The Real Cost Of Car Labor [Updated]

The New York Times has a really great explanation of the costs that the Big Three pay to build a car. Understanding the nature and structure of these costs is critical to understanding the truth and fiction in the debate over the proposed Big Three Bailout.

The figure being used to bludgeon auto workers and their allies is the $73/hour "compensation" figure paid to U.S. workers by the Big Three, as opposed to the $45/hour paid by foreign auto companies. The Times' David Leonhardt shows that this is a false comparison.

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. - The New York Times

To be clear, of the "$73/hour" that is bandied about, the worker only gets $55 of it in wages and benefits. The rest is management's embedded costs.

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. - The New York Times

People who complain about the loss of the "good old days" of the 1940s and 1950s should remember that it was the rise of generous union contracts in those decades and the decades that followed that help make those days the "good old days." Such critics ignore the fact that we're now paying for those "good old days" in the present.

This is why I am a strong advocate for a grand healthcare bargain. Cut corporate welfare and corporate tax loopholes to pay for national health insurance. Take retiree benefits off of companies' books in return for preferred stock (or something similar).

But in all cases, remember to be skeptical of the figures you see on TV or read in the news. Some reporting organizations are lazy, and use numbers given to them by parties that are far from disinterested. Let the informed citizen beware.

[Update] But don't take my word (or the New York Times' for that matter). Here's an autoworker, explaining the situation to a U.S. Senator (Richard Shelby).