Defenders of the Big Three automakers have taken umbrage with the notion that automakers’ labor cost is roughly $73 per hour, compared with $48 for Toyota employees in southern states. This figure, first floated by the automakers themselves as a way of demonstrating their plight, came under assault by the United Auto Workers and leading Democrats when it became clear that this information was not helping the automakers’ case for a federal bailout.
During Senate Banking Committee hearings, Sen. Bob Casey (D-Penn.) thundered that the number is an out-and-out lie. The UAW insists the autoworkers don’t make anywhere near $73 an hour. Furthermore, they emphasize that agreements signed in 2007 will cut back labor costs even more.
What’s true here?
Understanding the facts is all about understanding the difference between worker pay and the actual cost of labor. To the worker, it’s the amount of money in the paycheck that matters. But it costs a company a lot more to employ a worker than just the amount of money in the paycheck.
The average cost of labor for the Big Three, according to figures supplied by the companies themselves, is roughly $73 an hour. It more or less breaks down as follows:
- Wages: $30 an hour
- Wage-related costs like holiday pay, etc.: $13 an hour
- Health care/pensions: $15 an hour
- Retiree benefits: $15 an hour
The inclusion of the last point is especially galling to the UAW because, the union points out, it doesn’t represent money the union’s members are actually receiving. That’s true, but that isn’t the crux of the argument about the cost of the Big Three’s labor. Only when you include retiree benefits do you get a complete picture of a company’s total labor costs.
What’s more, even that cost breakdown isn’t all-inclusive. Most companies, when considering their labor costs, also include employment taxes such as unemployment insurance and FICA withholding — a substantial portion of which is the responsibility of the company.
Two recent agreements between the automakers and the UAW are purported to significantly reduce the Big Three’s labor costs, but both are misleading.
First, the UAW and the automakers agreed that starting wages for newly hired autoworkers would be more in the neighborhood of $15 per hour, not the $30 earned by typical hourly employees today. The problem with this figure is that none of the Big Three are doing much hiring right now. In fact, they are making their labor spending even less efficient by offering buyouts to existing employees in an attempt to reduce the labor force. Assuming the companies survive, it will be decades before any significant number of hourly workers start at the $15 wage.
Second, the UAW and the automakers agreed to establish the Voluntary Employee Benefits Association (VEBA), to be bankrolled by the Big Three at a total cost of approximately $50 billion, and to be administered by the union starting in 2010 to pay for retiree health benefits. That would have knocked $15 an hour off the other end of the $73 figure.
But the automakers don’t have the money to make the required deposits into the fund, which means the VEBA won’t stop operating in 2010 unless the taxpayers bankroll it.
Many workers don’t understand the difference between their wage and company’s cost of employing them. That explains the dust-up over the $73-on-hour labor figure and the Big Three. They really do spend that much. They just don’t spend all of it on workers who are producing for them, which in the end is perhaps the biggest problem of all.