By David Leonhardt
New York Times
Never miss a local story.
Seventy-three dollars an hour.
That figure — repeated on television and in newspapers as the average pay of a Big Three autoworker — has become a big symbol in the fight over what should happen to Detroit. To critics, it is a neat encapsulation of everything that's wrong with bloated car companies and their entitled workers.
To the Big Three's defenders, meanwhile, the number has become proof positive that autoworkers are being unfairly blamed for Detroit's decline. "We've heard this garbage about 73 bucks an hour," Senator Bob Casey, a Pennsylvania Democrat, said last week. "It's a total lie. I think some people have perpetrated that deliberately, in a calculated way, to mislead the American people about what we're doing here."
So what is the reality behind the number? Big Three workers aren't making anything close to $73 an hour (which would translate to about $150,000 a year).
However, General Motors, Ford and Chrysler workers make significantly more than their counterparts at Toyota, Honda and Nissan plants in this country. Last year's concessions by the United Automobile Workers, which mostly apply to new workers, will not change that anytime soon.
And yet the main problem facing Detroit, overwhelmingly, is not the pay gap. That's unfortunate because fixing the pay gap would be fairly straightforward. The real problem is that many people don't want to buy the cars that Detroit makes. The success of any bailout is probably going to come down to Washington's willingness to acknowledge as much.
Let's start with the numbers. The $73-an-hour figure comes from the car companies themselves. As part of their public-relations strategy during labor negotiations, the companies put out various charts and reports explaining what they paid their workers. Wall Street analysts have done similar calculations. 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. The benefits amount to $15 an hour or so. Add the two, and you get the true hourly compensation of Detroit's unionized work force: roughly $55 an hour. Honda's and Toyota's (nonunionized) workers make in the neighborhood of $45 an hour, and most of the gap stems from less-generous benefits.
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 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.
These retirees make up arguably Detroit's best case for a bailout. The Big 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.
Imagine that a bailout effectively pays for $10 an hour of the retiree benefits. That's roughly the gap between the Big Three's retiree costs and those of Japanese-owned plants. Imagine, also, that the U.A.W. agrees to reduce pay and benefits for current workers to $45 an hour — the same as at Honda and Toyota.
Do you know how much that would reduce the cost of producing a Big Three vehicle? Only about $800.
That's because labor costs, for all the attention they have been receiving, make up only about 10 percent of the cost of making a vehicle. An extra $800 per vehicle would certainly help, but the Big Three already often sell their cars for about $2,500 less than equivalent cars from Japanese companies.