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The Progressive Economics Forum

What is YOUR All-in Hourly Labour Cost???

One enormous myth that has been propagated (sometimes innocently, sometimes not) in recent debates over the future of the auto industry is the false notion that auto workers “make” $75 per hour.

Autoworkers don’t remotely make that much money — yet the lie has been repeated often enough, I am amazed at how many people actually seem to believe it.  In reality, CAW-represented production workers in the major auto plants are paid a starting wage of about $24 per hour.  This grows (as they earn seniority) to a maximum of $34 per hour.  Skilled-trades specialists (in electrical, machining, tool, or related trades) earn up to $40 per hour.  On a weighted average basis (counting production and trades together), the average is $35.

Workers at non-union auto plants in Canada earn almost exactly the same.  And that will remain true, so long as management at those companies is sufficiently concerned about unionization that they pay a union wage to their non-union workers — or better yet, until they decide to join the union that indirectly accounts for their wages.  (This also proves why it’s self-defeating to try to compete with non-union factories by cutting wages: obviously Toyota and Honda will also “follow the pattern,” and cut their own wages.  Honda Canada already did this, announcing this month a wage freeze for production workers to match the equivalent freeze negotiated by the CAW with GM and Chrysler.)

A workers’ compensation, of course, includes their non-wage pension and benefits.  For CAW members, the total annual cost of their pension plan (current service), health benefits (including the current service expense for their post-retirement health benefits), and other benefits (tuition assistance, car purchase incentives, etc.) adds up to less than $20,000 per worker per year.  That works out to under $9 per hour (for a full-time worker employed 40 hours per week, 52 weeks per year).

An autoworker’s true “compensation,” therefore, is around $44 per hour ($35 in wage, and $9 in benefits).  That’s more than most workers, obviously.  But less than many in our society (lawyers? stock brokers? political aides?).  And not remotely equal to the inflated numbers that have been cited so widely.  Autoworkers’ jobs are challenging (both physically and mentally), and highly productive (GDP per person in the auto assembply sector is $300,000 per year).  CAW compensation is also internationally competitive, comapred to other developed automaking jurisdictions (and lower than averages in Germany, the U.S., and Japan).

So where does the idea come from that auto workers make over $70 per hour?

That claim refers to a concept that is very different from someone’s hourly wage.  It is not even equal to someone’s total compensation.  It refers to a measure called “all-in hourly labour cost.”

All-in hourly cost is calculated by dividing all labour-related expenses by the number of hours actually worked in a year.  It thus includes all kinds of things that wouldn’t normally be considered part of someone’s hourly compensation.  This includes:

  • The pro-rated cost of paid time off (which reduces the denominator of the equation, by reducing hours worked).
  • The effective cost of other absences from work (CAW members don’t get paid when they are sick, until their S&A insurance eventually kicks in — but illness still increases the hourly cost, by virtue of reducing the number of hours worked).
  • The effective cost of downtime and layoffs (which also reduce hours worked).  This one is especially infuriating: not only do CAW members experience the loss of unemployment, it also “looks” like they’ve become more “expensive” as a result!
  • The cost of payroll taxes paid by the employer to government (CPP, EI, health tax, and workers’ comp premiums).  Is this compensation?  Hardly.  And how ironic that the Boss’s taxes are counted as part of the Worker’s income!!
  • The per-hour expense associated with changes in pension funding status and changes in the actuarial assumptions used to estimate the cost of retiree health benefits.  These factors (the ups and downs of the stock market, for example) cause enormous swings in the cost of these so-called “legacy costs” from one year to the next.  And at any rate, these legacy costs have nothing to do with the people actually working in factories today.

For all of these reasons, the all-in labour cost measure that’s been so widely cited in the paper is an incredibly misleading portrayal of autoworkers’ actual compensation.  But this misstatement has played its purpose, motivating some of the hateful phone-in radio shows and on-line blogs that have added to the considerable political heat on the CAW’s recent bargaining.

A full deconstruction of the all-in labour cost methodology is provided in this recent CAW research paper:

http://www.caw.ca/en/7367.htm

Just for fun, try calculating the all-in labour cost for someone you know.  I tried it on my spouse, who is a university professor.  I added her healthy salary to her current service pension cost and other benefits and payroll taxes.  I threw in an extra amount to reflect the pension deficit that her university is now grappling with (thanks to the market meltdown).  I divided that by the number of hours she teaches in class per year, prepares her lectures, or sits in stupid committee meetings.  [I understand this is parody of the hard, long work that committed academics actually perform, but bear with me.]  Then I adjusted those hours to reflect every seventh year being a sabbattical.

My answer: over $600 per hour all-in labour cost.  What a joke.  No-one would believe this is what professors actually get “paid.”  So why do they believe it of autoworkers?

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Comments

Comment from duncan cameron
Time: April 25, 2009, 4:06 pm

Thanks Jimbo. Public opinion keeps getting constructed around falsehoods. Setting out the untruths, and knocking them down is still the best way of dealing with the clever purveyors of anti-union, anti-labour propaganda.

Comment from The Rational Number
Time: April 26, 2009, 8:12 am

So, if Chrysler workers accept, say, $19/hr. cuts in benefits, is that figure also affected by the factors listed above? More simply, is that $19/hr also less than it might appear, just as the $75/hr figure?

I expect this is a difficult question, just trying to imagine it in terms of the $600/hr university prof above isn’t clear to me, but I’m no economist.

TIA,
Brad

Comment from Paul Tulloch
Time: April 26, 2009, 7:54 pm

Hi Jim,

I have to say that I have never witnessed such a carnivorous class based attack on one group of workers in my life.

People from the hallways of Tim Hortons, to the counter tops of the Bank of Canada seem to pick these numbers out and swing the heavy sticks so willingly and wantonly at the auto workers.

It is such a feeding frenzy and a huge moitibvation during this time of decline for the controlling interests to ensure the workers are divided, and fighting am0ongst themselves over the remains of the rotting morsels on the carcass. You know that better than anybody.

I only wish somebody would have stepped into the all-in debate and provided a comprehensive benchmark.

I know the CAW has done extensive research and so too has the UAW. Yet the media hoodlums such as Derosier persists in their cowardly measures.

This all as you also know is to take the spotlight off the real prblems in the autosector and that is management at the highest level and the culture they have instilled since the dawn of the auto sector in North America.

Design based upon profit on seemingly long run profit margins that were a serious macro misreading of the market.

Somehow in N.America, design has been the weak spot on two separate high level dimensions. The planned obsolescence that lead to an innovation design philiosophy that focused on the flash and cost minimization for yearly change. The second has been just low cost design that given the mass production techniques has never fully allowed flexible specialization catch on and diffuse throughout the design culture the way it has in foreign based producers. N. America has made strides over the past several years, but these are not things that are changed within such small time frames.

I also feel the high level management regime has just never been fully connected up to the design process the way many foreign based companies have been for many years.

So be it, it is time for change and it has been changing, but we are at a serious time in the auto sector industry- at least we could potentially be. Change has got to become the heartbeat of senior management., These are the ones that have the power to change the industry. It is not the factory workers who need to change. Unfortunately, we have placed our faith within the auto sector administrators and they have failed us dramatically. Not much in the way of media attention has been thrown an that pile and I do find that quite ironic.

Now it is the workers that are taking it on the head, and now the retirees are even being targets. Such low blows are just about as filthy as I have seen from the business community.

I hope the workers start fighting back soon, I do like what the retirees have started, and I hope it grows exponentially, as I know for sure the retirees can no longer be just some notion classed and written off as legacy costs.

I wish we had more powerful pens, but alas we have to fight for those pens, and let me say this- the fight is coming, you can count on that. Its gonna get a whole lot hotter within the streets then what we are seeing right now. Just wait until these shocks reach deeper into the economic fabric, it won”t be just wrinkles that Haprer and that bunch have to deal with, as they are about to tear the fabric with their abysmal socially barbaric methods.

Good article Jim, Keep your heads up and keep battling, its not over yet.

paul

It is still there

Comment from Toby Sanger
Time: April 27, 2009, 9:15 am

Hi Jim:

Thanks very much for posting that and the longer research paper. There’s been incredible disinformation willingly spread by politicians and Canadian media outlets on this. It has been really disheartening to see our media gang up on the workers and their unions with this disinformation, while doing little to criticize exorbitant finance sector and executive compensation, which even Bank of Canada governor Carney acknowledged were one of causes of the financial crisis. And I don’t ever remember seeing a Canadian federal minister go on such an attack against Canadian workers wages in the service of a foreign company.

When I’ve explained what the supposed $70 an hour represents to different people, they are amazed at how this is being reported uncritically without analysis.

Malcolm Gladwell wrote an excellent article for the New Yorker almost three years ago entitled “The Risk Pool: What’s behind Ireland’s economic miracle and GM’s financial crisis?”.

The bit about Ireland now needs to be revised, but the rest is higly relevant. he focuses on the issue of dependency ratios (and legacy costs) for countries and companies. According to Gladwell, GM’s ratio of retirees to workers increased from 1:11 in 1962 to over 3:1 by 2006. Every GM worker is now supporting over three retirees.

He wraps this in a story about the legendary UAW leader Walter Reuther who originally pushed for broad-based and public, rather than company specific, pension plans in the 1940s. But the auto companies saw these types of collective pensions as a dangerous threat to the free market and didn’t want to lose control and so pushed for their own individual pensions. Now many workers are paying the price for these short-sighted policies.

Gladwell concludes: “It has taken half a century, but the world may finally be catching up with Walter Reuther.”

Here’s a link to his article:
http://www.gladwell.com/2006/2006_08_28_a_risk.html

Comment from Stuart Murray
Time: April 27, 2009, 12:23 pm

I think this campaign against CAW members is associated with the rift between the CAW and the NDP. After all, CAW members can’t exactly say to Tories “if you do that we’ll run someone against you.” The Tories will just laugh amongst themselves and say “no you won’t, you’ll run two people against us and they’ll both get 26% of the vote.”

Comment from cj
Time: May 1, 2009, 8:21 am

HA…you have got to be kidding!! First, quoting a CAW “research” paper…gee how unbiased do you think that will be. $65,000 for an uneducated line worker with outrageous benefits, have you lost your mind? Mentally and physically challenging, get real!!
There is a reason the average joe is against this bailout and these workers…this union has ruined their own company and are viewed as fat and lazy. The canadian govt just effectively paid each worker $350K…these guys should have died a natural death in the 80′s. This is truly pathetic.

Comment from Jim Stanford
Time: May 2, 2009, 8:19 am

Dear CJ;
I am happy to engage in debates about whether or not auto wages, or the auto union, caused the crisis for this industry. I think your claim that “lazy workers” ruined this company has no economic or empirical basis, but we can debate that.
What I find simply offensive, however, is your rude and elitist knee-jerk conclusion that someone who is “uneducated” doesn’t deserve a decent standard of living. First off, autoworkers are not uneducated; a large share of assembly workers have post-secondary training. Second, the job is indeed demanding, both physically and mentally: an assembly plant requires 1200 people to be on the job, disciplined, ready to go, performing their function every 45 seconds. I’d like to see you last in that job for a week, CJ, let alone a lifetime. Third, the highly “educated” speculators and brokers who created this mess with their unproductive, irrespnsible behaviour produce less real value in a year, than the fattest, laziest autoworker does in a day. Your class-bias is disgusting.

Comment from Mr. Blair M. Phillips
Time: May 4, 2009, 1:17 pm

Mr. Stanford has done a good job of deconstructing the North American Chrysler, Ford and GM automakers “all-in hourly labour costs” to show ordinary people how “sometimes honest-sometimes not”, Corporate book keepers can calculate labour costs. He also did a good job showing AND explaining “actual and accurate wages of North American Chrysler, Ford and GM automakers of which I’m an active CAW & TCA member working for General Motors.
There is one area I would encourage the CAW & TCA National Office and Mr. Stanford to try to find actual numbers in and that is “Corporate profits” for the Chrysler, Ford and GM.
In the late winter of 2008 I read a 2007 General Motors WorldWide Shareholder booklet in which they stated that they manufactured over 10.5 million vehicles and had a gross revenue of over 310 billion dollars u.s.
General Motors has been in the top 10 of the Forbes 500 and 100 for over 40 years BUT since the day I was hired in 1983 all I hear at GM/employee propagande meetings is,”we’re losing money”!
Mr. Stanford – your a educated man and I wish I knew what you forgot BUT I don’t believe for one moment that you(the CAW & TCA) “shouldn’t be” in there asking for and getting into those Corporate books and be disclosing individual profits and corporate profits to the public. I have Mark Achbars book,”The Corporation” and their DVD of the same title and since Corporations have the same legal rights as people(gag!) and they disclose our hourly wages, benefits(often inaccurately!) to the world – you(the CAW & TCA) should have access to their books to find their wages, benefits and alternative pay schemes and let the public read or hear for themselves what you’ve uncovered.

Comment from Jody Percy
Time: July 2, 2009, 4:25 pm

Simply, thanks Jim. Thanks for arming us “uneducated” line workers with hard data to defend ourselves and our communities against this perverted attack.

If I make $75/hr somebody owes me 12 years of retro pay!

Jody Percy
CAW 444

Comment from cnp
Time: September 13, 2010, 7:04 pm

well i just tried the excecise as directed by jim.it seems the all in labour costs for me when i worked at the gm plant in oshawa with robinson solutions,a job the caw agreed to outsource,was exactly the $14.25/hr i was paid.as these jobs dont have benefits,pensions,spa days,christmas bonuses,vacation payouts or sub pay i naturally didnt add any of those into the equation.even further,when i worked at greeley containment and rework doing parts inspection,another job that was previously done by caw members at their going rate,my all in hourly cost was minimum wage at that time,a whopping $8.25/hr.im just wondering,if the caw wages at gm are such a great deal for gm,why does the caw keep agreeing to outsource its members jobs to companies that pay such drastically lower wages to provide the same service caw workers were providing at such a great price?id also be curious to know if these lower wage paying jobs are used in the calculations that jim uses when he comes up with the quoted 7% of the cost of a vehicle being labour to ustify the high wages paid to assemblers on the line at gm?

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