The Myth of the $70/hour Job
You may have heard that UAW members working for the Detroit firms make $70 an hour. That’s a lot of scratch. Forty hours a week, fifty weeks a year, and you’ll be earning $140,000 a year. Which makes you wonder why there are all these people wasting time in law school. Except as John Cohn writes it’s not true. The way you get the $70/hour figure is that you take the total costs of paying benefits to retired auto workers — legacy costs wracked up long ago — and then average that out over the number of current employees. The big three used to have a much larger share of the US market and manufacturing techniques used to be less efficient, so their past workforce was much larger than their current workforce. Consequently, the per worker figure is astronomical.
Now that was a real problem for the Big Three. It was, frankly, an idiotic thing to agree to. In exchange for getting to pay their workers less in the short-run, they agreed to a benefits structure that was guaranteed to destroy the firms in the long-run unless they could perennially maintain a huge market share. But it’s also a problem that’s largely in the past thanks to an agreement reached last year to offload and ultimately shrink the size of these costs.
All things considered, I think I still prefer the idea of prefab bankruptcy for these firms combined with massive stimulus outlays to the idea of bailing the firm out. But nobody should let themselves think that anyone is making $70 an hour building cars.
71 Responses to “The Myth of the $70/hour Job”
Register
RSSLogin
Topic Cloud
ArchivesBlog RollAbout Matt YglesiasContact Me
Donate
November 21st, 2008 at 11:03 am
Now picking lettuce at $50/hr…that is what I am hoping to do.
November 21st, 2008 at 11:27 am
And this points to a better solution still.
A one year severance package to the workers who will lose their jobs will still cost less than most Detroit bailout plans I’ve seen. Give the workers a lifeline, send the firms into the crapper (both the auto-firms and the parts makers), and start finding new uses for all that physical capital instead of giving them make-work projects making machines we do not need. (The backlog of unsaleable import cars in Long Beach is flabbergasting.)
November 21st, 2008 at 11:28 am
Not if you assume your friends in the government will do just about anything to avoid pissing off a bunch of Michigan voters. Until some of the union members who voted for these ridiculous benefits start feeling some pain I see no reason to think they were anything but deviously adept bargainers.
November 21st, 2008 at 11:36 am
Not only is the $70/hour bit a myth, but it’s also a myth that Detroit and the UAW have done nothing to correct the cost structure. In 2007 all three automakers reached agreements that pass the responsibility for legacy pension and health costs (as well as the actual funds) on to the UAW, thereby reducing the labor cost gap (Big Three v. Toyota et al) from $2-4K per vehicle, to $800.00 or so. The transfer should be complete in 2010.
Frankly, the union hate around all this is baffling (Mike, Al, others elsewhere). One assumes its source is envy.
November 21st, 2008 at 11:44 am
It was, frankly, an idiotic thing to agree to.
As a side note, it should be pointed out that that agreement was made at a time when the actuarial tables looked a lot different than they do today. People didn’t stay alive for as long after retirement as they do now, and healthcare was a lot cheaper.
GM’s predictions turned out to be wrong, but I wouldn’t go so far as to call their decision “idiotic.”
November 21st, 2008 at 11:44 am
And nobody should think that going into bankrupcy would fail to break the union contracts such that workers might as well be at Wal-Mart. You can see this in every sound bite put out by the likes of Senator Kyl. Just listen to them.
November 21st, 2008 at 11:54 am
One other thing I’d like to point out is that this decision was very much a political one, made from the outset.
Reuther and the UAW were big adherents of universal health care and Social Security, back in the 30’s and 40’s, when it looked like FDR or Truman might pass health care and expand Social Security benefits, because they wanted workers to maintain independence from their employers and have loyalty to a laborist Democratic Party and their union. GM/Ford, etc. chose private health care and pensions as a way to stave off government intervention and to tie down workers to the company to reduce turnover and retain skilled workers.
In a sense, GM made both a political and economic bet, that a private welfare state would preclude the growth of a public welfare state (it didn’t, as Medicare/Medicaid passed, and the prospects of universal health care today grow more bright), and that they could use their quasi-monopolistic market share and steady economic growth to pay the cost of their private welfare state (not counting the generous public subsidization through tax expenditure). They couldn’t.
November 21st, 2008 at 12:03 pm
The calculation behind the $70 figure is such a stretch that it can only be caled a lie.
If you’re going to call pension benefits for retirees that a worker has never met part of that worker’s “pay,” why not also count the cost of the factory? The cost of parts? A share of the CEO’s private jet?
All of those things are part of the cost of doing business; none of them are part of the worker’s compensation.
Bankrupt the companies with the government providing guarantees for debtor-in-possession financing. That’s the only way to fix the kinds of systemic problems the Big Three are bellyaching about, while also providing some defense against moral hazard.
November 21st, 2008 at 12:07 pm
I’m wondering why we haven’t been getting the per hour for AIG employees. Or Citis, or Goldman, for that matter. It would be awful pretty. I figured out the per hour for the CEO of Exxon, Lee Raymond, a couple of years ago. His compensation was a mere 144,573 dollars per day. Now, figuring that in an eight hour day Raymond, an elderly male, probably had a bowel movement, and that that would keep him in the john a good fifteen minutes, he’d make, while reading his favorite conservative magazine or whatever, about the same amount of money on the pot as one of those terrible, terrible UAW guys made in a week. It would be nice if the newspapers, with their sudden interest in how much auto workers make for hour, publicized the money per crap made by, say, the execs at AIG who we are propping up. Its called, truth in feudalism. “X made 1500 dollars per bowel movement.” Handy for the kind of regime that is so promoted by the people MY has those wonderful libertarian dinners with.
November 21st, 2008 at 12:26 pm
So the actual hourly wage is around $28, not $70? Wow, it’s almost as if the multi-millionaires who run the car companies are trying to pit members of the middle class against each other and destroy the unions, while at the same time raising an additional $25 billion for themselves!
November 21st, 2008 at 12:44 pm
Great post Stephen. It wasn’t idiotic, the benefits packages of the Treaty of Detroit were the result a bargain to insure labor peace in exchange for worker stability. The other component to the original agreements in the treaty was that the UAW would crack down on its more radical locals which were demanding a say in management strategy, mainly in terms of plant relocation. One local at the Rouge plant wildcatted and actually tried to sue in federal court to prevent jobs from relocating to newly built suburban and rural plants in the wake of the treaty, and the national systematically uprooted the leadership of that union.
In an era where labor has lost much of their power and the American political economy has become far more oriented toward finance than manufacturing, these look like idiotic deals. At the time, they made a lot of sense.
And Matt, you really need to read some more recent American history to understand both contemporary labor and urban space. Start with the Princeton Politics and Society of Twentieth Century America series and Chicago’s Urban History series.
November 21st, 2008 at 12:49 pm
I’m a Detroiter whose livelihood is significantly tied to the industry. The $70/hr is obvious nonsense, and the animus to workers ill-informed and malicious. But . . . the domestic industry has been relentlessly losing market share and workers for 25+ years. At some point in that process, and earlier, rather than later, it should have been obvious to the UAW and management that the future promises were unsupportable without a reversal of that trend, and that reversing that trend required, among other things, minimizing future promises. Although the timing of the industry problems are a function of recent events, they were foreseen. I recall many discussions with insiders along the lines of “if the domestics are struggling and shrinking when demand was booming, how can they survive even an ordinary downturn?”
November 21st, 2008 at 12:50 pm
DTM, I have to disagree on poetic grounds. While I agree it would be nice to know the hourly of our congressional idiots, there is something, well, more symbolic – what T.S. Eliot called an objective correlative – in knowing how much our executives are making per crap. There’s something about knowing that the Janitor who cleaned up behind mr. raymond makes in a month what Raymond made making poo that gives us a sense of how deeply feudal, deeply screwed we have become as a nation in the last thirty years of rightwing dominance. The shift from ‘don’t tread on me” to “please tread on me, sir” which the libertarian crowd – those massive thinkers, like Megan McCardle, who are our new public intellectuals! – likes to call ‘freedom”.
November 21st, 2008 at 12:52 pm
In Dec 2005, G Richard Wagoner Jr., CEO of GM, wrote an op-ed called “˜A Portrait of My Industry” attempting to address the root-causes of GM’s abysmal performance in the past few years.
Chris Silvey ripped it apart, in his piece “The Greatest Obstacle to Your Success Is Probably You”
Needless to say, Wagoner’s oped is accepted as gospel truth, and who the heck cares about Chris whatshisname.
It is worth reading the entire takedown at http://chrissilvey.com/weblog/?p=112
The money grafs:
General Motors average revenue per vehicle was only $20,659 while Toyota was $26,514 per vehicle. Compounding matters, Japanese profits per vehicle were significantly higher than GM, with a per car profit of $1,433 at Toyota , $1,250 at Honda , and $1,603 for Nissan. Ford had the highest figure among the Big Three, at $620, while GM lost $2,311 per vehicle in 2004.
GM lost 2,311 per vehicle last year! I know I dropped out of my economics PhD program without earning a degree, but I am relatively sure that this is not a sustainable long-run strategy to increase shareholder wealth.
In the meantime Chairman Wagoner earned a salary of $2,200,000 and a BONUS of $2,460,000 last year. How do you get a bonus of any kind when you lead a for-profit organization into returns on investment like that? Apparently Chairman Wagoner has his head in the sand. He doesn’t see any of the above as the main reason GM is doing so poorly. First he uses the reliable canard of health-care costs. Mr. Wagoner writes¦
Don’t get me wrong, I love bashing American labor unions as much as the next guy, but no one held a gun to your head to sign the health coverage contracts with the union. Even a person with the most basic math skills can calculate that this is not one of the fundamental reasons for GM’s poor performance. GM loses $2,311 per vehicle. If we were able to waive a magic wand and eliminate all health-care costs from GM’s liability sheet, they would still be losing $786 per vehicle.
November 21st, 2008 at 1:23 pm
A factor that accounts for over 65% of the loss isn’t “fundamental”? Your dictionary must have a very odd definition for that word. Or else you’re in no position to disparage anybody’s arithmetic skills.
November 21st, 2008 at 4:43 pm
Steve LaBonne, try again. 65% of the loss isn’t really true is it? Let’s try a thought experiment. A car costs $20k. The labor costs $6k the materials cost $14k and the health care costs $3k.
In our thought experiment the loss is $3k/unit. The health care is 100% of the loss, the labor is 200% of the loss and the materials are 466% of the loss.
Which one of these is the “fundamental” problem in this example?
November 21st, 2008 at 5:12 pm
Evil Twin makes a good point.
But now try this thought experiment: Health care costs GM about $1500 per vehicle, but GM spends more than $3000 per vehicle on sales incentives like rebates, 0% financing, employee pricing for all, etc. Which is the bigger problem?
November 21st, 2008 at 5:14 pm
Steve LaBonne,
You should click on the link and read Chris Silvey’s post.
Here is another graf from Silvey:
Read the article.
November 21st, 2008 at 5:35 pm
DTM, we do have a big philosophical difference. I think that coddling and promoting that kind of inequality ultimately makes democratic governance impossible. It makes a worse society in every way – politically, spiritually intellectually. As an addendum, of course, it is insane to think that the conflict between consumer capitalism, which depends on the fact that the majority of the population can consume, and perverse inequality, which depends on the fact that a small management cadre manages to engross a more and more inappropriate share of productivity gains, ie profit. The skiills of this small management cadre are being exposed now, as a matter of fact. If the CEO CFO upper management cadre really was skillful, how come, in a down market, the vast majority of companies are losing money? It sorta implies that the skill in making money, upon which bonuses are based, shouldn’t be attributed to the management, but to the trend.
So, yeah, I think that we should have some explanation for why AIG upper management are so valuable that we can cash out their bowel movements on the job as about what your average assembly line worker makes during the whole day. I think it is an excellent question.
I will admit a parti pris – I think the feudal overclass is corrupt, stupid, and greedy, and pretty much without a lot of redeeming features.
November 21st, 2008 at 5:51 pm
Obviously GM has many problems besides health care- it’s been manged into the ground by shortsighted corporate bureaucrats. Just as obviously, getting health care off its books, while far from a complete solution, would help pretty substantially. Why anybody would try to dispute such a commonsense proposition is beyond me.
November 22nd, 2008 at 2:28 am
What is that sound?
Why, it’s the sound of moving goalposts. You said:
What has been demonstrated is that arithmetic skills aren’t exactly your strong suit. No one said that they weren’t a problem, what is being denied is that they are a fundamental issue. Eliminating them doesn’t solve the problem and there are other, bigger, problems.
December 7th, 2008 at 11:48 am
Mr Nordyke will be responsible for the planning, directing and controlling of the actuarial operations of Fort Dearborn Life. He will also be responsible for actuarial operations at Colorado Bankers Life Insurance Company; both Colorado
January 17th, 2009 at 10:27 am
laptop battery
laptop batteries
February 6th, 2009 at 6:11 am
Hello Guru, what entice you to post an article. This article was extremely interesting, especially since I was searching for thoughts on this subject last Thursday.
February 6th, 2009 at 6:34 am
Please, can you PM me and tell me few more thinks about this, I am really fan of your blog…
February 6th, 2009 at 6:57 am
Hi there, I found your blog via Google while searching for first aid for a heart attack and your post looks very interesting for me.
February 6th, 2009 at 7:21 am
As a Newbie, I am always searching online for articles that can help me. Thank you
February 6th, 2009 at 11:33 am
Nice post! GA is also my biggest earning. However, it
February 6th, 2009 at 4:28 pm
thanks !! very helpful post!
February 6th, 2009 at 6:00 pm
Hi there, I found your blog via Google while searching for first aid for a heart attack and your post looks very interesting for me.
February 6th, 2009 at 7:30 pm
As a Newbie, I am always searching online for articles that can help me. Thank you
February 6th, 2009 at 9:01 pm
Hi there, I found your blog via Google while searching for first aid for a heart attack and your post looks very interesting for me.
February 7th, 2009 at 2:02 am
It sounds like you’re creating problems yourself by trying to solve this issue instead of looking at why their is a problem in the first place.
February 7th, 2009 at 2:28 am
Does anyone know where I can find free online grant applications?
February 7th, 2009 at 2:54 am
amazing stuff thanx
February 7th, 2009 at 12:57 pm
my God, i thought you were going to chip in with some decisive insght at the end there, not leave it with
February 7th, 2009 at 1:14 pm
Nice post! GA is also my biggest earning. However, it
February 7th, 2009 at 1:33 pm
Please, can you PM me and tell me few more thinks about this, I am really fan of your blog…
February 7th, 2009 at 1:51 pm
Hi, I can
February 7th, 2009 at 2:59 pm
It sounds like you’re creating problems yourself by trying to solve this issue instead of looking at why their is a problem in the first place.
February 8th, 2009 at 11:27 am
To start earning money with your blog, initially use Google Adsense but gradually as your traffic increases, keep adding more and more money making programs to your site.
February 8th, 2009 at 10:41 pm
laptop battery
February 12th, 2009 at 5:10 pm
Of course, what a great site and informative posts, I will add backlink – bookmark this site? Regards, Reader.
February 12th, 2009 at 5:33 pm
I usually don
February 12th, 2009 at 5:56 pm
Does anyone know where I can find free online grant applications?
February 12th, 2009 at 6:19 pm
In searching for sites related to web hosting and specifically comparison hosting linux plan web, your site came up.
February 12th, 2009 at 7:15 pm
A SUPPORTED BY THE DEVELOPER TOOLS? It was interesting. You seem very knowledgeable in ypour field.
February 12th, 2009 at 7:38 pm
What is captcha code?, pls provide me captcha code codes or plugin, Thanks in advance.
February 27th, 2009 at 11:52 pm
I found your blog on google and read a few of your other posts. I just added you to my Google News Reader. Keep up the good work. Look forward to reading more from you in the future.
February 28th, 2009 at 5:57 am
I must say that you provide genuine, quality information. Thanks for this!
BTW, dpn’t you think your blog needs a better wordpress template?
March 11th, 2009 at 4:12 am
Very interesting site. Hope it will always be alive!
March 12th, 2009 at 10:38 pm
Incredible site!
March 17th, 2009 at 2:18 am
If you have to do it, you might as well do it right
tramadol
March 22nd, 2009 at 5:51 am
tramadol
If you have to do it, you might as well do it right
March 23rd, 2009 at 4:18 am
viagra
Incredible site!
April 3rd, 2009 at 3:58 am
I bookmarked this site. Thank you for good job!
cheap brand pfizer viagra
April 5th, 2009 at 9:50 am
Nice post! GA is also my biggest earning. However, it
April 9th, 2009 at 4:37 am
It is the coolest site,keep so! viagra