Dec 15, 2008

Do autoworkers get paid $70/hour?

“Mathematically and intellectually dishonest” says Keith Olbermann Nov. 24 on MSNBC about the figure of $70/hour allegedly made by autoworker. He quotes the Center for Automotive Research’s figure of $28/hour, and adds $10 for benefits for a fully loaded $38/hour.

He says the $70/hour includes pensions of currently employed workers, plus pensions and benefits being paid to retirees and surviving spouses. If you divide that by all the hours worked in the time period under consideration, you get something like $70. This falls in Mark Twain’s category of statistics he called “damned lies.”

I didn’t check out Olbermann's math, but I’m sure MSNBC has some sort of fact checking process. Portraying autoworkers as greedy and overpaid is propaganda, pure and simple. Millions of Americans getting by on $10-15/hour would develop a lot of animosity to automotive workers hearing that figure, not to mention managers imagining having to carry a payroll like that.

Yes, the union has gotten generous pay for their members. Maybe more than they ought to get, by some standards, though not the millions paid to higher-ups.)

This is as ridiculous as calculating labor cost as a percentage of a vehicle’s cost. Wouldn’t the figure go up and down as fewer or more vehicles are made? Labor is a step variable cost, not an infinitely variable cost. You don’t add or subtract workers one-by-one according to demand.

As far as I know, and I’ve looked, the auto industry does not reveal the proportions of various categories of total cost of producing vehicles. I have a sneaking suspicion that, though legacy costs are higher than the transplants, things like logistics and warehousing cost far more than direct labor. My guess is that white collar and managerial costs are likely to dwarf the cost of hourly labor. We hear that parts cost different percentages of a total vehicle’s cost, but not what purchased parts, hid as inventory “assets,” make up in the overall consumers of cash. There’s a heck of a lot of waste in the system outside the cost of the workforce that builds cars.

I got this from the UAW’s website. Partisan of course, but Keith Olbermann is probably not being paid by the union to investigate claims of extravagant pay for autoworkers. You can watch the video of his report at:
MSNBC's Keith Olbermann on autoworker pay


Unknown said...

Hi Karen,

I've enjoyed reading your blog for sometime now. Hope all is going well for you.

I think most people understand that Detroit is not paying people $70 and that it is really a burden rate.

With that said, yes, most blue collar people I know think that someone who makes $28 is "rich". $56,000 per year is a lot of money in my neck of the woods and there are some well known companies around here: IBM, General Dynamics, Energizer, Ben & Jerry's and Mylan Laboratories for example.

The most interesting part of your article though is found when you state,

"You don’t add or subtract workers one-by-one according to demand."

Given the current Detroit business model, this stands to reason. But the new model of reason says approach is of course the lean ideal. Evidence of programs such as Job Banks, lend credence to the argument that labor and management are making no effort to balance labor with demand, except for the case of plant closures.

It may be that plant closures are necessary to bring supply within balance with demand, but at the very least - for the plants that shouldnt' shut down, cost reduction efforts should be underway to align labor requirements to actual demand.

Of course this is the ideal and some variation must be accepted, but my guess is that there is more variation than a modest safety factor.

Keep up the great work and please send your readers over to the TWI Blog!

Bryan Lund

Unknown said...

Bryan - thanks for reading my blog - it's quite a compliment. Yes, comparatively, autoworkers are well paid, as I know from my own experience. In the mid-70s, my former husband, an electrician in the Ford Rouge plant made twice what I could get as a female college graduate with a degree in business.

Matching labor and work, as you say, is ideal, but not easy. Things like Toyota's contingent labor force help - people know they aren't promised a permanent job, but could earn one.

There's another factor - asymmetry of supply and demand. Why don't highly skilled workers go to states in the Southeast, where up to now, they are in high demand? Asymmetry of information - the state of Michigan is not going to publicize the opportunity elsewhere. Asymmetry of geographic mobility - elderly parents needing care, children in school, spouses who won't or can't give up their jobs. It's a conundrum.

But the thinking and trying of ways to balance inputs and outputs are all worthwhile.

At least Toyota and Honda find ways to engage employees in other valuable work when not needed on the line and don't just lay them off. We'll see if they can maintain that principle in the next few years.

I'll add the TWI blog to my list soon as I get a chance.

Anonymous said...

I think Keith, and everyone else, misses the point about the unions and the Detroit 3. It's not the amount of money they are paid that's the problem, it's there ridiculously narrow job function and description and a seniority based advancement system that cripples the manufacturing leadership from implementing true process improvements.

Compare the number of job classifications at a GM plant which is unionized to the Toyota Kentucky plant and you will see which facility has the advantage in remaining competitive in a global economic slowdown because their workers are crosstrained and can fill a variety of functions as opposed to "I am a press operator and that is the only thing I am going to do because anything else is beneath me."

No one saw Toyota going to the government with their handsout, did they?

Who makes more money, a worker who gets $28/hour on 25 hours a week or a worker who gets $20/hour on 40 hours a week?

Unknown said...

I have to agree that job classifications add a lot of waste. If you can't move some object because a rigger has to do it, or can't change a light bulb because an electrician has to do it, it becomes ridiculous. In a rational world, that would be the sort of tradeoff the union would make. I think that in some places the number of classifications has been reduced. Unions can be part of the problem or part of the solution.

The union hierarchy is as antiquated as the management hierarchy. The traditional way those guys keep their jobs is by keeping workers in a state of dissatisfaction.

But it's still a matter of not blaming the workers.

DallasDude said...

I've seen the electricians all put in the same classification. Then come lay off time, the really skilled one went out the door. So the company had to swallow their pride and get back ASAP. Since these guys out on the street were schooled and not really the same as the wire puller and some other classification. These guys worked on CNC machines, which are the touch/labor added of the company. Job combinations need to be tought out and the real cost calculated, prior to making these agreements..
Peace Frank

Kathy M. said...

Is the burden that Bryan referred to the extra power the GM technician needs to run the TV he gets to watch while he assembles a car? Or is the burden the waiting time for someone who is allowed to do a job to arrive?

Have Hyundai, Kia, Honda, Nissan, or Toyota asked for bailout money? Who has the better business model?

Anonymous said...

"You don’t add or subtract workers one-by-one according to demand."

We certainly have to factor in the marginal return of the added marginal employee and then the fact that, the auto makers have opted for working the current work force overtime, rather than adding additional employees. So as to not only save on benefits of the additional employee, but also the ability to adjust to demand by cutting premium time as market condition dictate.

Have Hyundai, Kia, Honda, Nissan, or Toyota asked for bailout money? Who has the better business model?

The so called transplants are not burdened by the legacy cost. Then to ignore the fact that they must pay some prevailing rate set by a union standard in the industry is just silly at best. Their part time work force, which is more than likely not there anymore, is like the two tier system at the big three. The biggest bail out is the tax incentives and gifts that staes, such as Alabama provided the transplants to lure them in. Where in the capitalist model does this fit in? Welfare for the wealthy is a fact of life these days. Mor or less like the stadium/arena building for millionaires/billionaires. Society as a whole assumes the risk and they profit from the use of taxpayers funding. Is this a bail out or what? There is no major difference in the business models and both are hurting as demand dampens in this nation, the number one consumer of autos.

We are blind to the fact that the transplants have hidden cost, which the taxpayers will bear sooner or later. They enjoy the more efficient nationalized health care system back in Japan. Whereby the cost is spread through out the entire nation. One does to acknowledge that Walmart employees cost the social network an average of $2000 each per year and that this is not reflected in the pricing. However, this is a cost borne by the taxpayer and real hidden cost.


Anonymous said...

Now that we can clearly see the Toyota safety issue and their lack of responsibility, its clear that they as an industry get hand outs. the welfare entitlement mentality is evident in their corporate culture. However, we do have to notice that on the excutive level, the CEO is paid a multiple of the highest paid employees wages. This lean fact will never ever be adopted here in America. Fact is that the banks issue new stock, thereby diluting shareholder value, all in the name of getting their hands on the unearned bonus. It stands to reason that they merit nothing since they had to resort to the public dole. Again the welfare entitlement mentality is evident. Then we have the corporate controled media setting the sights on government workers compensation in recient weeks. they like to play on the envy of others to keep us mixed up. Be it the illegal alien issue, which is the business folks who lure them here with jobs to snow us on the real problem. The export of jobs and factories is the real problem. If in fact capital is allowed to move to its most efficient use, then I'm just stating the obvious in that labor, being a part of capital, should also be allowed to move to its most efficient use. However, I see no economist on the side of the illegals and or the economic dislocation discussed, if in fact the illegals were to leave tomorrow.

In closing, they were wrong about deregulation and that government was hampering private enterprise with inefficient government rules. There is no more a distorted market that that of the American healthcare as evidence. One only need argue that one in three healthcare dollars are used to do administration in the private sector and that fourteen cents of every dollar does the same for medicare/medicaid. Then too there is something about an oil spill in the gulf which one can only conclude that perhaps some regulation (not the energy companies writing the national energy policy) was warranted.
Hence, they were dead wrong about the banking industry and the energy industry. Maybe they were wrong about globalization? In any case the parity needed for these folks in China/India to buy goods and or services from America is eons away. Shall we wait for them to fuel our economy?

Copyright @ 2005-2014 by Karen Wilhelm