhere. Still, your $1500 number is a bit too high, as this very posting you’re commenting shows (Leonhardt estimates it at around $800).And the fact is that the auto industry is one of the last bastions of unions, and corporate America would love to bust the UAW. Wouldn’t a better way of dealing with this “cost of doing business” be to provide single-payer, universal health care? That would also help make it easier to unionize, since the prospect of losing your employer-based insurance is one key source of job insecurity. Lots of people would be more likely to join an organizing effort if doing so didn’t mean risking loss of health insurance.

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