Chris Berry On The Net

There has been a great deal of misinformation floating around about the hourly wages paid to UAW members by GM, Ford and Chrysler. The most common figure cited is around $71.00 per hour, but most of the people using this number either don’t understand what it means, or they are deliberately misrepresenting the facts to support their arguments. The reality is that the average base wage earned by active Big Three workers is approximately $30.00 per hour. This number is already roughly equal to the earnings of non-union auto workers in the right-to-work states.

The $71.00 figure is the total wage and benefit cost borne by these companies for active hourly workers. While the average base wage compares favorably with the foreign manufacturers, the rest of the picture shows a stark contrast between the UAW workers and their non-union counterparts. Overtime, shift premiums, vacation pay, and holiday pay, boost the average UAW worker’s earnings to nearly $40.00 per hour in cash compensation.

The most significant difference between union and non-union autoworkers is in the cost of their employer paid benefits. GM reported that in 2006, 46% of total compensation to UAW workers was paid in the form of benefits. These include hospital, surgical and prescription drug coverage; dental and vision benefits; group life insurance; disability benefits; supplemental unemployment benefits; unemployment compensation; and the employer’s share of payroll taxes. It is important to note that the total benefits cost also includes contributions to workers pension accounts to be paid out at retirement.

During the bailout hearings, the UAW has repeatedly claimed that the $71.00 figure includes pension and healthcare benefits for retired workers. As this report by the Heritage Foundation indicates, this claim is patently false. Since GM has roughly double the number of retirees to support for every active worker than Ford or Chrysler, it would naturally follow that their hourly cost per worker would be substantially higher if the payments to retirees were included. The actual difference in hourly costs per worker between the 3 companies does not support this claim. While the $71.00 per hour figure does include the cost of future retirement benefits for active workers, it does not include any payments to those who are already retired.

Some have credited General Motors with inventing the concept of employer paid healthcare and retirement benefits. At the time these policies were put in place, they made perfect sense given that lifelong employment and economic protectionism were both common practices. The world has changed since then, but the auto makers and the UAW have refused to adapt. The programs that were once held up as a model of progressive business now threaten the very existence of the company. In a global economy, it is simply not possible for any business bearing the crushing burden of retirement and healthcare costs to compete against those that do not. This is not simply a problem faced by the Big Three, but one that we must address on a national level, sooner rather than later.

Over the last few decades, the majority of American companies have abandoned traditional defined-benefit pension plans in favor of defined-contribution programs such as the 401k. This has eased the burden on employers, but placed the retirement security of workers in doubt. Many employees fail to participate, and those who do often make poor investment decisions. Even those who have done everything right have seen their savings decimated in the current market crash. Many retirees who sacrificed to ensure a secure future are now finding themselves in dire straits, and given the bleak economic outlook for the next several years, many will not live long enough to see the financial markets rebound.

As if massive market fluctuations aren’t enough of a problem, Motorola announced today that it will discontinue matching employee contributions to 401(k) plans on Jan. 1, 2009. This will have a much more substantial long-term impact on the employees than a simple wage reduction, but management probably viewed it as the lesser of two evils in terms of employee morale. Before the current economic crisis is behind us, many more companies will probably follow their lead. There is no guarantee that once these contributions are eliminated they will ever be restored.

Employment trends indicate that people entering the workforce today will probably work for ten or more companies in the course of their careers. Even those of us with many years of work experience will find that our relationships with individual employers will be shorter than in the past. Whether we like it or not, many of us will spend large portions of our careers as independent contractors or self employed freelance agents. Given the changing nature of the relationship between employers and employees, it simply does not make sense to continue to tie our healthcare and retirement security to a series of fleeting jobs.

While our elected leaders flail helplessly at the economic problems we face today, no one in Washington has the courage to address the longer-term issues we will face tomorrow. Our retirement and healthcare systems are badly broken, and just like the Big Three, nothing short of a wholesale reorganization will make them viable.