How did US autoworker salaries get so out of whack wth economic reality?

I was reading this article assessing GM’s chances of survival and it reminded me how unionized US autoworkers make $50-$90 per hour (with benefits ) for what is essentially a semi-skilled factory job.

I’ve seen a few message board debates over the years where UAW workers defend their pay as “decent and fair”, and after saying this are roundly mocked as delusional by other respondents.

I’m just curious how this happened over time. Why didn’t the competitive non-sustainability of this wage rate ever get addressed? Do the UAW workers understand how insanely high their wage rates are? Are entry level unionized workers still getting these pay rates?

My understanding is that basically American auto companies were without competition of any kind until about the 70s or so when the gas crisis hit. All of a sudden, those tiny fuel efficient European and Japanese cars looked like a much better deal. And they were better made to boot!

By that time of course the UAW had pushed up salaries to the ridiculous level and the rest pretty much writes itself.

astro writes:

> . . . unionized US autoworkers make $50-$90 per hour . . .

They never made anything like that, even adjusted for inflation. My father worked on the Ford assembly line from 1957 to 1983. The amount that he was making per year (for 40-hour weeks) would be equivalent to making about $55,000 a year, which means that he was making (in today’s dollars) less than $30 an hour. Occasionally he worked overtime, which meant he made time-and-a-half at those points, but occasionally the factory was overstocked, which meant that everyone was sent home for a week and nobody got paid. Were it not for the fact that my father was also making perhaps $15,000 from our farm (which he had to take care of in the late afternoons and on the weekends), we would never have been able to survive, given that my parents had eight kids and my mother hence couldn’t work outside the home.

My father was never a foreman or a shop steward. It’s possible that those people made more than $50 an hour. Ordinary auto workers certainly didn’t.

My understanding is that, in general, benefits cost about 50% of a worker’s salary (although the auto industry has offered better benefits than most jobs). So the $50-$90 per hour number quoted above doesn’t reflect anyone’s actual salary. Here’s a paragraph from a March 28, 2006 article about GM’s buyout offer to its employees.

So workers with 27 years experience have salaries of about $70,000. That doesn’t seem at all unreasonable, for that much seniority and experience.

There’s another sentence in the same article that says “average wages for a factory worker adding up to about $65,000 a year” but it doesn’t say how those salaries range.

astro’s figure includes benefits, which add anywhere from 50-100% to the base hourly salary.

And that’s much of the answer, especially when added to what msmith537 said.

We take the way the auto industry works for granted today and forget entirely about its history.

The big auto companies, led by Henry Ford, were militantly paternalistic and anti-union well into the 1930s. Ford was becoming increasingly paranoid by this time and the Depression seems to have unhinged him. (A broad generality, yes, I know.) The auto industry was at that time the largest industry in the country and the driver of much of the economy. Ford and GM were vertically integrated, owning everything from the coal mines to steel factories to parts manufacturers - and not just in autos; they had major brands of appliances and other uses of steel as well. This meant that they had enormous influence in the whole industrial northeast.

And they used the Depression to hit workers hard, with mandatory large wage cuts, layoffs of a third of the workers, and hardball tactics all around. Labor violence was frequent and Ford especially had squads of goons that acted as a private army. The other firms followed his lead: I don’t want to minimize their culpability. In fact, the takeover of GM’s Flint plant was the catalyst for change and the eventual recognition of unions throughout the industry.

When the war hit, auto plants turned into arms factories and were critical to the war effort. Yet with the huge numbers of men going into the service, workers were hard to find and harder to keep. Leaders in the industry realized it was to their best interest to make peace with the unions. Besides, the country was booming and money from the government was flooding in.

More of the same occurred after WWII. All the money that had nowhere to be spent during the war (no consumer autos were built for about three years from 1942 to 1945) was now available and people needed transportation.

Besides, the rest of the world was either destroyed, exhausted, broke or all three. There was no external competition for a product that everybody wanted in the midst of growing demand and general prosperity. And a hugely increasing population: that baby boom you might have read about now that it’s 60.

This was the be the American Century, after all. Henry Luce of Time magazine said so. After two decades of misery, a golden age had arrived. Factory production would allow those who had suffered want now be part of a consumer society that would spread all over the world. Jobs were for life, and the haunting memory of unemployment, bankruptcy, lack of retirement or health benefits, lack of medical care, lack and need and want, were all to be things of the past.

And, you know, for the majority of the population, all that came true. It is better to be rich than poor, the working class joined the middle class, affluence became the norm instead of a hopeless dream.

The problem was the usual one. They were extrapolating off of one data point: the 1950s. The 1950s were unsustainable. The rest of the world survived and began to prosper, in large part, ironically, because of our largess. They built newer plants with better manufacturing techniques. They subsidized their industries so that they didn’t have the costs of paying benefits. They started competing where we briefly had a monopoly. And the industrial society obsoleted itself.

But the unions and the auto companies were stuck. Nobody at the top of the Big Three in Detroit believed for a second that foreign competition would ever be more than a sliver of the market. And the union leadership remembered the bad times all too well and weren’t about to give up their gains, even if the membership would let them. And they wouldn’t. Nobody in their right minds gives up lifetime employment and retirement benefits because of predictions that several decades down the road the next generation might not be able to share the same perks. They had had predictions for decades and all of them turned out to be wrong.

This is a universal condition. Europe and Japan are facing exactly the same issues because of exactly the same deals they made with that generation of workers. Nobody in any western country would ever allow the horrors that blasted the world economy for two decades starting in the 1930s to return.

The problem is simply stated. We locked in outcomes based on rational decisions made as to the conditions of the time. Conditions have drastically changed, but the contracts survive. What are the possible solutions? Well, that’s an issue for GD, but there are no good solutions that don’t make losers out of tens of millions of people. Who decides which group of tens of millions of people will lose out? Nobody wants to make that decision, and nobody wants to enforce that decision.

No decision is a decision, as the saying goes. The result is that decisions are made for people who are unwilling to make them themselves. And tens of millions of people lose. Is it the same group as the others? Larger? Smaller? Who knows? Those are arguments.

But get used to the arguments because exactly the same kinds of who wins and who loses decisions have to be made on immigration, on Social Security and Medicare, on health care, on the economy, on oil consumption, on everything. The magical conditions of the 1950s that allowed everyone to win will probably never roll around again. But they’re now the past that remains in the collective memory. Talk about fighting the last war. We may not see answers until a generation from now, when a different memory is the cultural norm, allowing different decisions to be made. Not necessarily good decisions, of course. We never know until it’s too late whether the decisions are good ones or not. There’s too much past and never enough future.

GM and to a lesser extent Ford’s problem is with unfunded pension liabilities. In other words, GM didn’t account for the costs of it’s retirees and that’s one of the things killing GM.

Simplistically, autoworkers at GM in the 50-60’s got pretty good deals for their pensions and retiree healthcare. These benefits continued into pretty much the present day, when few other public companies have pensions. Remember that whole boom in the 80’s 90’s when companies quit providing pensions and instead funded 401k? And none of the actuarials predicted that health care costs with increase exponentially. Also GM’s market share is shrinking and number of workers decreasing.

This leads to what is technically known as a triple whammy. GM pays on going pension benefits to retirees when many other companies have only 401k, medical costs have gone way up, and the number of current employees that pay for the retirees is going down. Costs are up and ability to pay going down

First, I want to second what Wendell Wagner said about the wage rates being wildly exaggerated. The company would always toss out those imaginary figures, and they never showed anyone any figures to support them.

US auto companies constructed the trap they got caught in when contract time came around. Each company made all its own parts, so any one plant could shut down the whole shebang with a strike.

Later on, they thought they could come out ahead by giving us pensions, life insurance, and health insurance instead of more pay. That didn’t work out so well.

Back when I was in high school, imported cars were not much to worry about. Gas was cheap, and all the biggest carmakers were right here, raking in the cash. There was no reason (they thought) to believe the flow of car buyers would ever stop. In the post- WW II era, all the small cars made here lost money. (Did you know the MacPherson strut was designed for a small post-war Chevy that never reached the marketplace? It’s true. MacPherson was a GenMot guy.)

In hindsight, it’s easy to point out where GenMot, Ford, and Chrysler made their mistakes. The old guard remembered old adventurous moves that lost money. They were afraid of innovation and bold designs. Meanwhile, the folks overseas were learning how to go from idea to production at an amazing clip. They left us in the dust. I was very angry at first. I had to grudgingly admit that our competitors across the pond were building much better cars than we were. Our own quality was getting better, but not fast enough.

I retired three years ago. I’m scared. Some pretty big companies have already bunted their retirees into the weeds by declaring bankrupcy. The courts said it was all right to forsake all their obligations to their workers. Will this happen to me? I hope not.

First of all, astro, do note that the article you linked to is almost a year old. The buyouts and the union’s health care concessions have improved GM’s outlook since then.

That said, I’ve known quite a few UAW members, and these guys really do live in their own little world. The union leaders know what the score is (which is why they’re offering only token objections to GM’s cuts) but the button-pushers on the line have no clue how good they have it. Total entitlement mentality. Many of those guys who took buyouts figured that they could find an equivalent job with equivalent pay and benefits. No fucking chance. Now they’re out in the “real world” and many of them are working two jobs to try to maintain their current lifestyle.

Incidentally, my father retired from GM a few years ago. He was making something like $60,000 per year after 30 years of work.

Actually, what the $50-$90 represents is total labor cost divided by number hours worked.

“Total Labor Cost” includes not only pay and benefits to every current employee, but also any payments made to ex-employees, including payments made to fund pension plans, medical plans, etc. If you earn $10/hour in pay and benefits, and your company has to pay out an additional $5/hour to pay a retirees benefits, total labor cost per hour will be $15.

IIRC, at GM the $75/hour figure I read recently was about split 60/40 between current employee and ex-employee.

Thank you to everyone (esp Exapno Mapcase for his marvelous summary) for the info.

Keep in mind also that even well-planned and funded pension plans of the 50’s didn’t take into account the increased lifespan modern medicine affords our population. The increased cost of that healthcare, particularly at the end of life, makes the situation far worse. This is also a big part of the problem with Social Security.

Most people weren’t expected to live to 65, much less 10-20 years beyond that age.

Now wait a minute. Are we talking about population averages where a lot of infant & childhood deaths would drag the overall average US lifespan down, or are we talking about the expected future remaining lifespan of employed adults?

I can’t believe that auto worker pension plans in the 50’s would be projecting that their average employed worker (at say 30 YO) died at around 65. That doesn’t make sense unless lifespans really were that short.

Yes, average lifespan is skewed by early deaths. But the percentage of people who lived decades after retirement was distinctly less in the 1950s than today. Medical care has really become that much better. It’s an exaggeration to say that everything we know about keeping people living longer dates from after WWII, but not a huge exaggeration.

Does this figure also represent the average of all employee salaries and wages? I ask because I’m thinking if you’ve got fifty line workers making ten dollars an hour and one executive making four million a year, the average hourly wage for everyone is about fifty dollars an hour.

Assembly line workers certainly were making much more than ten dollars an hour. I suspect the figures are the total labor costs for the average line worker. They were getting about $30 an hour, but the total labor costs for them (to pay health benefits, pensions, etc.) was about $50 an hour. (These are all in 2006 dollars.)

The key word there is UNIONIZED. Unions have long outlived their usefulness. They exist now for the sole purpose of jacking up wages so that the union makes more money in dues.

At one time I was promoted to the title “supervisor” and received a pay raise to ensure that the people that I supervised didn’t make more than me (plus 10%, IIRC). This was a UAW represented facility in the auto industry. This meant that the gross wage (not including benefits) at the time was just a hair over $29/hour for a classification that wasn’t skilled trades, but wasn’t a line worker, either. The $29/hour was the skilled trade rate, I was told. Line workers (I was told) grossed $19 to $25 in their wage, plus benefits.

One of the skilled trades that I brought into a salary position went back to his hourly position because of benefits. Even though going back to the hourly ranks resulted in a pay cut, the medical benefits (in particular medications) more than offset the difference in pay.

When speaking about the current situation the tangible difference isn’t so much wages. Heck, the non-union auto manufacturers pay competetively. (They do have vasty different benefits, though.) Rather the most important thing to realize is that the auto makers can’t fire anyone.

I don’t mean “can’t fire because they suck,” but rather plants can’t be closed and people can’t be laid off without union negotiations. The Big 3 have market shares proportionate to the industry as a whole. Their modern cars are every bit as good as the imports. But face it, not everyone wants an identical Chevy Impala in their driveway. The competition gives people choice above and beyond just reliability and fuel efficiency. Without making the absolute best, most perfect car on the planet, there’s no reason that any manufacturer would ever have more than their proportional share of the market. The problem with the US makers, though, is that they still have to pay for a workforce that has the capacity to build for a 50% market share. Current financials have everything to do with legacy costs, not superior competetive products. If GM (or Chrysler or Ford) could magically fire everyone and close plants that don’t contribute to current demand, then they would be an immensely profitable business even while paying the high wages. Consider how a company such as Nissan has massive profits in the United States with very little volume. Consider how Hyundai came from nowhere. Consider also how the Big 3 are all profitable outside of the United States.

Out of line with Economic reality? :dubious: :confused:

http://www.forbes.com/static/execpay2005/LIRSOX2.html?passListId=12&passYear=2005&passListType=Person&uniqueId=SOX2&datatype=Person

"G Richard Wagoner Jr
Total Compensation: $8.5 mil5 (#159)
5-Year Compensation Total: $22,221 thou

G Richard Wagoner Jr has been CEO of General Motors (GM) for 5 years. Mr. Wagoner Jr has been with the company for 28 years . "

Even if Auto workers are earning $70K/year, his earnings are 120 times that, for a company that’s sliding into the crapper.

http://money.cnn.com/2005/12/16/markets/spotlight/spotlight_gm/
"The world’s largest automaker has been battered by all kinds of bad news – it’s lost $3.8 billion through September, its sales and market share are sinking and rating agencies cut its debt to “junk” bond status. This week analysts at credit ratings agency Standard & Poor’s said that chances of a bankruptcy at the automaker were “not far fetched.”
… Its stock has tumbled more than 40 percent this year, easily the worst performance of any stock in the Dow industrials. "

And, the CEO is earning 8.5fucking million $$ ayear. And the OP asks about the *workers * salaries being “out of what with economic reality”. :rolleyes:

<mod>

Let’s take a drive.

Over to Great Debates.

“Daddy, are we there yet???”

</mod>