Sunday, December 14, 2008

Overpaid American Workers?

That's what we keep hearing, right? That the UAW has pushed wages and benefits up so high that the American manufacturers can't make a profit on the cars they sell. We hear that the labor costs for Ford are $71 and hour, whereas the Japanese companies, even for plants here in the United States, are only paying $49 an hour. And that's supposed to be outragous, right? After all, how many of the people who hear these statements are getting paid $71 an hour? Therefore, the problem must be the UAW.

Yeah, but no.

When you look at the figures, you see a totally different story. It's true, the all-in labor cost of Ford (or "Ford's", if you work in production) is about $71 an hour, $22 an hour more than what the Japanese companies are paying. That's a big gap, and would seem to support the claim that the American companies are overpaying their workers. The components of that difference, though, are significant. Ford pays a little more in hourly wages, benefits, and health care. The big difference is the "legacy costs", benefits, especially health benefits, paid to retired workers.

Why such a difference? Three reasons. First, the retired UAW workers have a union bargaining on their behalf, so they get benefits the Japanese companies aren't paying. Second, the Japanese companies don't have the same number of retired workers in the United States. They haven't been here that long, so if you look at the total number of workers the company has ever employed, the American companies have hundreds of thousands of retired workers, while with the Japanese companies with plants in the United States, almost all the workers they've ever employed are still working for them. The Japanese companies do have retired workers, of course; they're living in Japan.

The big difference is that the retired auto workers living in Japan, like the current auto workers living in Japan, are covered by national health. They aren't imposing a financial burden on their auto companies because they are covered by a public system. That component of the cost is just taken right out of the cost of a Japanese car, wherever it was made. In other words, what we learn from this is that decades of our refusal to consider national health are causing a major drag on American industry.

This isn't the whole story, of course. Primarily, this doesn't address the question of how the American companies will get to the point of building cars Americans want to buy, and that is a crucial point. Still, if we take out the legacy costs and focus on the questions of design and marketing, we can see that it's not the UAW that's causing the problem, but management. Therefore, we can't fix the problem by following the Republican prescription of beating up on the unions.

6 Comments:

Anonymous Tom McC said...

I'm with you 100% on this one. I was willing for many years to believe that the union contracts were killing the Big 3, but the recent economic analyses make it clear that this is not the case. And I object to the use of the $70+ per hour figure, when a lot of that figure goes to current retirees!

And yes, our refusal to seriously consider national health care and a more robust government-sponsored retirement program puts US producers at a disadvantage.

But why can't they make good cars? US buyers pay about $2,500 more for a Japanese car than they would for an equivalent US car. You would need to pay me more than that to give up my Toyota to drive the junk that Detroit puts out. But why???

December 14, 2008 11:31 PM  
Blogger Stevem said...

John, thanks for the link to the Times article. When I get lazy about collecting information, it is tempting to believe what we see in the headlines. This article - and your comments - make it clear that the headlines are misleading, if not intentionally deceptive.

December 15, 2008 12:30 PM  
Blogger Jack McCullough said...

Good question on the quality issue. All the people who look at cars say that cars, including American cars, are much better built than they were twenty or thirty years ago. I assume American cars built today are better built than foreign cars of twenty or thirty years ago as well.

Still, for one thing, I am much less interested in questions of what they call "initial quality" than reliability and durability over time.

Second, they're not competing against the foreign cars of twenty or thirty years ago, they're competing against foreign cars of today. I don't think it's much of a contest. (Of course, I think the only American car we've owned was our Grand Voyager, which I really liked, found pretty reliable, and went until it was totaled at 150K.)

December 16, 2008 9:08 AM  
Blogger Stevem said...

If we accept the notion that the UAW is not totally to blame, does that necessarily mean that they should not be asked to help address the current situation by accepting something less than they are getting now? In other words, when times are tough, shouldn't everyone be asked to tighten their belts? There seems to be some logic in that.

December 16, 2008 12:24 PM  
Blogger Jack McCullough said...

Look underneath a little bit. The labor that goes into a car is a tiny fraction of the total (I think it's something like 10%), so that even slashing union wages in half won't have an appreciable effect on the situation.

I think what's going on here is that the R's are using this as a means of trying to bust the union. I also think it's very interesting that they didn't say anything approaching this when the guys who run the banks were in there asking for many times this amount of money.

December 17, 2008 1:53 PM  
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July 18, 2016 3:31 AM  

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