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Wednesday, December 10, 2008

A Good Explanation of Labor Costs in the Auto Industry

With a bailout/bridge loan for the auto industry a perhaps increasing possibility albeit not a certainty, it's worth checking out an article in today's  New York Times which breaks down the labor costs for the unionized American car makers and their competitors in non-union plants in the U.S. (e.g., Toyota and Honda).

The bottom line is that the difference in total labor costs is partly a matter of wages and benefits to current workers.  Unionized workers get around $55/hr and non-union workers get around $45/hr.  Most of that $10 difference is in benefits, not take-home salary.  But an even more important part of the difference is health care costs for retirees:  about $15-16/hr/worker for the unionized companies, but only around $3 for the non-union companies (note: this can be seen more clearly in a chart that is in the hardcopy version of the article).

The article then points out that this is not a matter of, say, GM providing more generous health care benefits to retirees, but rather at least mostly because GM simply has a lot more retirees than the more recent "transplant" companies.

The article then adds, "These retirees make up arguably Detroit’s best case for a bailout. The Big Three Three and the U.A.W. had the bad luck of helping to create the middle class in a country where individual companies — as opposed to all of society — must shoulder much of the burden of paying for retirement."

Isn't this also a good argument for some form of nationalized health care -- a system that takes the burden of providing these benefits off the shoulders of specific employers alone, without leaving individuals to cope with a private insurance market not likely to offer these folks attractive terms?

Finally, when considering these figures, it is also worth noting, as described here that the "'Big Three' U.S. automobile makers negotiated with the United Auto Workers (UAW) in 2007 to significantly reduce the salary and benefits packages for certain new employees."

Let me stress that I personally don't have a silver-bullet solution to the problems of the U.S. auto industry, nor do I have a detailed proposal as to what exact terms a bailout/bridge loan should contain.  But this line from Bruce Springsteen's "Youngstown" has been running through my head: 

Seven hundred tons of metal a day
Now sir you tell me the world's changed
Once I made you rich enough
Rich enough to forget my

Posted by JosephSlater on December 10, 2008 at 11:12 AM in Employment and Labor Law | Permalink


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