As we focus on the auto industry bailout and the debate as to how much money the “big three” UAW employees earn per hour I am posting a report from the Heritage Foundation (and Pension Tsunami).
The Heritage Foundation
December 8, 2008
WebMemo #2162
UAW Workers Actually Cost the Big Three Automakers $70 an Hour
by James Sherk
The United Auto Workers (UAW) wants Congress to bail out General Motors, Ford, and Chrysler to prevent their undergoing restructuring in bankruptcy proceedings. In bankruptcy, a judge could order union contracts to be renegotiated to reflect competitive realities. Many analysts have objected that hourly autoworkers at the Big Three are some of the most highly paid workers in America, costing the Big Three over $70 an hour in wages and current and future benefits. All taxpayers should not be taxed to preserve the affluence of a few.
To read this article you can continue below or simply go to the following link and read the story when it is more convenient. http://www.heritage.org/Research/Economy/wm2162.cfm
Some observers argue that UAW members do not actually earn this much.[1] They argue this figure includes the cost of benefits paid to current retirees as well as wages and benefits paid to current workers and that the actual hourly earnings of current UAW members are much lower. This is a mistaken interpretation of the financial data released by the Detroit automakers.
Cash Compensation
Chart 1 shows the average hourly compensation for UAW workers and the average compensation for all private sector workers. These figures are based upon calculations by the Detroit automakers themselves as published in SEC filings, their annual reports, and other materials. According to briefing materials prepared by General Motors, “The total of both cash compensation and benefits provided to GM hourly workers in 2006 amounted to approximately $73.26 per active hour worked.”
CHART 1:
http://www.heritage.org/Research/Economy/images/wm2162_chart1.gif
UAW workers are highly paid, but not all this compensation comes as cash wages. Breaking the $73.26 figure down, General Motors reports that it pays base wages of roughly $30 an hour. At the end of December 2006, the average vehicle assembler at GM earned $28.02 an hour; the average machine repair electrician earned $32.43.[2]
Other provisions raise cash earnings above this base pay. For example, workers at Ford earn 10 percent premium payments for taking midnight shifts and double time for overtime hours worked on Sundays.[3]
Autoworkers put in substantial overtime hours at higher rates, raising earnings above their base pay. GM reported that its average hourly employee worked 315 overtime hours in 2006. 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.[4] About 54 percent of the average UAW employee at GM’s earnings came in cash in 2006.
Earned Benefits
The remaining $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).
These benefits cost the Detroit automakers significant amounts of money. Critics contend that these benefit figures include the cost of providing retirement and health benefits to currently retired workers, not just benefits for current workers. Since there are more retired than active employees this makes it appear that GM employees
earn far more than they actually do.
This contention contradicts the plain meaning of what the automakers have reported in SEC filings and in their public statements and would be contrary to generally accepted accounting principles.
Under the accounting rules established by the Financial Accounting Standards Board, the Detroit automakers must report their liability for future benefits as they accrue.[6] The hourly benefits figure includes payments into defined benefit pension plans to provide future pensions to current workers. It also includes the estimated
costs of future retirement health benefits that current workers earn today.
Chrysler, for example, reports paying $20.14 an hour in health costs for its hourly employees. That figure includes the estimated cost of their health benefits in retirement, calculated according to Financial Accounting Standard 106.[7] The government does not allow Chrysler to promise to pay tens of thousands of dollars in health benefits in the future without reporting that cost on its balance sheets today.
Excludes Legacy Costs
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.
Before they requested a bailout, the Big Three automakers specifically explained that their labor cost figures do not include the cost of past work. General Motors states in its filings with the Securities and Exchange Commission that:
GM maintains hourly and salaried benefit plans that provide postretirement medical, dental, vision, and life insurance to most U.S. and Canadian retirees and eligible dependents. The cost of such benefits is recognized in the consolidated financial statements during the period employees provide service to GM.[8]
In other words, GM records the expense for retiree benefits when workers earn the benefits, not years later when they collect their benefits. In less technical language, Ford explains that their total average hourly labor costs include:
(1) All the dollars paid to employees, (2) the cost of contractual benefits for employees, and (3) the cost of statutory payments, such as Social Security and Workers’ Compensation — all calculated on the basis of hours worked by employees.[9]
Average hourly costs include the costs of wages and benefits (current and future) to employees divided by the number of hours worked by those same employees. It does not include the benefits paid to retirees.[10] This is in accord with standard accounting principles that require the Big Three to report their costs as they
occur. Labor costs are the costs to the Detroit automakers of employing its current workers, not paying former workers for services performed decades ago.
Retirement Benefits Alone Cost $31 an Hour
The argument that retiree pension and health benefits inflate the hourly labor costs of the Detroit automakers cannot withstand basic scrutiny. For instance, General Motors UAW retirement plan paid $4.9 billion to 291,000 retirees and surviving spouses in 2006.[11] That works out to $31.04 an hour when apportioned among active workers.[12] That figure accounts for virtually all GM’s benefit costs — before accounting for health care costs, disability benefits, supplemental unemployment benefits, or any of the other benefits GM provides. GM pays too much in retirement benefits to have labor costs of only $70 an hour if that figure included benefits to
current retirees.
Labor Costs Similar Despite Retiree Differences
The Detroit automakers pay similar wages at each company despite having very different numbers of retirees to provide for. Table 1 shows the average hourly labor costs for the Big Three and the ratio of retirees to active workers at each company. 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.
TABLE 1:
http://www.heritage.org/Research/Economy/images/wm2162_table1.gif
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.
Taxing the Many to Pay the Few
UAW spokespeople have roundly condemned the estimate of labor costs in excess of $70 per current worker hour. They assert these figures include the cost of current retiree pension and health benefits. They have done so, however, without marshalling evidence to support their case.
The Detroit automakers explain in their SEC filings that their benefit expenses are for current workers, not former employees. This is because they follow generally accepted accounting principles in preparing these estimates. If the figures did include current retiree benefits, the average hourly amount would be much higher than they actually report. UAW employees earn far more than most Americans do. Congress should not tax all Americans to bailout the Detroit automakers in order to preserve high earnings for a few.
James Sherk is Bradley Fellow in Labor Policy in the Center for Data Analysis at The Heritage Foundation.
[1] See Media Matters, “Media Still Wedded to $70+ Per Hour Autoworker Falsehood Despite GM’s Recent Statements to the Contrary,” December 6, 2008, at
http://mediamatters.org/items/200812060002
(December 8, 2008).
[2] General Motors, Inc., “GM Manufacturing and Labor Resources, Media Handbook,” p. 29, at http://www.media.gm.com/manufacturing/handbook/other_benefits.pdf
(December 8, 2008).
[3] Ford Motor Company, “2007 UAW-Ford National Negotiations Media Fact Book,” p. 49, at http://media.ford.com/pdf/07_UAW_Negotiations.pdf
(December 8,
2008). GM and Chrysler Pay Similar Overtime Premiums.
[4] General Motors Inc., “GM Manufacturing and Labor Resources,” p. 28.
[5] Ibid.
[6] The December 15, 1992, FASB Statement of Accounting Standard No. 106 has required companies that provide post-retirement benefits to recognize the future costs of those benefits in advance. Thus, the cost of labor includes the calculated present value of future retirement benefit outlays. See David Langer, “Planners Cope with SFAS 106. (Statement of Financial Accounting Standard) (Personal Financial Planning),” CPA Journal, December 1992.
[7]DaimlerChrysler Corporation, “Chrysler Labor Talks ?07: Media Briefing Book,” p. 41, at http://chryslerlabortalks07.com/Media_Briefing_Book.pdf
[8] General Motors Corp., Securities and Exchange Commission Form 10-K for the Year Ending December 31, 2006, note 19, page 153, at
http://www.sec.gov/Archives/edgar/data/40730/000095012407001502/k11916e10vk.htm
(December 8, 2008).
[9] Ford Motor Company, “2007 UAW-Ford National Negotiations Media Fact Book,” p. 8.
[10] Heritage Foundation analysts contacted a spokesman for Ford Motor Company by phone. The Ford spokesman verified that average hourly labor costs excludes the cost of benefits paid to current retirees.
[11] General Motors, Inc., Form 5500 filed with the IRS and Department of Labor, Schedule H, for the 12 months ending September 30, 2006.
[12] Heritage Foundation calculations based on General Motors Form 5500 data. The figure is the $4.88 billion paid out to retired workers divided by 85,000 active hourly workers in the pension plan, each working 35.5 hours a week for 52 weeks in a year.
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See links to this and previous newsclips at www.PensionTsunami.com
So there Vern – neener, neener, neener !
Not as eloquently stated as James Sherk – but it gets the point across.
There’s about a week’s work of UAW labor in every car made by GM, so even a 50% haircut won’t keep them out of bankruptcy if they can’t design and produce what the public wants. Why should the workers subsidize incompetent management?
Larry M – It appears that the US Senate does not agree with you.
My question is why do these people think that you fix every problem by throwing piles of money at it.
Problems don’t go away just because you feed it.
As AIG has gotten 152 billion ( or more? ) I wonder where the right wing bean counters are on this one? When I googled ‘AIG average pay’ I came up with an average salary of 60,000 dollars a year, of course that doesn’t include benefits, retirement plans, overtime compensation, bonuses, retention compensation, car allowances, gas cards, per diems, entertainment expenses, retreats, educational excursions,water, toilet paper, sand for the ash cans and of course the all important “accepted accounting principles”. Don’t be fooled by the Heritage Foundation, the UAW has made plenty of concessions, new workers are on par with their non-union counterparts at the American Toyota plants. Many of the auto and other industries ills would be solved by nationalized health care, as the costs of employer provided health benefits make it hard to compete with the rest of the industrialized world, if your goal however is to destroy the middle class, continue to demonize unions and their workers.
what!! said: “As AIG has gotten 152 billion ( or more? ) I wonder where the right wing bean counters are on this one?”
This right-winger was not favor of a bailout for anyone – hell bankruptcy IS a “bailout.” The government should not be in the business of picking winners and losers.
Once you bailout one group, the next group says “where is MY bailout?”
what!! said: “Many of the auto and other industries ills would be solved by nationalized health care ..”
Hey what!! – While I cannot go along with nationalized healthcare for the US, I do understand the unfair situation with our auto manufacturers competing with countries that do have nationalized healthcare.
I would suggest slapping a tariff on imported vehicles (and any other imports). This tariff could be directly calculated based on the cost of the universal healthcare provided by those countries which place our industries at a disadvantage.
MMmmm,
Obviously sensible readers chose to ignore this post (as well as I should have)because of where Larry pulls his “data”.
Come on Larry, educated folks know that the Heritage foundation is just an ultra-right-wing funded think tank created to support the “Good Ol’ Boys” talking points.
I remember running into one of my former SAHS chums many years back. He told me that he was hired by the Heritage Foundation to do research on X subject(for the life of me I can’t remember exactly what subject)concerning the Mexican Community. After completing his research and turning it in, he was scolded for not coming up with the “right” results. He was pressured to change his findings in order to fit their agenda, he refused, then they gave him an ultimatum, he still refused so he quit his post on the Heritage Foundation.
I tend to agree one of the big problems in the US is out of control union benefits with their bloated compensation. Next time try and find a more credible source to support your argument, Larry. Perhaps then readers will take you a bit more serious.
whattttttttt!!!!!!!!!!!!!!!!!!!!!!!!!!!!
For the record I did not support the AIG or any other bailout. Respectfully I would trust the Heritage Foundation research on this issue.
As we discuss wages and benefits did you read my earlier post on the compensation for some of our school administrators in the UC system?
We can each find areas in both the private and public sectors where we believe managment is overcompensated. In some cases I will argue in support of “risk reward” but if the economy goes south I would not throw them a life preserver.
“A lie gets halfway round the world while the truth is still getting its boots on.” Or playing Xmas rehearsals all over the OC. It’s too late for me to write the post I was going to on “The Myth of the $70 Auto Worker,” but this link here should *fairly-balance* off this spin from the rabidly anti-union Heritage Foundation:
http://www.uaw.org/barg/07fact/fact02.php
How fair is it to pretend that the average auto worker makes 70$ hour (remember 98% of us only hear the sound byte) when he actually (as admitted above) makes 28, 38 when you include benefits? [the retirement payments are for other, older workers and have nothing to do with current workers, who don’t get those]
Meanwhile, The CEOs of Chrysler Group, Ford and GM earned a combined total of $24.5 million in salaries, bonuses and other compensation in 2006… The next four highest paid executives received average salary and other compensation of $1.3 million at Ford and $1.4 million at GM. These substantial sums do not include the value of stocks and stock options that were also part of executive compensation.
Our unionized auto workers are (were?) some of the most productive workers in the world, adding “a value added worth of $206 per worker per hour… far more than he or she earns in wages, even when benefits, statutory contributions and other costs are included.”
Also never mentioned is the fact that union workers have been giving up benefits and wages regularly the last few years to keep their industry competitive, and were prepared to do so again, until it suddenly wasn’t enough for the cabal of Southern, anti-union, foreign-car-shilling GOP Senators who killed the latest bridge loan.
As for the motives of the latter, an anonymous Capitol Hill source wrote into TPM:
“I do think it’ll be hard for Senate Republicans to explain themselves.
“They were invited, repeatedly, to participate in more than a week of negotiations with a Republican White House. They declined.
“They were asked to provide an alternative bill. They refused.
“Finally, one of their members – Senator Corker of Tennessee – participated in a day-long negotiation with Senate Democrats, the UAW, and bondholders. Everyone made major concessions. Democrats gave up efficiency and emissions standards. UAW accepted major benefit cuts and agreed to reduce workers’ wages. Bondholders signed off on a serious haircut. But when Senator Corker took the deal back to the Republican Conference, they argued for two hours and ultimately rejected it.
“Why? Because they wanted the federal government to forcibly reduce the wages of American workers within the next 12 months.
“I Heard this morning that President Bush may still use TARP money to rescue the automakers. He reportedly doesn’t want to end up as the next Hoover.”
Funny, all the right-wingers are against the bailout of AIG but somehow they’ve voiced NO OUTRAGE TOWARD AIG WORKERS. No, they save that for the folks with dirt under their fingernails.
whatttt!!!!!!!!!!!!!!
Outrage. I guess I should show some outrage in that for the past month I have been discussing a settlement with AIG on a personal matter.
Andto brother Vern. Can you be more specific on your comment about a lie?
And Vern Your UAW leadership should be concerned. If any of the “big three” file under bankruptcy protection all contracts can be null and void.
As to compensation for those with offices on Mahogany Row as we used to call it years ago, if this is a public corporation, and the stockholders do not object to their compensation packages, than it is their loss not yours that’s in play.
Hate to break the news to you but the margins of the automobile industry are longer what it was in the good old days. It’s called competition. If you cannot produce a quality product at a competitive price than you will not survive in whatever marketplace you are in.
CQT96.
Thank you for your concern about my credibility!
Perhaps my older brother is a bona fida source.
He worked in the GM plant in Linden, NJ as an inspector as they produced a car per minute. If my memory has not failed me, in addition tho their normal vacation and sick time union workers were paid perhaps 90 percent of their base wages for the two weeks during the summer transition to the next years models. I am told they were making $20 per hour back in 1955. Not exactly “chump change.”
And Vern Your UAW leadership should be concerned. If any of the “big three” file under bankruptcy protection all contracts can be null and void.
I know that. Everybody knows that. The cabal of Southern, anti-union, foreign-car-shilling GOP Senators knows that and that’s what they’re aiming for by spiking this bridge loan. We’re counting on Bush (!) to do the right thing now.
Larry, face it, you’re just anti- union; “As to compensation for those with offices on Mahogany Row as we used to call it years ago, if this is a public corporation, and the stockholders do not object to their compensation packages, than it is their loss not yours that is in play.” The Big Three ARE public corporations, they are asking for 25 billion(+ or -) dollars of TAXPAYER MONEY . AIG is a public corporation and it has gotten 152 billion(+ OR-) of TAXPAYER MONEY. Yet the auto workers are singled out for scorn as greedy, lazy, blood sucking leeches, meanwhile AIG continues on with lavish retreats and an announcement yesterday that it plans to pay “retention compensation” of $92,500 to $4 MILLION dollars to 168 executives and the SILENCE IS DEAFENING!!!!!!
Whatttttt!!!!!!!!!!
I’m afraid you are xcirnking too much kool Aide
Chrysler Ford and G.M. are PRIVATE corporations.
Yes, they are seeking federal bailout money which I oppose but get your facts straight.
I cannot speak to the status of AIG and their monetary decisions as you point out. While I may be retired and spend around 8 hours a day researchig stories, many of which end up on this blog, I do have other issues in my life that also require my time and attention.
That said I am not being silent about AIG or any other major player who comes to the public troth with hat in hand.
whatttttt!!!!!!!!!!!
See what happens when I am anxious to respond to your comments. I apologize for the above spelling errors but the message is still very clear.
NO to all bailouts!!!!!!!!!!
Larry, you can buy stock in Ford or GM (Chrysler did go private last year after it decoupled from Daimler ) isn’t that the definition of a public company?
whattttttt!!!!!!!!!!!
I spend so much time writing about government vs the private sector I need to clarify my remark.
By private I was referring to any organization that is not government operated like any city hall. Of course you can buy stock in Ford or GM. They are public companies but not public entities such as our state government.
And for brother Vern, who is so upset about the compensation of those at the top, no one is stopping you or me from climbing the ladder of success. Lately it may have been greased to make it slippery but it can still be accomplished. You too can sit at the top where you stand out and can become a target of people like yourself who didn’t take the risk to get the reward that sometimes results. During my short lifetime I have met some of these people whom you would not even recognize as they walk down the street.
Larry,
Thank you for finally responding to my post.
At least I think you responded to it in you #13.
Perhaps you can quote and use you brother as reference guide in this discussion. This, in turn, will give you a more credible leg to stand on. I suggest you quit using The Heritage Foundation, John Birch Society, et al as reference sources.
Larry, please explain what you meant by “if this is a public corporation,and the stockholders do not object to their compensation package…” (GM, Ford and AIG all fit this model) and then “By private I was referring to any organization that is not government operated….” Larry,that doesn’t make ANY sense. You and your knee-jerk conservative brethren just want to destroy unions, just admit it and stop trying to pretend that there is ANY logic behind it.
whatttttt!!!!!!!!!!!!!!!
Get over it already. I do have several friends in union leadership right here in Orange County. In addition I have many other friends who are card carrying dues paying members of the teachers union. Somehow this post has gotten your goat. Is that your guilty conscious that it hitting your keyboard?
whatttttttttttt!!!!!!!!!!!!!
Page 2. Executive compensation. Let me make this as simple for you as I can. Buy one share of Ford stock and attend their annual stockholder meeting. When you are there stand up and speak out with your objection to their huge pay checks and benefit packages. That should work as they refrain from escourting you out of the meeting.
Larry, you are the one posting about the auto workers hourly wages (I believe more than once) yet have never posted anything about the salaries paid to workers of the financial institutions that are getting billions of tax payer dollars. I’ll ask you again; why do unionized workers get singled out for scrutiny?
whattttttttttt!!!!!!!!!!!!!!!!!!!!!!!!
It was only after Vern or others disputed the UAW wages I added more data.
Although I have actually been on Wall Street in NYC it was a drive by tour of downtown and not to visit any of the offices. In fact I don’t know anyone working there so I can’t address their compensation. Perhaps you can force these private sector firms to give you a breakdown on their employee wages. This is something that I cannot even get on the employees of our city.