Posted on 11/18/2008 5:07:19 AM PST by Mr. Mojo
(CNSNews.com) – Economists in Michigan, the long-time home of the auto industry, say they don’t support the proposed multi-billion dollar bailout of Big Three automakers Chrysler, GM and Ford.
One reason why, they say, is the ultra-high labor costs for union workers employed by the Big Three. It costs over $73 per hour on average to employ a union auto worker, according to University of Michigan at Flint economist Mark J. Perry.
“Is it right to tax the average worker making $28.50 to bailout workers whose labor cost is over $73 an hour?” Perry asked.
He explained that in 2006, widely available industry and Labor Department statistics placed the average labor cost for UAW-represented workers at the former DaimlerChrysler at $75.86 per hour. For Ford it was $70.51, he said, and for General Motors it was $73.26.
“That includes the hourly pay, plus the benefits they’re receiving and all the other costs to General Motors, Ford and Chrysler, including legacy costs – retirement costs, pensions, and so on – so it’s looking at the total labor costs per hour worked for workers,” Perry said.
For U.S. workers at Toyota, however, the per hour labor cost is around $47.60, around $43 for Honda and around $42 for Nissan, Perry added, for an average of around $44.
“So we’re looking at somewhere around a $29 per hour pay gap between the Big Three and the foreign transplants that are producing cars in the United States,” Perry, chairman of the economics department, told CNSNews.com.
The average union worker at Chrysler, meanwhile, received 150 percent more in compensation than U.S. workers generally.
“Using Bureau of Labor Statistics numbers, the average compensation for manufacturing workers is around $31.50, and the average hourly compensation, including benefits, for the average worker in the U.S. economy is around $28.50,” Perry told CNSNews.com.
If you annualize Chrysler’s labor cost of $75.86 an hour per worker over a 35-hour week, for 50-weeks a year, the yearly compensation comes in at almost $133,000 per worker per year.
“That’s the cost to Chrysler of those workers,” Perry added. “That’s not necessarily what the worker would receive in a paycheck.”
Perry, meanwhile, said he is not personally in favor of a bailout.
“The question is, where do you stop? Would this just be a downpayment on a continuing bailout that they would need in the future?” he asked.
“Once we’re in for $25 billion, or $50 billion, it’s going to be a lot easier for them to ask for more money later,” he added.
The alternative to a bailout, Perry said, would be bankruptcy.
“We have a bankruptcy law to protect companies that need to go through reorganization for protection from their creditors,” Perry said.
Perry noted that proponents of a bailout cite a study that shows that one job out of every 10 jobs in the U.S. economy is tied to the auto industry.
“If we want this industry to be competitive and survive for the next decade or more, they really have to get their labor costs in line with reality and the global marketplace,” he said.
“Maybe it is time for the production to shift towards companies that have lower labor costs; that are more efficient and more productive. Even if that wasn’t production that took place in Michigan by United Auto Workers, it would still be production that would take place somewhere in the U.S. economy. So we would still have a large number of jobs tied to the auto industry.”
Hart C. Posen, a business school professor at the University of Michigan at Ann Arbor, said there are many economists who still question the 1979 bailout of Chrysler – and whether it was the right thing to do for the auto industry. He is one of them.
“There is no evidence that, in the long run, having bailed out Chrysler we’ve done anything good for the Michigan economy,” Posen told CNSNews.com
“My sense is that even with the bailout, one or more of those firms will disappear anyway,” he added. “There is significant overcapacity in the American automobile industry, and it is typically inevitable when there is significant overcapacity that some of it gets eliminated.”
A bailout directly to automakers will only delay the inevitable, Posen said.
“Historically, one of the strengths of the U.S. economy has been its willingness to let inefficient firms fail and redeploy those resources – money, but also people – to new and potentially more successful businesses. I think that has always been one of the distinctive strengths of the U.S. economy.”
Michael LaFaive at the Mackinac Center for Public Policy, a free-market foundation in Midland, Mich., said all bailouts are bad policy – at least from an economic standpoint.
“They encourage what should be discouraged – basically commerce becoming supplicants of the federal government – or some other level of government. They discourage prudent decision-making on the part of business management and entrepreneurs. After all, if there is someone else there to pick up your mess, why be careful?”
Even President Bush, who supports the bailout, seemed to hint that contracts guaranteeing high compensation levels to UAW members are a stumbling block to reaching an agreement.
“The automakers have over time made some decisions based on their needs for their employees, and some of those decisions might have to be reworked, going forward,” White House Press Secretary Dana Perino said Monday.
After benefits, my company (a Tier One industry partner) was paying $48 per hour.
Not a single one of those jobs remains in the USA.
We now manufacture in Mexico and Korea just to stay alive.
A mid-career IT professional, with a college degree, ongoing certifications, and perhaps some management experience, working something way above a 40 hour week (assuming they can maintain their technological skills and knowledge) is going to pull in about what the average hourly lineworker makes - a job that requires a high school diploma, and essentially no job experience that wasn’t given to him/her by his/her employer.
Either IT pros are paid too little, or auto company line workers are paid too much.
Surely you jest............
This is AVERAGE???? That's 146K a year without overtime plus benefits. And the cars kinda suck.
NO BAILOUT!!
That’s not just their pay. That’s pay + benefits + pension + everything else—the “total cost” of the employee to the company. They don’t take home anywhere near that much, although given the education and qualifications for the jobs, the pay is by no means bad.
}:-)4
Of course not, but what is right is secondary to what is less disastrous.
Well, to start with, the UAW workers don’t exactly make that $73/per hour, that is the per hour cost of the contract. That amount includes benefits and payouts to laid off workers at closed plants, who are still being paid their full salary. The actual worker doesn’t make much more than the workers at non-union plants. You add the contract benefits, to the other hidden costs, such as payments to towns and states for bond issues that were issued to help build, now closed, plants, and you get a bigger picture of the problems that are facing US auto workers.
Those bond issues and tax breaks that were made to lure the auto plants were nothing more than subsidies, that the auto companies cannot pay back.
There was a good article on WSJ about how bankruptcy filing makes good sense.
Their actual take-home pay is about a third of that. The pensions, health care, dues, and general union featherbedding make up most of the $73/hr figure. It’s a good job, but there’s a big difference between what each worker costs the company and what the worker actually takes home. Any bailout would benefit the unions, not the workers. Screw the unions. No bailout.
Gee, the big three have about 150 thousand workers and about 450 thousand retirees. It would seem that the bailout of the big three and the UAW looks a lot like the coming bailout of Social Security.
Bankruptcy would be the best thing to destroy the power of the unions and reduce the costs to a reasonable level. That’s why the RATS want a bailout.
They want a bailout, but that’s only part 1.
Part 2 is card check to unionize all the competitors factories in the US.
Part 3 is tariffs and trade restrictions.
If the actual union worker is still getting full salary and benefits after being laid off, then union workers are getting paid to not work. Getting paid to not work is a lot more than most actual non union workers get paid when they are laid off: ZERO DOLLARS.
bump
“Is it right to tax the average worker making $28.50 to bailout workers whose labor cost is over $73 an hour?” Perry asked. “
Wow, what a play on words. In reality, the $28.50 earner actually costs $60 per hour and that is the actual number that should be used for the comparison. Yes, there is a disconnect, however it is not as sensational as the headline and the article are trying to imply.
As you point out, it's not just about what each person does. It's also about how much training and sacrifice was involved. I worked through college and medical school (labored for brick layers, moved furniture, pumped gas, worked in a factory etc.) and was near 30 when I graduated. Then I started residency training, working 12 -14 hour days and not sleeping at all every 4th night, for just over $20,000/yr. During this time some of my student loans came due, and I worked at nights moonlighting at outside hospitals to pay them (some of them were 13-14% interest rate HEAL loans). Then I did a fellowship to get sub-specialty training for another 5 years (total nine years of training AFTER medical school). During much of that period I made less than $30,000/year, and the highest was about $41,000/year for one or two years. Then I stated my first job as a sub-specialist, and was low on the totem poll for quite a while with a commensurately low salary. It really is important to consider what is involved in training for a position to put relative wages in proper context. Also, I have to plan for my own retirement, and don't have an autoworker type pension plan. Oh, I also came from a blue collar family, was the first in my family to go to college, and didn't get help with medical school tuition.
I wasn’t using the $73/hr figure.
More like half that is closer to the average take home pay for both. But one is largely set by the market, and the other is largely set by government-backed extortion.
In the absence of adversarial unions, and the laws that give them such a high degree of control, lineworker salaries would either drop to market levels, or the auto companies would employ fewer individuals with higher skills (and complementary pay) to run equipment that was more automated.
The Big 3 haven’t exactly had the greatest management, but you have to wonder how they’ve managed to stay in business this long under the conditions they have to operate.
If I was in upper management at GM, I’d have thrown in the towel and left the industry years ago - which might explain why the executive compensation at those places is also on the high side.
The new talking point is that the Japanese government pays the healthcare costs of their auto workers, so of course their costs are lower. It doesn’t sound right though. Are they actually sending checks over here to pay workers’ health insurance premiums?
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