It’s just been a week for metric errors. Via Media Matters comes an impressive list of stories in the media about the automobile companies financial problems, where they cite labor costs as a major issue. So far, so good. But in virtually every story about this, you’ll find a statement along the lines of: “union workers make $71 an hour in wages plus benefits”.
In many cases, they even go so far as to specifically compare that figure as wages to other companies. For example, this quote, from a conservative talking head:
“When you’re paying $73.73 an hour to those people with salary and benefits and your competition is paying $48 to its workers, you’re going to get your butt kicked in the marketplace unfortunately.”
Here’s the problem with that. The roughly $70/hour figure is a statement of labor costs, not wages. What’s the difference?
Let me pull an example from my own experience. The numbers are fudged somewhat – both because I have no interest in telling you what my salary at IBM was; and because I’m afraid IBM would still come after me if I gave up real information about how they charge for employees. The very rough proportions are based on my (imperfect) memory of the real breakdown, but I’m really making this up based on the rough structure of how the figure was computed.
IBM had an internal figure that it used as my labor cost. For simplicity, let’s say that that figure was $100,000. That cost was broken down as:
- $40,000 salary and related taxes.
- $25,000 benefits. This includes insurance, 401K, etc.
- $20,000 office expense. This was their cost for providing me with office space. The rent/operations cost of the building was dividing among the employees, and treated as a labor cost.
- $15,000 equipment and technical support. This covered the cost of my computer, network bandwidth, backups, technical support, etc.
A full third of my “labor cost” had absolutely nothing to do with actually paying me. And that’s typical: when you want to make something look expensive, you can find all sorts of ways of transferring costs to it. Never trust the figure that a company cites for what it’s workers cost unless you get to see the real, entire balance sheet, and see what costs they’re including, and what income they’re excluding.
Let’s get back to the auto-workers. How do they get that labor cost figure?
The company takes every expense that they can plausible associate with past or present workers: salaries, benefits, insurance, pensions, etc. Then it divides that by the number of hours worked by current active employees. The result is the “per hour labor cost”. This is a very artifical number. It’s specifically set up to include pension payments to retired workers, while excluding the money that they paid into pension funds. So the entire expense of pensions and benefits for retired workers is added to the “labor cost” of current workers.
So, they’ve created a very artifical metric, and then used it to try to make it sound as if auto workers are making an outrageous amount of money.
What’s the real per-employee hourly wage, including benefits? The average wage is around $28 per hour. Being generous, and assuming that benefits fully double the salary, (and that’s a pretty damned dubious assumption; $28/hour comes to $58,240 in yearly wages if you assume no unpaid vacation time, while insurance averages around $12K/family/year. What benefits are there that come close to the cost of medical coverage?) and you get a cost of $56/hour.
Now, it’s absolutely true that the automobile companies have to pay pensions and benefits for retired employees. But you’ve also got to remember that the employees were contributing to a pension fund – they exchanged part of their wages for retirement benefits. The automobile companies have squandered those funds; when times were good, they found ways to skim “excess” profits from the pension trust funds, and you can be damned sure that they didn’t subtract those from their “labor costs”.
So now, when the economy is in the dumps, and the trust funds that the companies were maintaining don’t have enough money to pay the benefits they committed to pay, they want to dump the full cost of all retirement benefits onto the heads of current workers, to try to make it look like they’re demanding unreasonable wages.
It’s bullshit. They’re using one metric – total labor costs including benefits to retirees (which are supposed to come from a separate pool of money), and pretending that it’s a totally different metric – wages + benefits for current workers.
In comparisons with foreign automakers, like the ones with Toyota, they’re explicitly comparing (wages + benefits) for current employees at American plants of foreign companies) with (wages + benefits) for current employees + (retirement payments for all retired employees) for employees at American companies.
You can’t get a fair result from comparing different metrics. In fact, if you really look at the math, after the concessions made by UAW workers over the last few years, current workers for American car companies are paid slighly less in wages plus benefits than their counterparts at foriegn companies.
None of this should be taken as my supporting bailing out the automobile companies. I honestly can’t make up my mind whether I support that. On one side, the companies really, basically deserve to fail. They made huge quantities of money selling giant SUVs for a few years, and used it to go on a spending spree, paying ridiculous amounts of money to their executives, and investing next to nothing in actually planning for the future. Now they’re producing cars no one wants to buy, and due to their own stupidity, they’ve got no capacity to produce things that people want. That sounds like a formula for failure – and it is. It would be downright criminal for the assholes running those companies to be allowed to pocket the money they made destroying them, have the government rescue them, and then pocket the resulting profits when they get back on their feet. But on the other side, there are tons of people who don’t deserve to be out of work, and who are going to be hurt by the companies failure much, much more than the people who are actually responsible. So I’m at a loss; I don’t know what the right thing to do is.
But what I do know is that you can’t have an honest discussion if you’re starting it with a big ol’ lie. And the $70/hour labor cost is a lie.