$73 an Hour Doesn’t Add Up

I like David Leonhardt’s column this morning in the Times, debunking the $73 figure widely thrown around as what the average Big Three employee rakes in an hour.

It’s used as a bludgeon by anti-labor forces to say that unions have led to the downfall of Detroit. Now, I’ll be the first to admit they’re hardly blameless (ever heard of the Jobs Bank?), but management—by the folks that made the real money—isn’t either: You can’t make junk cars year after year and expect to stay in business, no matter what your labor costs are.

Here’s how it breaks down, according to Leonhardt: The average autoworker makes $40 an hour in take-home pay. That’s $83,000 a year, which is very good money (especially when the average house price in Detroit is $20,000), but as far as I can tell, that number includes executives and white-collar employees, too. So union employees make less than that.

The benefits are where the sting really comes in. They add another $15 an hour, an amount that Detroit’s overseas competitors don’t have to match because their governments provide health care and other benefits.

Add the two together, and you get the true hourly compensation of Detroit’s unionized work force: roughly $55 an hour. It’s a little more than twice as much as the typical American worker makes, benefits included. The more relevant comparison, though, is probably to Honda’s or Toyota’s (nonunionized) workers. They make in the neighborhood of $45 an hour, and most of the gap stems from their less generous benefits.

But Detroit also has another $18 an hour in retiree-benefit costs, which is a killer. Still, Leonhardt calculates that if that were wiped away and the $10-an-hour pay differential with Japanese companies disappeared, it would save $800 per car. Leonhardt is right to point out that it’s not a massive number, but he’s wrong to downplay its importance.

Here’s why via some back-of-the-napkin math: GM, for instance, sold 9.4 million cars last year. Multiply that by $800 a car and that’s $7.5 billion in extra revenue (and, presumably, 100 percent profit). It’s operating loss last year was $4.4 billion. You do the math.

Still, he’s right to point out that the essential Detroit problem is that people don’t want its cars badly enough. And good for him for giving us a clear explanation of the compensation structure so we can have a debate based on reality.

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu. Follow him on Twitter at @ryanchittum.