The truth behind auto worker pay claims.

I haven’t known what to make of conflicting claims about how much union auto workers are paid, so I was glad to see David Leonhardt’s explanation of what auto workers really make in yesterday’s New York Times. I keep seeing claims that they make $73/hour, and that just seems impossible.

In a nutshell, it is. Employees of the Big Three average $55/hour, while the (non-union) employees of Honda and Toyota average $45/hour, with the bulk of that difference a result of lesser benefits for the employees of the Japanese companies. But the Big Three has thousands of retirees, a result of being in business for generations, to whom they owe pensions, and that long tail is expensive for them. It’s only when including that cost in current employees’ pay—which has nothing to do with those employees, of course—that we arrive at the $73/hour figure.

Published by Waldo Jaquith

Waldo Jaquith (JAKE-with) is an open government technologist who lives near Char­lottes­­ville, VA, USA. more »

6 replies on “The truth behind auto worker pay claims.”

  1. But Heritage analyst James Sherk says this just isn’t true:

    The hourly benefit figures the Detroit automakers report covers the cost of current and future benefits earned by actively working employees. It does not include the cost of paying health benefits and pensions to current retirees. [emp. added]

    To back this up, Sherk points out that:

    The Detroit automakers pay similar wages at each company despite having very different numbers of retirees to provide for… General Motors has far more retirees per active worker than Ford or Chrysler. For each active worker at GM, there were 3.8 retirees or dependants in 2006. At Chrysler this ratio was half as much: two retirees for each worker. At Ford there were only 1.6 retirees per worker. If the hourly labor costs included retiree benefits, hourly wages at GM would be much higher than at either Ford or Chrysler.

    But this is not the case. General Motors did not have the highest hourly labor costs despite having more retirees. Chrysler paid $2.60 an hour more in labor costs in 2006 than GM did. Ford paid only $2.75 an hour less than GM did, despite having half as many retirees relative to workers to provide for. All three automakers had roughly the same hourly labor costs despite having very different numbers of retirees to provide for. Hourly labor costs account for the expense of providing wages and benefits to current workers but do not include legacy costs.

    Sherk makes a strong case, but maybe I’m missing something. Who’s right?

  2. It’s interesting the The National Review confesses confusion, rather than comes down on the side of a higher price tag. (Since it’s not obvious, I’ll point out that Will’s post was just a copy-and-paste from The National Review.)

  3. Leonhardt says the $73 number includes the cost of benefits/pensions to current retirees. Sherk says it only includes the cost of future pensions/benefits to current workers. Sherk seems to have a little more sourcing on his claim, but who’s to say?

    I suppose an enterprising writer from the Times or the Heritage Foundation could get the Big Three on the line and have this straightened out fairly quickly.

  4. Including all monetary payments–base wages, shift premiums, overtime pay, as well as vacation and holiday pay–GM reported an average hourly pay of $39.68 an hour in 2006. Earned Benefits $33.58 an hour of hourly labor costs that GM reports–46 percent of total compensation–was paid as benefits. These benefits include[5]: Hospital, surgical, and prescription drug benefits; Dental and vision benefits; Group life insurance; Disability benefits; Supplemental Unemployment Benefits (SUB); Pension payments to workers pensions accounts to be paid out at retirement; Unemployment compensation; and Payroll taxes (employer’s share). No where does any of these benefits include money for existing retirees! pensions come out of a eparate fund. retiree healthcare is an expense to the co. and guess what the health care can be canceled, other companies have done this,

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