The United Auto Workers (UAW) wants Congress to bail out General
Motors, Ford, and Chrysler to prevent their undergoing
restructuring in bankruptcy proceedings. In bankruptcy, a judge
could order union contracts to be renegotiated to reflect
competitive realities. Many analysts have objected that hourly
autoworkers at the Big Three are some of the most highly paid
workers in America, costing the Big Three over $70 an hour in wages
and current and future benefits. All taxpayers should not be taxed
to preserve the affluence of a few.
Some observers argue that UAW members do not actually earn this
much. They argue this figure includes the cost of
benefits paid to current retirees as well as wages and benefits
paid to current workers and that the actual hourly earnings of
current UAW members are much lower. This is a mistaken
interpretation of the financial data released by the Detroit
Chart 1 shows the average hourly compensation for UAW workers
and the average compensation for all private sector workers. These
figures are based upon calculations by the Detroit automakers
themselves as published in SEC filings, their annual reports, and
other materials. According to briefing materials prepared by
General Motors, "The total of both cash compensation and benefits
provided to GM hourly workers in 2006 amounted to approximately
$73.26 per active hour worked."
UAW workers are highly paid, but not all this compensation comes
as cash wages. Breaking the $73.26 figure down, General Motors
reports that it pays base wages of roughly $30 an hour. At the end
of December 2006, the average vehicle assembler at GM earned $28.02
an hour; the average machine repair electrician earned $32.43.
Other provisions raise cash earnings above this base pay. For
example, workers at Ford earn 10 percent premium payments for
taking midnight shifts and double time for overtime hours worked on
Autoworkers put in substantial overtime hours at higher rates,
raising earnings above their base pay. GM reported that its average
hourly employee worked 315 overtime hours in 2006. Including all
monetary payments--base wages, shift premiums, overtime pay, as
well as vacation and holiday pay--GM reported an average hourly pay
of $39.68 an hour in 2006. About 54 percent of the average UAW
employee at GM's earnings came in cash in 2006.
The remaining $33.58 an hour of hourly labor costs that GM
reports--46 percent of total compensation--was paid as benefits.
These benefits include:
- Hospital, surgical, and prescription drug benefits;
- Dental and vision benefits;
- Group life insurance;
- Disability benefits;
- Supplemental Unemployment Benefits (SUB);
- Pension payments to workers pensions accounts to be paid out at
- Unemployment compensation; and
- Payroll taxes (employer's share).
These benefits cost the Detroit automakers significant amounts
of money. Critics contend that these benefit figures include the
cost of providing retirement and health benefits to currently
retired workers, not just benefits for current workers. Since there
are more retired than active employees this makes it appear that GM
employees earn far more than they actually do.
This contention contradicts the plain meaning of what the
automakers have reported in SEC filings and in their public
statements and would be contrary to generally accepted accounting
Under the accounting rules established by the Financial
Accounting Standards Board, the Detroit automakers must report
their liability for future benefits as they accrue. The hourly benefits
figure includes payments into defined benefit pension plans to
provide future pensions to current workers. It also includes the
estimated costs of future retirement health benefits that current
workers earn today.
Chrysler, for example, reports paying $20.14 an hour in health
costs for its hourly employees. That figure includes the estimated
cost of their health benefits in retirement, calculated according
to Financial Accounting Standard 106. The government does not allow
Chrysler to promise to pay tens of thousands of dollars in health
benefits in the future without reporting that cost on its balance
Excludes Legacy Costs
The hourly benefit figures the Detroit automakers report covers
the cost of current and future benefits earned by actively working
employees. It does not include the cost of paying health benefits
and pensions to current retirees.
Before they requested a bailout, the Big Three automakers
specifically explained that their labor cost figures do not include
the cost of past work. General Motors states in its filings with
the Securities and Exchange Commission that:
GM maintains hourly and salaried benefit plans that provide
postretirement medical, dental, vision, and life insurance to most
U.S. and Canadian retirees and eligible dependents. The cost of
such benefits is recognized in the consolidated financial
statements during the period employees provide service to GM.
In other words, GM records the expense for retiree benefits when
workers earn the benefits, not years later when they collect their
benefits. In less technical language, Ford explains that their
total average hourly labor costs include:
(1) All the dollars paid to employees, (2) the cost of
contractual benefits for employees, and (3) the cost of statutory
payments, such as Social Security and Workers' Compensation--all
calculated on the basis of hours worked by employees.
Average hourly costs include the costs of wages and benefits
(current and future) to employees divided by the number of hours
worked by those same employees. It does not include the benefits
paid to retirees. This is in accord with standard
accounting principles that require the Big Three to report their
costs as they occur. labor costs are the costs to the Detroit
automakers of employing its current workers, not paying former
workers for services performed decades ago.
Retirement Benefits Alone Cost $31 an
The argument that retiree pension and health benefits inflate
the hourly labor costs of the Detroit automakers cannot withstand
basic scrutiny. For instance, General Motors UAW retirement plan
paid $4.9 billion to 291,000 retirees and surviving spouses in
2006. That works out to $31.04 an hour when
apportioned among active workers. That figure accounts for
virtually all GM's benefit costs--before accounting for health care
costs, disability benefits, supplemental unemployment benefits, or
any of the other benefits GM provides. GM pays too much in
retirement benefits to have labor costs of only $70 an hour if that
figure included benefits to current retirees.
labor Costs Similar Despite Retiree
The Detroit automakers pay similar wages at each company despite
having very different numbers of retirees to provide for. Table 1
shows the average hourly labor costs for the Big Three and the
ratio of retirees to active workers at each company. General Motors
has far more retirees per active worker than Ford or Chrysler. For
each active worker at GM, there were 3.8 retirees or dependants in
2006. At Chrysler this ratio was half as much: two retirees for
each worker. At Ford there were only 1.6 retirees per worker. If
the hourly labor costs included retiree benefits, hourly wages at
GM would be much higher than at either Ford or Chrysler.
But this is not the case. General Motors did not have the
highest hourly labor costs despite having more retirees. Chrysler
paid $2.60 an hour more in labor costs in 2006 than GM did. Ford
paid only $2.75 an hour less than GM did, despite having half as
many retirees relative to workers to provide for. All three
automakers had roughly the same hourly labor costs despite having
very different numbers of retirees to provide for. Hourly labor
costs account for the expense of providing wages and benefits to
current workers but do not include legacy costs.
Taxing the Many to Pay the Few
UAW spokespeople have roundly condemned the estimate of labor
costs in excess of $70 per current worker hour. They assert these
figures include the cost of current retiree pension and health
benefits. They have done so, however, without marshalling evidence
to support their case.
The Detroit automakers explain in their SEC filings that their
benefit expenses are for current workers, not former employees.
This is because they follow generally accepted accounting
principles in preparing these estimates. If the figures did include
current retiree benefits, the average hourly amount would be much
higher than they actually report. UAW employees earn far more than
most Americans do. Congress should not tax all Americans to bailout
the Detroit automakers in order to preserve high earnings for a
James Sherk is Bradley
Fellow in Labor Policy in the Center for Data Analysis at The
General Motors Inc., "GM Manufacturing and Labor Resources," p.
December 15, 1992, FASB Statement of Accounting Standard No. 106
has required companies that provide post-retirement benefits to
recognize the future costs of those benefits in advance. Thus, the
cost of labor includes the calculated present value of future
retirement benefit outlays. See David Langer, "Planners Cope with
SFAS 106. (Statement of Financial Accounting Standard) (Personal
Financial Planning)," CPA Journal, December 1992.
Ford Motor Company, "2007 UAW-Ford National Negotiations Media Fact
Book," p. 8.
Heritage Foundation analysts contacted a spokesman for Ford Motor
Company by phone. The Ford spokesman verified that average hourly
labor costs excludes the cost of benefits paid to current
General Motors, Inc., Form 5500 filed with the IRS and Department
of Labor, Schedule H, for the 12 months ending September 30,
Heritage Foundation calculations based on General Motors Form 5500
data. The figure is the $4.88 billion paid out to retired workers
divided by 85,000 active hourly workers in the pension plan, each
working 35.5 hours a week for 52 weeks in a year.