Getting the Numbers Right

My farseeing sister points me to this AP report which helps clarify the matter of accounting for GM’s labor costs:

GM, which negotiated the four-year deal that serves as a template for UAW deals with Chrysler and Ford, says its total hourly labor costs dropped 6 percent this year from pre-contract levels, from $73.26 in 2006 to around $69 per hour. The new cost includes laborers’ wages of $29.78 per hour, plus benefits, pensions and the cost of providing health care to more than 432,000 GM retirees, GM spokesman Tony Sapienza said.

The total cost will drop to $62 per hour in 2010 when the linchpin of the contract — a UAW administered trust fund — starts paying retiree health care costs.

But that’s still $9 more than the $53 per hour that GM estimated Toyota now pays in the U.S., and the gap could be even wider. Toyota spokesman Mike Goss said the company’s total labor costs at its older U.S. plants are around $48, with about $30 per hour in wages.

The remaining difference largely is due to “legacy” costs, the cost of a 100-year-old company paying its retiree pensions, Sapienza said.

So there you go. I completely agree that it is deceptive to present the numbers in the way GM does in the document I link below. That GM would try to make its health and pension obligations look crushing makes sense from a driving-a-hard-bargain-with-the-UAW pespective. But if you want to get bailed out, it makes no sense to make yourself look like a complete basketcase, which exactly what the $73 number does. I would expect GM to be doing what its spokesman is doing here: trying to make the company look like it is in fighting trim, just one giant infusion of taxpayer money away from not losing massive quantities money. For that reason alone, I’d be surprised if the remaining gap between GM and Toyota, even after legacy costs are taken into account, isn’t “even wider,” as the Toyota spokesman suggests.

Now, it bears emphasizing that Casey Mulligan’s point, that a bailout would benefit mostly relatively wealthy workers and shareholders is true, even if we go with the the $30/hour wage figure. According to the BLS, the median hourly wage in 2007 was about $15 and the mean was about $20 (and the averages in assembly and production work are lower than that). But GM (and as far as I know, all the other car companties) pays a lot for overtime and so forth, which is where you get GM’s estimate that the “average annual cash compensation for hourly employees in 2006 was $39.68 per hour.” Autoworkers who end up jobless because their company and union are run by doofuses deserve our sympathy. The fact that they’re so much richer than the average American worker doesn’t change that. The point is that subisidies to relatively rich shareholders and workers are basically the opposite of distributive justice, and that’s true whether the right number is $70, $40, or $30.

Author: Will Wilkinson

Vice President for Research at the Niskanen Center