Friday, September 05, 2014

Auto workers in the Five Percent?

At Purple Wisconsin, Rudy Willis posts an oft-cited statistic that German auto workers make $67/hr vs. $ 33/hr for American auto workers. The reason, he says, must be unions. Unionize and American assembly line workers could be making six figures as well.

Really? Is the absence of unions all that stands between us and $ 140,000/yr factory workers? This is one of these factoids that can't possibly be true - at leat without substantial qualification - and it turns out that it isn't.

The $ 67/hr figure includes benefits. Fair enough. But, remember, the American auto companies are unionized as well and  that type of "all-in" calculation has also led to estimates that UAW workers make - or made before the auto companies went belly up - $ 75/hr. (These numbers have been criticized because they included retiree benefits but these have to be accounted for somehow.)

So maybe unions can - and have - resulted in huge salaries for autoworkers in the US. But the Big Three have certainly not done well enough to continue paying them. The troubles of the American auto industry is not entirely due to labor contracts, but they are certainly part of the picture.

Now there are auto workers in America who are not unionized. They tend to work for foreign manufacturers - like German companies -  who outsource their production to America. Perhaps if German autoworkers weren't making $ 67/hr, they wouldn't have to.

But, putting that aside, how can German companies pay those salaries and remain competitive. It turns out that they don''t. German "autoworkers" don't make $ 67/hr. Some do. Others are contract employees or temporary workers or work for subcontractors - because, truth be told, there is no alchemy that can pay assembly line workers like they were pediatricians.

There's no way around the facts. Unions are legalized cartels. That is not an accusation, it is the theory behind unionization. The idea is by allowing employees to form a cartel, they will have more market power against an employer who is also assumed to have oligopolistic power (i.e., there are not many competing employers) The result is necessarily some combination of higher wages, lower profits, higher prices and lower employment depending on the structure of the markets or, as we used to be told by our economics profs, "the shape of the curves."

In competitive markets - and the auto industry has become much more competitive in the past 40-50 years - cartel wages can't be absorbed which is one reason that the American companies have gone south and the Germans have minimized their use of people who make $ 67/hr.

Cross posted at Purple Wisconsin.


John Mitchell said...

VW has opened massive plants in all places...Mexico.

Anonymous said...

Rick - Your facts are veil thin. The Big3 suffered economic problems not because of wages, but because of retiree benefits, such as pensions. In fact, most major companies have similar issues. The Dept. of Labor requires employers with pensions to use an actuarial interest rate (usually 5-7%). Thus, in a low interest environment, it "costs" the employer more money to have a pension because the pension is now under-funded. If interest rates shot up to 10%, almost every pension plan in the US would be fully funded.

In addition, most manufacturing employers (like teachers) allow retirement at a certain age, and since we do not have Universal Health Coverage, someone has to provide medical care for these workers. Do not kid yourself, the corporations want the older workers to retire. A 60 year old on the assembly line is more dangerous for a host of reasons than a 30 year old. But perhaps you would prefer child labor?

The only reason public government pensions are generally stable is that there is a ready source of money (taxes), as opposed to using profits to put into pensions.

Most employers have moved away from pensions (such as IBM) because the liability is completely on the company, which cannot predict how long a worker will live. Germany, which you are so proud to cite, not only has nationalized health insurance but a nationalized pension system.

Would you prefer that?

JM said...

"Unions are legalized cartels.

You were doing fine with your argument, professor, until this statement, which is patently false. Here is the definition of cartel--an association of manufacturers or suppliers with the purpose of maintaining prices at a high level and restricting competition.

Owners of a company fit this description, NOT workers. You created an argument based entirely on a completely inaccurate application of the definition.

Prospective employees, under freedom of association, have the liberty to organize and attempt to negotiate with those whom they choose to work for wages and benefits deemed appropriate for their skill and time. Companies, in turn, can try to hire those individuals they deem to best fit their qualifications.