$70 per hour: right or wrong?
Felix Salmon argues that this figure for GM's labor costs is deceptive. Sort of, but it's actually quite apt at showing the core problem with GM.
Felix says that "the average GM assembly-line worker makes about $28 per hour in wages,
and I can assure you that GM is not paying $42 an hour in health
insurance and pension plan contributions. Rather, the $70 per hour
figure (or $73 an hour, or whatever) is a ridiculous number obtained by
adding up GM's total labor, health, and pension costs, and then
dividing by the total number of hours worked. In other words, it
includes all the healthcare and retirement costs of retired workers."
This is not quite right. The reason that it is reasonable to include retirees in GM's labor costs is that the benefits paid to the retirees are still under negotiation by the union. In other words, the price for employing the people who are still working is giving a bunch of stuff to people who used to work for you.
If I understand it correctly, and GM uses standard accounting principles, GM's pension payout costs are only marginal contributors to the problem; the pension fund has to be advance funded, which means that most of the payout is covered by investment proceeds that are not accounted for as part of company profits. Only where there are shortfalls due to investment losses or exceptionally long-lived retirees does GM kick in extra.
The real cost center is retiree health care, and as noted above, this is negotiated as part of the labor contract for the current workers. Due, I'm told, to the UAW's slightly strange constitution, retirees have more voting power than current workers. That's why GM's medical costs rose at such a staggering rate; they were sacred to the real power in the union.
So from the worker's point of view, it is true, they are not getting $70 an hour worth of value (unless they're very close to retirement). They are making a large personal gift to the retirees in the union. But from the company's point of view, giving all that health care to other people is indeed part of the cost of their compensation. Likewise the "job bank" and other featherbedding provisions.
Now, you could argue that since the retiree cost is fixed, it shouldn't be calculated on an hourly basis. But there are lots of other kinds of fringe benefits that exhibit declining cost to scale--health insurance, for example. So I'm not sure that argument is quite right.
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I can't tell you how many commenters on various blogs go on about the fat cat union members making $70 an hour. It makes me want to throw a brick through my monitor.
So from the worker's point of view, it is true, they are not getting $70 an hour worth of value (unless they're very close to retirement). They are making a large personal gift to the retirees in the union. But from the company's point of view, giving all that health care to other people is indeed part of the cost of their compensation. Likewise the "job bank" and other featherbedding provisions.
Luckily, the union just negotiated a reworking of retired employee health benefits that vastly eases the burden of retired workers on the Big Three, and if represented monetarily would mean a loss of millions of dollars of compensation to UAW members.
But, of course, pointing that out might make your commenters' worldview (executives good, unions bad) take a hit.
Freddie, you keep getting angry about a really not-very-disputable fact: UAW workers get paid a hell of a lot more than almost anyone else with their skill level for producing an inferior product, and this is not, long term, a sustainable situation for the company. The magnitude is almost irrelevant, given how long it has been going on.
GM management gamed the system to avoid funding the future benefits when they were incurred -- it could have been easy to use zero coupon bonds to do it, for example. They then used the money saved to inflate reported profits and indirectly the return on the stocks and management bonuses.
The unfunded liabilities should be compared to the firms net assets just as you would any liability. Counting these obligations against the current employees wages makes as much sense as doing the same thing with GM's bond debt. You should no more label a fringe benefit liability as part of current compensation than you would an obligation to repay outstanding bonds.
As soon a I see someone quoting that $70 number it just completely destroys their credibility in my mind. Don't you have more personal pride in your reputation than to use such misleading and biased analysis. This is something I always have trouble with. How do people like you hope to ever establish any reputation as a reputable analyst when you are all the time taking these right wing "talk radio" as honest analysis.
Megan has made the best analysis of labor costs in this particular case. If you are unwilling to count healthcare for retirees as part of the present labor costs, then you must also not count healthcare costs incurred by the immediate family of present autoworkers who are covered under the health plan but do not actually work for the company. The latter argument, of course, would make no sense, even to UAW supporters. Or am I wrong?
Luckily, the union just negotiated a reworking of retired employee health benefits that vastly eases the burden of retired workers on the Big Three, and if represented monetarily would mean a loss of millions of dollars of compensation to UAW members.
Yeah, the negotiated a reworking which included the plan to put billions into VEBA plans. But as far as I can tell, those plans have not yet been funded, and where are GM, et al, going to get the money to put in the VEBAs and shed those health care costs?
I can't seem to find an definitive analysis, but this article points out that GM is supposed to contribute $7 billion to its VEBA in 2010:
"But tight credit markets and one of the worst auto markets in decades has made it difficult for GM to pay the $7 billion it is required to put into the fund in 2010 and it seeking aid from the federal government for help in making that payment and for its continuing operations."
http://www.detnews.com/apps/pbcs.dll/article?AID=/20081118/AUTO01/811180418/1148/AUTO01
In other words, GM only gets out from under those health care costs if can contributes billions it doesn't have to its VEBA fund. And going to credit markets to fund VEBA? WTH?!?! How would paying off a $7B VEBA note be any different that just continuing to pay the same $7B in retirement expenses on an ongoing basis? Looks to me as though those legacy retiree health care costs are definitely NOT behind them.
In the early months of 2008 Ford had 24000 salaried employees and 54000 UAW employees. Are the salaried employees also overpaid? Or is Megan's scorn reserved exclusively for the proles?
What did GM contract to pay the worker over his or her lifetime? What pension and retirement health benefits did the worker exchange for a reduction in wage level?
Contracts between an autoworker and his bank or his credit card company are considered binding. Why are not such contracts binding between shareholders and autoworkers? Why is this not out right fraud? Theft? The workers would have happily signed contracts in the 70s for higher wages and less deferred benefits. In fact, the people offering the contracts to defer benefits were the shareholders. What relieves them of this obligation? Why is the group of people who made a deal, and are not getting paid, being blamed?
Are the salaried employees also overpaid? Or is Megan's scorn reserved exclusively for the proles?
I will assume that question is rhetorical. How on earth can MM create a blog post that essentially explains how her $70 hourly UAW wage talking point is complete bs, then claim that we should take it as established fact?
Megan, I should forward this post to some UC accounting profs so they can figure out where they went wrong. Put simply, one might be justified in saying that in computing the hourly wage of a UAW worker, one should place high relevance on the hourly wage of a UAW worker.
The rest is the sort of thinking that MM's Wall Street buddies apply on a daily basis to their risk management. That worked out about as well.
Maybe UAW workers are overpaid for "their skill level" (although MM's tone sounds like she's more concerned about their hygiene) but if MM is paid more than $0 to produce these insights as an "economics blogger" she's just on an alternative form of welfare.
Jay,
The shareholders can only get out from under the contracted obligations through bankruptcy, in which case the shareholders are wiped out (they are already wiped out unless they have purchased in the last few weeks).
The truth of the US auto companies is that the bondholders are the real owners now, and they are under no contractual obligation to the workers or retirees.
Once can debate how exactly you want to account every little penny, but one can not escape the ultimate conclusion: there are serious compensation issues.
Until these issues are resolved, it is hopeless.
It is convenient to blame the CEOs and private jets, because that means the UAW was right all along, they can continue doing things as they always have, and not make any changes or admit any blame or mistakes. That is why you see what you see.
But everyone, even the Democrats, even the UAW - everyone knows that isn't where the money is going. It's a slap in the face, sure, but it's not the root problem.
Some people just can not admit error under any circumstance. They just can't - they aren't big enough and their ego is too invested.
Freddie, you keep getting angry about a really not-very-disputable fact: UAW workers get paid a hell of a lot more than almost anyone else with their skill level for producing an inferior product, and this is not, long term, a sustainable situation for the company. The magnitude is almost irrelevant, given how long it has been going on.
Both the inferiority of their product, and the degree of their compensation, has changed, and your rhetoric hasn't in turn; both the inferiority of their product, and the amount of their compensation, is a product of decisions made by management, and yet all of your criticism is for the union. Why?
Or is Megan's scorn reserved exclusively for the proles?
Someone making almost $60k/year plus excellent benefits is a prole?
You understand that salaried != VP, right?
yancey--
That's actually the same point, isn't it? The workers are behind the bondholders? For their deferred wages? That they contracted for? Where is the libertarian outrage at this?
The workers are behind the bondholders
They need not be; the might both be unsecured creditors, to be paid the same pro-rata share.
On the other hand, if the labor contract really is structured as "retirees shall be paid in exchange for current workers' labor," then the retirees would be "behind" the bondholders in the sense that they are not creditors at all.
Depends on the details of the contracts...
UAW workers get paid a hell of a lot more than almost anyone else with their skill level for producing an inferior product, and this is not, long term, a sustainable situation for the company.
That's hilarious. And Honda workers are responsible for the higher quality of their product, by this logic.
Megan, have you ever seen an assembly line? Hear of six sigma management? JIT? You can argue that the UAW negotiated work rules that don't make any sense. But management agreed to those work rules. And management assigned them their tasks. Management set quality control standards, and systems to meet those standards.
More to the point, management designed those pieces of junk, and followed a strategy of ignoring market signals.
That's why they have the private jets, because their value-added to the production process is so much greater and their time is 200 times more valuable.
Are the salaried employees also overpaid?
Are Ford engineers in Dearborn paid more than Toyota engineers at the Toyota Ann Arbor Tech Center 30 miles to the west? I seriously doubt the Ford engineers are paid more -- does anybody have data to suggest they are?
And BTW, given that GM is going to be able to fund the UAW's VEBA retiree benefit account ONLY if the taxpayers provide the cash to do so, why shouldn't taxpayers ask why we have to kick in billions so UAW retirees can enjoy better retiree health care than we do (with Medicare)?
No, sorry UAW, from here on in, you're going to have to accept market wages equal to the transplants (for *everybody* not just new hires), the Job Bank has to go, and you're going to need to accept Medicare for retirement health-coverage just like the rest of us. Otherwise, no bailout, no deal.
If you guys hate MM so much, why read her blog? I think she's great. And if you knew any of her bio information, you'd know she's not a wall streeter or a fat cat.
To me the debate over auto workers is a lot like the debate over merit pay for teachers. (My parents are teachers, wife's parents live in Detroit, so there's connections all around). The arguments against merit pay are essentially "It's too hard to implement and difficult to measure and it's not fair to the teachers." Just like the arguments for the UAW come down to: "Unions are a good thing, and so whatever our union does is fair and anybody who speaks against it is in bed with Wall Street." (By the way, if the auto industry goes down, Wall Street is in a ton of trouble.)
The real, underlying reason for all this resistance is simple: The UAW workers like the way things are now and don't want their jobs to change. Teachers like the fact that they essentially can't be fired as long as they aren't grossly negligent. I get those reasons, but my response is equally simple. Listen carefully:
KEEPING THINGS AS THEY ARE NOW IS NOT AN OPTION. NOT FOR YOU, AND NOT FOR THIS COUNTRY.
Our education system is behind the world and falling further back by the day. Our economy is in shambles, Detroit hasn't been profitable in two decades, and by the way, the product they have refused to stop making is, at an alarming pace, making our world unsafe for human life. You don't like the change that's coming? Then prepare to feel like you got screwed over by those of us with our eyes open.
By the way, it's not just UAW and it's not just the teacher's union. The UAW contract has to be completely rewritten, AND we have to fire management, AND we have to force Detroit to fundamentally rethink their business model. AND, by the way, we have to start employing protectionism. We have to tariff the shit out of Chinese imports until they bring their environmental and worker standards in line, in order to give Detroit a chance to compete. This is a yes/and time we're in, not an either/or time.
So I think that we should scuttle the idea of this $25 Billion bailout. Instead we should essentially nationalize these companies, redesign them from the ground up, start a Manhattan Project to develop a clean engine and better batteries, and go back to the economic policies of the 40s and 50s, when America was the greatest creditor and manufacturer in the world because we knew how to protect our industries. Yeah, I'd have to pay a few bucks more for my worthless crap that I don't need, but I'd gladly pay that extra money to live in the greatest country on earth. If we don't take these drastic steps (along with about a thousand others), we won't be living in the world's greatest country for long.
MM, what do you think of this plan?
Rob lyman,
In this context, in the real world, rather the libertarian world, the government's role in enforcing adherence to financial reporting rules and maintaining adequate funds for future benefits enters in as well.
But my point is that the shareholders entered in these arrangements freely, and the idea that workers are somehow to blame because the shareholders defaulted, but the bondholders are not, is, shall we say, less than carefully reasoned.
Why are we not blaming the rapacious bondholders for destroying an industry?
OGWiseman: We have to tariff the shit out of Chinese imports until they bring their environmental and worker standards in line, in order to give Detroit a chance to compete.
The Detroit automakers are not in trouble because of competition from factories in China, they're in trouble because of competition from factories in Tennessee (and Kentucky, Georgia, Indiana, etc). Would you propose to 'tariff the shit' out of 'imports' from Alabama?
the idea that workers are somehow to blame because the shareholders defaulted, but the bondholders are not, is, shall we say, less than carefully reasoned.
I don't actually care who's to blame as long as I don't have to pay for their screwups.
And BTW, while shareholders may well be "responsible" in the sense of having voted for the board that hired the executives, and the workers might have been "responsible" for not(for instance) insisting on full funding of pensions as a condition of their contract, the bondholders didn't do anything but lend money. They have no voting power and are not parties to contract negotiations.
Slocum - Certainly not. We don't tariff Chinese imports artificially, we do it because we have to find a way to impose environmental and worker standards on them. It's a matter of world security and health that we do so. If Detroit can't compete with cars made in Tennessee, then that's why we have to fix them so they can. That's the 'rewrite the contract and fire the management and nationalize them and do a clean-engine Manhattan project' part of my plan. By the way, I would tax the shit out of cars from Tennessee to pay for all this necessary R&D.
Basically what I'm saying is that I just don't have much sympathy for an industry that spent billions lobbying DC to avoid environmental standards. (Yes, I know this wasn't the union's doing. That's why management is gone as well.) Global Warming is literally going to be the end of this world as we know it, so auto workers and management and companies all over the world ought to get fucked over as much as is necessary until we fix it.
Also, as a more specific response, "competition from cars from Tennessee" is not the sum total of why Detroit is in trouble, so don't cherrypick one tiny part of my answer and pretend like that makes me wrong.
First, Rob, if they are unsecured, what are the lenders claims based on? They had the option to insist on securing the loan, just as the workers could have required fully funding the pensions. Again, i do not see why the lender's contract, unsecured, gets precedence over the worker's contract?
In general, capital holders seem to always have a stronger claim--nobody is threatening shareholders with jail time for fraud, despite their agents having egregiously cheated the workers. And unsecured bondholders have a stronger claim that workers with contracts. I could see it if you were talking about secured bondholders. But I do not see why the company's implicitly lying about its ability to pay a stream of revenue to a set of workers is any different from the set of lenders.
GM has about $30 billion in net debt, and I assume most of its bonds are trading at significant discounts. So how much would it cost to buy enough of the company's senior debt so that you'd end up controlling the company after bankruptcy? $10-$15 billion? Less? Couldn't a handful of liberal billionaires could pool their money and take control of the company if they wanted? Then they could pay their workers as generously as they wanted to, build only electric cars, etc.
i do not see why the lender's contract, unsecured, gets precedence over the worker's contract?
Because the lender has already given value in advance in the form of a loan. The worker has not yet completed his labor for future payments, and therefore has not yet given value.
Now, the retirees have given value already, as you suggest, and they could in principle have contracts which make them unsecured creditors equal in priority to the bondholders. However, they could also have contracts which makes them third-party beneficiaries of the agreement between current workers. I do not know what their contract says, and therefore I cannot guess what their status in bankruptcy would be.
Are Ford engineers in Dearborn paid more than Toyota engineers at the Toyota Ann Arbor Tech Center 30 miles to the west? I seriously doubt the Ford engineers are paid more -- does anybody have data to suggest they are?
I've interviewed laid off engineers from Ford that made $110K-ish yearly salary. That is likely significantly higher than Toyota AA. However, these are 20 year engineers who were likely let go because of those salaries. These days engineers are likely to start at much less (depending on the expertise) and top out at much less as well.
I've only known one engineer that worked at Toyota Ann Arbor, and he started at $70K doing similar work as I have done, and that seems to be the market rate (maybe a bit low) for a 1-5 year experienced engineer. I've had the same offer from GM when I was 2 years into engineering.
So take all that for what it is worth.
The argument "they don't make $70 an hour, they make $28 an hour plus benefits" is pretty tone-deaf, in my opinion.
TWENTY EIGHT DOLLARS AN HOUR? For pushing buttons on an assembly line? And that's the AVERAGE wage, not the wage you get as, say, a foreman with 20 years of experience under your belt? No wonder GM can't compete on wages. They're paying white-collar salaries for work a trained monkey could do.
Both the inferiority of their product, and the degree of their compensation, has changed, and your rhetoric hasn't in turn; both the inferiority of their product, and the amount of their compensation, is a product of decisions made by management, and yet all of your criticism is for the union. Why?
That's not right, Freddie. The inferiority of the product is also partially a product of the successes in development and testing processes, both of which have input from UAW labor alongside engineering. UAW workers aren't just assembly-line workers, they do absolutely have an effect on the quality of the product. Also, by limiting the amount of workers available, development work can easily be slowed.
As for the compensation, you well know that labor laws in Michigan strongly favor unions. And its not like the UAW were sitting in a corner waiting patiently as management decided their fates. They took aggressive stances by threatening labor disruptions that were partially backed by government policies. This isn't extortion, but it also doesn't absolve them from responsibility.
TWENTY EIGHT DOLLARS AN HOUR? For pushing buttons on an assembly line? And that's the AVERAGE wage, not the wage you get as, say, a foreman with 20 years of experience under your belt? No wonder GM can't compete on wages. They're paying white-collar salaries for work a trained monkey could do.
Not all of them are button-pushers. Some are brilliant mechanics and technicians who deserve every penny. Some aren't. But you do a disservice to those who don't deserve that kind of ire.
Here's what I really wish a member of Congress had asked in the auto industry representatives:
"You have a lot of excess capital and labor capacity relative to foreign firms building cars in the U.S., and you are paying your workers more than they are. To make your business competetive with theirs, you'll need to close a lot of factories, fire at lot of workers, and pay the rest a lot less. If we give you this $25B, will you promise to close a lot of factories, fire a lot of workers, and pay the rest a lot less?"
How much does the GM executive team make on an hourly basis? Based on one source, the CEO (Richard Wagoner) got $2.2 million in salary, $3.5 million in incentives. Give him a 40 hour work week and two weeks off, he's making over a thousand bucks an hour. And that doesn't include the incentives.
Maybe instead of worrying about the cost of retirees, who have already earned their pensions with a careers' worth of work, we should really be worrying about the costs of executive compensation.
But no....that would make too much sense.
OGWiseman: "...start a Manhattan Project to develop a clean engine and better batteries,..."
The manhattan project was a matter of applying known physical processes (plutonium fission) to build a particular device.
What physical process underlies your clean engine and better batteries? Please be specific.
Ms. McCardle,
Your assertion that Detroit is making an inferior product is a perfect example of a misconception which has been perpetrated through historical legacy and preconceived notions.
Have you recently compared the build quality of recent Ford and GM products (I do not count Chysler because they were German for most of that period) with recent offerings from the perceived leaders Toyota and Honda? You will see the gap is either closing fast or has been eliminated altogether.
What about Toyota's investment in a series hybrid hybrid drive system rather than develop a parallel one like the Volt will contain? Now, Toyota is stuck with all that sunk cost in an outdated drive system that provided no environmental or savings benefit for the consumer, but dud manage to put a lot more hazardous material on the road.
But, the biggest hurdles in overcoming that lingering untruths are pundits such as yourself who parrot twenty year old talking points without doing research, all the while ignoring economic and political factors which affect the way Detroit is forced to operate. Maybe if they did their homework we would see less derision aimed at Detroit.
But no....that would make too much sense.
It would, if only reducing his salary to $0/year would make any damn difference at all. But it wouldn't; tens of thousands of middle-class paychecks easily swamp his in value The reported cash burn rate is $24 billion/yr, so he's someting like .02% of the problem. Cutting executive pay has valuable symbolic effects (leading by example and all) but minimal practical effects.
Maybe if they did their homework we would see less derision aimed at Detroit.
Maybe if Detroit wasn't begging for taxpayer money we'd see less derision aimed at Detroit.
Also, "they are making a large personal gift to the retirees in the union." Um...no. You can call it a "large personal gift" but it's really a...you know...pension.
Are you intentionally being imprecise to muddy the waters or can you just not tell the difference between a gift and a pension?
pointing that out might make your commenters' worldview (executives good, unions bad) take a hit.
Fellow commenter, I would say my world view is executives and unions are neither good nor bad in and of themselves. Both are good when they make products at prices customers voluntarily pay for and keep their companies sustainable long term in a competitive marketplace. Both are bad when they run their business so poorly that they start asking for and expecting taxpayer money or government protection instead. This viewpoint holds equally for Autos (which are heavily unionized) and Financials (which are not).
Rob Lyman,
"The reported cash burn rate is $24 billion/yr, so he's someting like .02% of the problem."
That's right...one man is a whole .02% of the problem. Sounds small, by percentage...but remember, that's a single man. Proportionally, he seems to be a big part of the problem.
Proportionally, he seems to be a big part of the problem.
It depends on whether your main concern is symbolism or actually getting solvent.
It's obvious given the number of comments on this and other posts that people are very enthusiastic about either ripping or defending the unions, but it really doesn't matter, does it? Clearly the unionized workers make an unsustainable amount, and clearly the previous management f***ed up royally on a number of levels, and the companies are in trouble, and everyone should take a pay cut as part of any package the government puts together to keep GM et al going. All this bickering is reminiscent of nothing so much as our two political parties blaming each other for some national snafu. It's sport, and it's politics, but it's nothing to do with fixing the problem.
If the state the car companies are in is 100% the unions' fault, the management still needs to do better / take a pay cut / get paid in options only / get the f**k out. If it's management's fault, the union workers ought to think about taking one for the team to save their jobs. They all need to get screwed to the wall at this point whether or not it was their fault. This silly abstract idea of 'fairness,' that bad things should only happen to people who deserve it, is childish, quasi-religious nonsense. They are all part of a company in trouble and they will all have to bite the bullet.
Fortunately for all of us, both groups very, very clearly contributed mightily to the current mess, so we all get to be right. Hurrah for us!
Jayackroyd,
The workers of the past got contractual benefits (pensions and retiree healthcare), but those benefits were dependent on the solvency and continuity of the companies. If the company goes bankrupt, those contractual benefits are worthless unless insurance was taken out to cover this eventuality. This was done in the case of the pensions (the PBGC), but is probably not complete coverage, and I don't think this was done in the case of continued healthcare for retirees. If there is no insurance for this coverage, then the bankruptcy of GM, for example, ends those benefits unless the contract specifically designated them as secured by the assets of the company, in which case something could be salvaged from the bankruptcy proceedings.
Bondholders are of two types, they either lend unsecured, or they lend secured by the assets of the company. These contracts survive the bankruptcy- the contractual creditors are the owners in the case of a default. Secured creditors get first dibs on the assets in bankruptcy, but they are not guaranteed the full return of their capital.
In other words, there is nothing here for a libertarian to be outraged about. Past employees took the option of deferred benefits that were unsecured by the assets of the company, and the bondholders lent money both secured and not. The queue in a bankruptcy proceeding is a matter determined by the freely agreed upon contracts.
There was a time when the Emperor of Japan, the Tzar or Russia, and later even Joseph Stalin were driven around in Packard limos. ( Packard Motor Car Company of Detroit, Michigan) There was a time when Fred and August Duesenberg of Aburn, Indiana made what were without question the finest cars in the world. How did it all go wrong?
I've never understood it.
Today if you are a Russian Oligarch, German Industrialist, Japanese Corporate chief or Saudi Prince and you want the finest in private jet transport you have only two choices: Gulfstream Aerospace of Savanah Georgia for your G650 or the Cesna Aircraft Company of Wichita Kansas for your Citation X.
Why do we build such great planes, military equipment, agricultural machines, software, medical equipment, pharmacuticals, and yet such shitty cars?
Is $70/hour meaningful?
Well, the more people you fire from GM, the more that number will go up and up. Fire everyone and it shoots off towards infinity.
So I guess Megan thinks GM needs to expand and hire some new workers.
No matter how much a detroit autoworker gets paid, when you compare them to the compensation of Toyota workers, its many times more.
And Toyota still produces superior products.
It depends on whether your main concern is symbolism or actually getting solvent.
Symbolism...hmm, that's interesting. I remember tales of airlines saving themselves millions of dollars by eliminating one olive from the in-flight salads. Is that move just "symbolic" or a step towards, ahem, solvency?
Why doesn't the government just take over the pension obligations?
"So I think that we should scuttle the idea of this $25 Billion bailout. Instead we should essentially nationalize these companies..."
So they can design another Trabant.
"Why doesn't the government just take over the pension obligations?"
Why should money I need to build my own pension be taken to give to these greedy bastards?
Herb, any given move that saves .02% is symbolic, period. It would be just as worthless and symbolic to cut factory workers' wages by .02%, or retiree health benefits by .02%.
Symbolism is not worthless, but its value is limited.
Tristan,
Why should Toyota employees in Georgetown, Kentucky be taxed to support the lavish retirement of greedy UAW workers?
The UAW, to paraphrase. didn'wanted to "... kill the golden goose. [they]just want to choke it by the neck until it [gave them] every last egg.” They demanded too much and they need to pay the price for their greed.
jayackroyd asks:
"Contracts between an autoworker and his bank or his credit card company are considered binding. Why are not such contracts binding between shareholders and autoworkers? Why is this not out right fraud? Theft...What relieves them of this obligation?"
The compensation contract is between the company its employees, not between the company's shareholdsers and its employees (else indvidual shareholders would be liable to the full extent of their personal wealth in the case of default.) And such contracts are binding, except when a federal bankruptcy court says that they're not, if the company seeks relief under chapter 11 of the bankruptcy code. And the bankruptcy option is part of the deal going in: Unions know (or should know) that the possibility of bankrupcy is ever present, and is more likely to the extent that a labor contract is uncompetitive and thus contributes to that company's insolvency.
Even without filing, the credible threat of bankruptcy is a potent tool to force renegotiation of labor contracts, if the auto companies are willing to weild it.
If it's any consolation, you can seek relief personally under chapter 13 of the bankruptcy code (the equivalent, for individuals, of bankruptcy re-organization, as opposed to liquidation) and start breaking some contracts yourself. It's fun.
Megan says, "GM's medical costs rose at such a staggering rate" due to workers' powerful union negotiating what amounts to "a large personal gift to the retirees." I’m sympathetic to the argument, but let’s look a how GM got here.
These benefits were promised in past decades—when the current retirees were workers. The union’s “gift” is making GM keep the promises. It’s pretty unusual for companies to make big cuts for people who’ve already retired. And, is it right for a company to promise retiree benefits while employees are working and then renege once they retire? The law doesn't allow this for pensions. Why should it for retiree medical?
The “staggering” increases come from much higher medical cost increases (inflation and utilization) than expected over the past 20 years. The cost turned out to be larger than GM or the union expected, just as they did at other companies. GM’s been hit so hard because it has so many young retirees who are the most expensive. Also, don’t forget that the tax code encourages paying employees through worker and retiree medical benefits, since they’re not taxed to employees, but are deductible for the company.
Maybe the VEBA was too little, too late. But, let’s acknowledge that the company and the union did cut the company’s share of cost and try to resolve this issue. Slocum asks, how would GM's funding the VEBA be any different than just continuing to pay the retiree health care costs? First, under the VEBA arrangement, the union agreed to cuts in the level of benefits. Second, GM offloads the risk that future health care costs will rise more than expected.
So, it’s not that the union negotiated big increases. It’s that they didn’t agree (until recently) to cut the plan that GM had already promised and that grew just like all retiree health costs grew in the country. Perhaps this is just semantic, but it feels different to me than the job bank and other featherbedding.
Rob, Just asking: Would you consider a .02% tax increase to finance a Big 3 bailout to be symbolic as well?
No matter how much a detroit autoworker gets paid, when you compare them to the compensation of Toyota workers, its many times more.
Is this true? Does anyone have a table of average pay of workers from Toyota, Honda, Daimler, VW etc both at US based plants and in their home geographies? I think it is impossible that actual hourly takehome pay (eg not fully burdened with retiree costs) for GM is "many times more" than Toyota workers. In fact, I'd guess that Daimler workers in Germany and Toyota workers in Japan make fairly similar take home wages (medical benefits are apples to oranges.) Anyone have data?
This thread is fun. There's so much bad reasoning to keep me entertained.
Freddie:
“both the inferiority of their product, and the amount of their compensation, is a product of decisions made by management, and yet all of your criticism is for the union. Why?”
yancy:
“The workers are behind the bondholders? For their deferred wages? That they contracted for? Where is the libertarian outrage at this?”
The big thing that all these (sudden) sanctity of the contract converts ignore is that there was a giant knife at GM / Ford's throat during the negotiations. One party to the negotiations is exempt from the laws that are supposed to prevent violence while the other had no such option. GM could bring in workers to work more cheaply than UAW workers but UAW workers had the legal sanction to harass, assault and possibly murder those workers (the supreme court ruled that the union's first amendment rights to free speech includes the right to publish the names and home addresses of "scabs" / "replacement workers" / "people doing the same job for less money", what do you think the message there was?) How much would you pay me per month in rent if you (a) can't move and (b) can't defend yourself if I can have you beaten if you don't agree to my rent requests?
Now, is the union the villain? Well, yeah, obviously: these legal changes didn't just happen, the union pushed for them. On the other hand, the real crime here is that no one will build an industry in the United States that employs fixed capital and lots of people because the law is so badly administered. Who benefits from this? Workers? Not really. Entrepreneurs? Not really either. Oh well, lots of fluff jobs if you got in on the ground floor of the "let's steal stuff from companies with big investments in fixed capital" thing.
Fun to watch everyone avoid the meat of the issue.
Megan, before you tackle the question of how much a Detroit autoworker is really worth, how about pondering how much a completely ignorant twink of an "economics columnist" for Atlantic Monthly is worth. And yes, come to think of it, I will have fries with that Coke. Make it snappy.
Of course, but is any of this money going into the pockets of people who are still working? I don't think so. When we hear that their compensation is $70 an hour, as if that was base pay or something, it's entirely appropriate to be outraged. It's creating the image that these people are making well over $100,000 before taxes, when the average salary for an autoworker is something around $57,000.
Why is this so difficult to understand?
Herb, you wrote:
Maybe instead of worrying about the cost of retirees, who have already earned their pensions with a careers' worth of work, we should really be worrying about the costs of executive compensation.
Cutting executive pay to nothing WILL NOT SAVE GM. The ONLY solution is to cut the pay and benefits of line workers. There is symbolic value in cutting the CEO's pay at the same time, but minimal practical benefit.
This is not difficult to understand.
Brian,
If you check out uaw.org you'll see that UAW members can retire after 30 years of service and they will get $32,760 a year until they are eligable for Social Security when they will get $16,920.
So, a UAW member who starts at GM at age 18 can retire at age 48 with a pension of $32,760 a year. The tax free value of such a benefit explains part of the gap between UAW wages and the total cost of those benefits.
I don't have the exact numbers but I assume you could, in theory, buy an annutity at age 18 that would give you 32,760 a year from 48yo to 65 yo and 16,920 a year after that. However, that would cost you thousands of dollars per year.
Every dollar that GM and Ford could have spent on R&D and high quality parts was instead spent on ensuring UAW members could retire at 48.
Before assuming that the pay of UAW members is out of line I'd like to see the salaries of GM white collar workers, estimated in the same way as for the line workers. In other words, if we count retirement benefits as part of the pay of UAW members we should also do so for their white collar counterparts. I'd also be interested in the ratio of white collar to blue collar workers. And finally, I'd like to see the comparable figures for the Japanese firms with factories in the US.
Addendum: According to a recent piece in the WSJ, GM has 64,000 blue collar workers and 30,000 white collar workers. To repeat, I'd be interested in the hourly compensation of white collar workers, computed in the same way that Megan computes the pay of blue collar workers. Without knowledge of this figure it's impossible to accept Megan's thesis that the plight of the American auto industry is due to their generosity to their assembly line workers.
Part of the problem is that when management agreed to these health care arrangements the definition of what constituted health care was radically different. Compare the level of care JFK and Jackie Kennedy were able to provide for their child that died in the early '60's, even with cost being no object, to what our greedy geezers demand today, and no organization could exist without substancial reformation of the contract.
Really? You've run the numbers? Or are you just throwing out a figure off the top of your head? Sounds to me like you're deliberately narrowing the pool of 'executives'. Why not include not just the Top Men, but other white collar workers, other management as well?
This strikes me as arguing backward from a conclusion.
I think Stan is right, btw. And also points to yet another reason why out-of-line managerial pay is so dangerous.
There was a time when the Emperor of Japan, the Tzar or Russia, and later even Joseph Stalin were driven around in Packard limos. ( Packard Motor Car Company of Detroit, Michigan) There was a time when Fred and August Duesenberg of Aburn, Indiana made what were without question the finest cars in the world. How did it all go wrong?
When Henry Ford first produced the Model T, it was far from 'the finest' auto on the road, and that was by design because few people could afford the finest. Henry Ford revolutionized the industry not by building the finest of luxury cars, but by building a good car that millions could afford (I suppose you could say it was the Honda Civic of its day). Building 'the finest' is no kind of protection against failure if the value for the dollar isn't there. And, as Duesenberg discovered, it's especially no kind of protection in difficult economic times, when the luxury end of the market shrinks the most.
Duesenberg's history is kind of interesting for the present discussion. By the time it moved to Indiana, it had already been through bankruptcy once. A couple of few years later, Cord bought the company, hired the Duesenbergs, and moved operations to Indiana. Then the whole company went under ten years later in 1937 -- do think that year has any relevance for the present discussion? Economic downturns are the most likely times for weakened companies to hit the wall.
So how did it all go wrong? It didn't. Nothing went wrong wrong -- it's quite normal. Many automakers have disappeared other than Duesenberg and Packard (in fact, the whole list is kind of mind-blowing). There used to be many manufacturers of passenger airliners besides Boeing and Airbus. Most of the companies making PCs in the 1980s are now gone. But none of those industries died.
If you're going to start griping about the number and wages of white-collar workers at GM, you're going to need to discuss the number of brands that GM has. They probably need a lot of white-collar workers to cover duplication of work. 8 brands means 8 separate rules for sales, 8 sets of dealer-relationships, 8 different sets of contracts, etc.
Let's not forget the parts manufacturers that used to be part of GM. Delphi was only spun off in 1999 and it went into Chapter 11 bankruptcy only a short time ago. Delphi was formed with most of the same structural problems as GM has now. Only, as a spin-off company, it had less money to burn and had to submit to bankruptcy sooner.
My gripe has more to do with consistency. People want to count Union members as one entity, the UAW, and then claim it's those costs of a monolithic entity that are insupportable. They don't want to compare the costs of one CEO to one line worker, for the obvious, if not very nice reasons.
No, if you're making these sorts of comparisons, compare organization to organization, or class to class, not all the members of one organization to one particular person. That's idiotic.
ScentOfViolets:
It's obvious why. A lot of people that read this blog are violently anti-union. They feel that the CEO's ought to be able to steal and plunder the company they work for. If the workers ask for a decent wage? Death to them!! It's rather strange. But then that's why Libertarianism never gained main stream acceptance. Even Henry Ford recognized it was a good idea to pay the workers enough to be able to afford the product they were making. To all those people out there that think they know it all. How much do you think it costs GM to run their five(just reduced,in the past day or so, to two) private planes per year?
It's obvious why. A lot of people that read this blog are violently anti-union. They feel that the CEO's ought to be able to steal and plunder the company they work for.
Nonsense. In addition to the labor cost problems, it's obvious that GM also has serious cost problems in its excessive number of brands and dealers. Chapter 11 would allow all of these to be restructured. And, sure, the CEOs probably should be canned as a part of bankruptcy reorganization. And, definitely, sell all the corporate jets.
As for managers and engineers in general -- the difference is that their wages and benefits were never driven far above market value for managers and engineers at other automakers in the U.S. and in comparable industries.
If the workers ask for a decent wage? Death to them!! Death to them!! It's rather strange. But then that's why Libertarianism never gained main stream acceptance. Even Henry Ford recognized it was a good idea to pay the workers enough to be able to afford the product they were making.
Oh brother. Don't Toyota and Honda workers earn a 'decent wage'? Can't they afford to buy and drive cars? Hell, people who make substantially less that Honda and Toyota workers own cars in this country.
Sorry -- even if you use the $28/hour figure (not including legacy costs or generous benefits), that's nearly $60K a year for unskilled labor (without accounting for any overtime). That's ridiculous.
Slocum writes:
Are Ford engineers in Dearborn paid more than Toyota engineers at the Toyota Ann Arbor Tech Center 30 miles to the west? I seriously doubt the Ford engineers are paid more -- does anybody have data to suggest they are?
I seriously doubt it is the same. I imagine the median years of seniority of a Dearborn Ford engineer are higher than his or her counter-part at Toyota's Ann Arbor facility.
In addition, if we're going to computer white-collar wages the same as blue-collar, the Ford engineer's salary should count the costs of supporting some amount of retired white-collar workers.
Slocum,
Very very interesting. Do you think that each failure of a competitor taught the Big Three the wrong lesson? Perhapse they learned it wasn't enough to build the best car you could, having the best corporate structure, the best finance deparment, and the best marketing people, was far more important than engineering and build quality.
Replying to Slocum once again:
As for managers and engineers in general -- the difference is that their wages and benefits were never driven far above market value for managers and engineers at other automakers in the U.S. and in comparable industries.
Never?
It's been almost 20 years since I worked in the shadow of the blue oval, but at that time, Ford white-collar works had outstanding wages and benefits that exceeded other industries. Five weeks vacation, 15 holidays, paid overtime at time-and-a-half (yes, for salaried worked), health benefits equal or exceeding everything the UAW had, and a generous pension.
The white-collar workers were always looking at the UAW contract negotiations with interest. Any benefit the UAW got, they received as well.
ScentOfViolets: "People want to count Union members as one entity, the UAW,..."
Of course. That's the purpose of a union. It's a single legal entity that GM is legally obligated to get it's labor from.
All these discussions about who's fault it is/was are beside the point. For whatever reason, Detroit Auto is inefficient. It should be allowed to die. Let Toyota become the biggest manufacturer in America. Americans can still buy Toyota stock if they want to own an auto company.
A bankruptcy reorganization will cut the pay and benefits of everyone that works (or worked for in the past) for GM, or Ford.
Some of the above commenters seem to think bankruptcy is a way to screw over the UAW and it's members. A bankruptcy is a means to save a viable operation from the wreckage of an unviable one. This is why the bailout is a bad idea- it allows the unviable business to continue to destroy wealth, while, at the same time, starving viable businesses of capital. It is a two-for one bad deal.
Even if the companies went completely out of business and the plants and equipment rusted into dust (not going to happen, but let's just suppose), it would be a better deal than having the government propping up a money-losing operation in perpetuity. At least the viable operations won't have to compete for factors of production in auto manufacture.
The reason that it is reasonable to include retirees in GM's labor costs is that the benefits paid to the retirees are still under negotiation by the union.
And the reason to describe it as a fixed cost, rather than a per-hour cost, is that it's a fixed cost, not a per-hour cost.
Right. No mention of the rest of the post: "No, if you're making these sorts of comparisons, compare organization to organization, or class to class, not all the members of one organization to one particular person."
But then again, you're also the guy who wrote:
after writing:
Yes, I am observing that you're a rather dishonest little fellow.
ScentOfViolets,
The CEO negotiates his own compensation with the company. The union negotiates their own compensation with the company. In this regard, the CEO is directly comparable to the union.
"Yes, I am observing that you're a rather dishonest little fellow."
How can I write this:
"My fridge is empty."
after writing this:
"No one (besides Megan) has information on the contents of Megan's cupboard, and if ScentOfViolets claims to know, he is making shit up."
My first quote concerns individual working hours, if I remember the conversation correctly. My second quote concerns individual productivity. Information on the first is available, information on the second is not.
I'm sorry the concept of "we know the median of some things, but not of other things" confuses you.
Ninja,
I doubt that he is confused. SOV has a pathological need to get the last word in any debate, and he has demonstrated time and again that he will deliberately misinterpret and misquote you in order to make that one last, additional debate point.
It took me about a week of dealing with him to realize this. He is immune to facts. He will constantly call on you to produce cites to even the most obvious things, and when you do, he will discount those cites and call for others. He will belittle you for having the audacity to contradict an educated scientist/mathematician. His appeals to authority, his own, are amongst the most laughable tactics I have ever seen in online conversation. I laugh my ass off every time he does this. Once you fully get the full measure of him, only then will he begin to ignore you.
Very very interesting. Do you think that each failure of a competitor taught the Big Three the wrong lesson?
I think that the lesson the Big 3 (and the UAW) failed to learn was that it is very dangerous to run a shrinking company even during apparently good times when it is still profitable. Because every lost point of market share makes your fixed overhead (which very hard to shed) that much of a bigger burden and makes you that much more vulnerable to disaster in bad times.
When things finally got bad enough, the UAW did negotiate on costs, but in waiting so long and imposing expensive terms for those reductions, they pushed the Big 3 so close to the edge that the downturn is now about to send them over.
GM lost close to $40 billion for 2007 and most of the was not operating losses, but restructuring costs including buyouts of high-priced UAW labor (up to $140,000 a head for those with more than 10 years of service):
http://money.cnn.com/2008/02/12/news/companies/gm/
That was money that is now badly needed to survive the downturn (and money that they're trying to get taxpayers to backfill -- should we all be retroactively dinged to pay off excess UAW workers at $140,000 a head?)
And even after going through all that:
"The Center for Automotive Research estimates that by 2011 GM's hourly workforce will be only 8% smaller than current levels - but more than four out 10 of those workers will be new hires being paid a lower wage rate."
So even by 2011 (if GM exists by then), more than half of GM's workforce will still be at the old higher pay scale. And that's going by the 'optimistic' end-of-2007 estimate. The way things are going now, their workforce will almost certainly shrink by a lot more than 8% and they're unlikely to bring on anywhere nearly as many new, lower-cost workers as expected.
Raise your hand if you think GM is going to be able to come back from the dead during what is likely to be the worst recession of our lifetimes while still paying around 60-70% of their hourly workforce a wage of $60K a year (plus really nice health and retirement benefits)?
To OGWiseman - Please pay attention -
Global Warming is a HOAX. Please let's stop the insanity.
Have you not noticed the recent record cold and getting colder, that the 1930's were the warmest decade in history, that the medieval warm period was real, that the "hockey stick" is debunked, the Artic ice is growing, the Antartic ice has been growing for years. Global climate change is caused by, well, the globe (and the sun and other natural forces).
I propose a new and simple rule. Anyone who mentions "global warming" or "man made climate change" shall be laughed at and completely ignored until they renounce this obviously insane theory.
Thank you - that is all.
Sure. And both the CEO and the members of the UAW are both mammals, and so in this regard, they are directly comparable as well.
What does this have to do with the issue of how much of the cost of each car is due to blue collar vs white collar employees? Not much that I can see. And yes, selective quoting is dishonest. We all know this.
Uh, no, little guy. To be consistent, you have to come up with a source for the 'median poor person', you so blithely alluding to this construct and all. Not a difficult concept, nor a confusing one, your floundering about above to the contrary.
I note, btw, that other people have remarked on your dishonesty in this regard as well. As I and others have said, it's considered really bad form to just say whatever you think gives you an advantage during a conversation, and then reset for the next one with utter disregard for what came before.
Now, you can either come up with that source for the 'median poor person' you cite, or I can dismiss you as yet another dishonest right-wing git. I'm not in the mood to provide you with entertainment, and I'm not going to talk to someone who operates with such egregious bad faith on such a consistent basis.
Re: One party to the negotiations is exempt from the laws that are supposed to prevent violence
????
Please cite verbatim a legal statute in the USA that exempts working people from laws involving assault and battery, malicious destruction of property, etc.
"$70 per hour: right or wrong?"
Basically wrong. Retiree costs behave like a fixed expense (or at least fixed in the sense that they are independent of productivity). Health care costs likewise. Wages are directly linked to hours worked (except perhaps for the job bank; don't know how that works). Retirement/pension could be either, depending on how it's calculated.
$70 is not a useful or accurate figure if one is trying to figure out productivity; that figure should be the marginal cost, not the average cost (which includes fixed costs). On the other ahdn, retiree costs (at least for the unionized workders) do result from the collective bargaining agreement, so in a sense they are part of total labor costs. But then many, many costs are the result of negotiations, so it could more usefully be thought of as overhead.
It is usually the case that start-ups (such as the Japanese plants in the South) have lower labor costs than established companies in the same industry, even when both are unionized. Look at Southwest vs the legacy carriers. Southwest boasts of its high union density. But, because of how they are structured, they are much more productive than the legacy carriers.
SoV,
Why don't you do your own homework for a change? You can find last year's 10-k for GM on Yahoo! Finance, and you can figure out what percentage of the company's payroll went to UAW workers versus executives or the broader category of white collar workers.
ScentOfViolets: "To be consistent, you have to come up with a source for the 'median poor person', you so blithely alluding to this construct and all."
I already did. You quoted my comments from this thread:
http://meganmcardle.theatlantic.com/archives/2008/10/the_end_of_the_war_on_fat.php
The source is posted there too. Since you already found that page and quoted from it, you must be deliberately ignoring the source I posted.
By the way, are you ever going to come up with a source for your claims about median productivity? Or are you a liar too?
"I note, btw, that other people have remarked on your dishonesty in this regard as well."
Yes, earlier today anne posted this on Mark Thoma's blog:
"This is the essence of racism and sexism, and vile vile vile vile vile lying, lying for sake of racism and sexism, lying for the sake of destruction, lying beyond self-control."
Today she skipped straight to accusations of racism, since last time she tried to argue on facts, her own sources proved her wrong.
I've noticed this happens a lot. People on liberal blogs seem to get hostile when I refute their arguments. So they call me either a liar or a racist.
Genius:
This discussion has strayed (as they all do) from it's central point: is the $70/hr figure more truth or more lie? Barbar has neatly pointed out why it's the latter.
Chuckle. No, NZ, you didn't. You have one link to the Heritage Foundation, of all places, and that's it. In fact, you can't come up with a cite for the 'median' poor person, because it is unclear how to even define such a person, let alone actually sample the populace to arrive at the 'median'.
Nor have you explained your dishonest editing of my quotes.
Since you can't come up with anything worth while responding to, I'm going to let this be my last post on this subject. I will admit to being amused by your pathetic claim about 'refuting people on liberal blogs' though. Yes, people do call you a nitwit, dishonest, etc, and it's all evidence of how right your are. Whatever you gotta say to yourself dude.
This discussion has strayed (as they all do) from it's central point: is the $70/hr figure more truth or more lie? Barbar has neatly pointed out why it's the latter.
Really doesn't matter. Even 'only' $60K a year plus gold-plated fringes for unskilled workers is still way above what the market will bear and, more to the point -- way, WAY, beyond what GM et al can now afford.
The cost of each line worker is a big problem, but an even bigger one now is that they need to cut production sharply and shed workers without sending them to the Job Bank or cutting them a huge buyout check.
BTW, one point I haven't seen made about the delay in the auto bailout yet is this -- by the time the Detroit CEOs return to Washington, they'll have had to report their November numbers, and I guessing they're going to unbelievably ugly. Possibly so ugly that it will be difficult to see how even the whole $25B right now would keep them afloat for more than a few months.
Why is it that the apparently logical solution to GM's problems is to cut workers' pay and benefits? It was logical for the airlines, too, and others. But the result of all this logic is that life gets worse and worse for more and more Americans. So looking at the forest instead of the trees, we have a big problem here, and the root of the problem is this irrefutable logic of capitalism, in which the quality of life for most of the people (those who have to sell their skills and labor, including bloggers) is superfluous and not part of the calculation. Your particular skill may be in demand right now, but if the invisible hand swings the other way, well, sorry, but the soup kitchen's right down the street.
Henry Ford did have one thing right: he figured out that he made more money by paying people enough to buy his cars. Though certainly no liberal, he understood that that the logic of unrestrained capitalism leads to revolution as more and more people conclude (correctly) that there is nothing in it for them. That was what we all understood until the free market true believers convinced many that you can measure everything by its efficiency in generating money. Well, now we see the result of that logic, and it is not what we once thought America was all about.
Either we figure out what Henry Ford did, or we go the way of Brazil and Mexico, where your hungry replacement is waiting outside the door every day, and the liberal (in the old sense) democracy we grew up in is lost in a downward spiral. That's what's really at stake here. I will take some inefficiency and illogic if it smooths out the boom and bust cycle we endured until FDR.
ScentOfViolets: "You have one link to the Heritage Foundation, of all places, and that's it. "
Ah, so you found my source. You just decided "heritage is evil" without even following the link. Had you done so, you'd realize the original source (rather than the review article I cited) is the census. Here is chart of census data:
http://www.heritage.org/Research/Family/images/Chart1.gif
Yeah, get that: heritage took census data and made a graph! It must be a lie.
Based on this chart alone, you can determine the median (with some error bars).
This chart is for working hours per family, which is of course an upper bound on working hours per person.
"In fact, you can't come up with a cite for the 'median' poor person, because it is unclear how to even define such a person, let alone actually sample the populace to arrive at the 'median'."
Dumbass, the 'median' poor person (actually household) is the person with the property that half of poor people work more than him, and half of poor people work less.
Please, learn some basic, high school level math. It will do you a world of good.
Yancey: "and he has demonstrated time and again that he will deliberately misinterpret and misquote...He will constantly call on you to produce cites to even the most obvious things, and when you do, he will discount those cites and call for others. "
Spot on. I'm surprised he kept doing it even after you predicted he would.
Not to be pedantic here, but GM itself says its average hourly labor cost per employee in 2006 was $73.26, consisting of $39.68 of cash compensation and $33.58 of benefits, SS, etc. If you read the source document, it says that's its actual employment cost for an hour of labor, not the cost including an allocable share of retiree benefits. The original document is here. It's certainly possible that this description is unduly elliptical about how it was calculated, and that they are burying information, but on the surface this document does seem to say that on average an hour of labor in 2006 cost GM $73.26.
I suspect that is a number based on actual hours worked, not hours paid, which means that the number is lower if spread over a 2080-hour year (actual hours worked is probably in the 1600-1800 range, with the difference being holidays, break time, paid vacation and stuff like that; overtime probably cuts into that somewhat). Still, for manual labor that's a very very nice living, and really not sustainable long term.
Whether Rick Wagoner is a jerk, and GM management incompetent and bloated (both probably true) does not absolve the UAW of their contribution to the current mess over several decades. So yes, fixing it is going to mean pain through the whole organization: management, labor, dealers, suppliers and creditors. But it will only happen if there is a chapter 11 or equivalent, where the pain can be spread around and imposed without letting anyone off the hook. And what will come out the other end will be stronger, more sustainable and better for the rest of the economy in the long run. A bailout will just perpetuate the problem.
As far as I know, most (if not all) ethnic supermarkets and stores here in southern california do not hire union workforces. They typically hire Mexicans who have no problem with multitasking - they'll bag groceries, return carts, carry loads, check merchandises. They do not receive healthcare, and if the supermarkets were forced to provide it, they wouldn't be able to hire the workers in the first place.
OF course we enjoy the low cost made possible with such arrangements. My parents buy IMPORTED merchandise from Korea or Japan that cost way less than a typical item available in big American chains like Ralphs. If Korean supermarkets actually made an effort to attract English speaking customers, the American grocery businesses would be in serious trouble.
See (I have posted it as my URL) Jonathan Cohn's "Assembly Line: Why Are We Bailing Out Auto Workers Who Make $70 An Hour?" in the latest New Republic.
Your particular skill may be in demand right now, but if the invisible hand swings the other way, well, sorry, but the soup kitchen's right down the street.
Think of it as an incentive to be flexible with your skills so you're not dependent on one factory to make a living. Everybody has a 2nd option, it's just that the 2nd option probably won't pay as well as the first option, but if you're flexible it won't be *that* much difference. Efficiency means we *won't* end up like Mexico. If you think inefficiency is a good thing, there's the model country for you.
Nelson, I'm guessing you are in your 20s. The picture looks entirely different for someone in his 50s. I have loads of high-tech skills/knowledge that are very much in demand and pay nicely, but I am also very well aware that I am not the only one. That demand could contract and then, and then, well we all know the stories about PhD's driving taxis. And with kids in college and retirement not so far away, somehow I just can't be quite that cavalier about my 2nd options. Not to mention the waste of talent that ensues (let's talk about efficiency when people can't use the skills they are highly trained to do).
But my point was really about the real effects on real people. You want to put it on the individuals, but the big picture is of the trajectory of society when whole segments see an increasingly tenuous hold on a middle class lifestyle. This is deeply corrosive dynamic that bodes poorly for the American project. You're right that most highly educated people will probably figure out a way to make lemonade, but that won't do me much good when the backlash comes. If you take efficiency over a long enough timescale, it just has to include lifting all boats.
No, if you're making these sorts of comparisons, compare organization to organization, or class to class, not all the members of one organization to one particular person. That's idiotic.
Feel free to make whatever comparisons you wish. As you can see from above, Herb brought up one guy (the CEO), so that was my response.
I don't care if white-collar pay/benefits are cut. Indeed, I don't care anything about GM at all, as long as they make a profit by selling cars rather than by sucking tax money out of the government. But suggesting that the CEO's salary is the problem--as Herb did--is incorrect.
This is a management-published document. Management is constitutionally aligned against the interests of labor. In a crisis, their position is to blame labor for the failures of the organization, and their own interests are served by inflating the per-hour labor costs of production. Thus, when management says their labor costs are $70+/hr, rest assured the true average cost is much lower.
Stuart, you just saved Freddie a lot of monitors. Although he may continue to put bricks through the monitor when he sees someone mention the $70/hour figure if only because he realizes how vacuous his hysterics are in response to that brutal, unsustainable truth.
Why is it that the apparently logical solution to GM's problems is to cut workers' pay and benefits? It was logical for the airlines, too, and others.
Because those industries, uniquely, had wage structures that were completely out of whack with respect to what people with those skills would be paid elsewhere and that was unsustainable. When a company is in trouble but its wages are already at market rates, then the solution isn't to reduce pay.
I think Caterpillar got this whole thing exactly right with the UAW:
You want to earn more? Well, it won't work to come in with minimal training and then do the same unskilled assembly line job year after year, decade after decade and count on seniority. Instead, you're going to have to learn new, valuable, marketable skills.
If Detroit and the UAW had adopted this model years ago, they'd be in the financially solid position Caterpillar is now (at this point, how many Caterpillar UAW workers do you think would like to trade places with their union brothers at Ford, GM, or Chrysler?)
Er, no. I don't take Heritage, Cato, Rush Limbaugh, et al to be valid sources for the same reasons most people don't: they're propaganda mills. If they've got anything valid to say, a reputable source for the same information.
And so this is chart, supposedly, of the number of hours a 'poor' person worked. This is not a cite that supports your claim about the 'median' poor person.
No, this is not a 'median' poor person. In fact, you can't even make the claim that the median hours worked translates into median income, let alone the income of a 'median' poor person (no, you don't get to make up a definition on the spot and after the fact as to what a median poor person is. The definition that it's someone who has worked the median number of hours is just silly. And nonsensical.)
And with _that_, along with your initial dishonest snippage here, I think we are done. You're not only dishonest (as other people have noted), you're a lightweight who's dishonest.
"You want to earn more? Well, it won't work to come in with minimal training and then do the same unskilled assembly line job year after year, decade after decade and count on seniority. Instead, you're going to have to learn new, valuable, marketable skills."
In most places, working for these manufacturers and mills are the best jobs for a 50 mile radius. If people need to work their way into the middle class in these places, that probably means the rest of the population that does not work at these plants are not going to have much money. We are dooming an entire generation of Americans to poverty.
My grandfather had a middle class living as a relatively unskilled worker. He was able to get a job in a mill as a worker at the age of 38 (!) after owning a bar for 10 years. I thought we supposed to be getting richer rather than poorer. Richer would mean the same jobs get paid more in real dollars. This does not seem to be the case.
Sigh. No, Rob, that's an arbitrary and inapplicable comparison that _you_ are making. Enough with the false equivalences. I'm sorry to say this, but, my comparisons are correct; yours are just wrong - I suspect, given your wording, deliberately so.
If by some chance you think that a lawyerly argument is the correct style of argument, please disabuse yourself of the notion. That's the sort of crap that put us into this mess in the first place. We're looking for something a little more scientific here.
Suggesting that the salary of one guy working on the assembly line is as much of a problem as the CEO's pay - as you are - is in incorrect.
Herb didn't say any such thing, if you'd bother to read what he actually said. He said that small numbers multiplied by large ones can still result in some pretty large numbers. Not a difficult concept, or one that is easy to misinterpret.
Actually, it seems to be saying just the opposite of what you are claiming. It's a .pdf file, unfortunately, so I can't directly cut and paste, but I suggest everyone read it.
Suggesting that the salary of one guy working on the assembly line is as much of a problem as the CEO's pay - as you are - is in incorrect.
Tat would indeed be incorrect. I would appreciate a quotation of where I say this.
Herb didn't say any such thing, if you'd bother to read what he actually said. He said that small numbers multiplied by large ones can still result in some pretty large numbers. Not a difficult concept, or one that is easy to misinterpret.
Indeed. I would appreciate a quote of where Herb said this. Granted, precisely your point did come up here:
tens of thousands of middle-class paychecks easily swamp [the CEO's] in value
But that was me multiplying the small number (UAW pay checks) by a large one (the number of workers).
ScentOfViolets: "Er, no. I don't take Heritage, Cato, Rush Limbaugh, et al to be valid sources for the same reasons most people don't: they're propaganda mills. If they've got anything valid to say, a reputable source for the same information."
Yancey: "He will constantly call on you to produce cites to even the most obvious things, and when you do, he will discount those cites and call for others."
Yancey has you pegged. As you already ignored, the source of the data is the Census. Heritage put it into a graph.
"No, this is not a 'median' poor person."
If you want to be pedantic, this is a median poor person relative to hours worked. The median is always a function of a population and a statistic. In the context of a conversation about the working hours of the poor, I left the statistic implicit.
Tell me; exactly what lie do you think I was telling? What false fact was I attempting to convey?
Feel free to play your word games; my language is not 100% precise. Neither is yours. We are commenting on a blog, not writing academic papers.
"In fact, you can't even make the claim that the median hours worked translates into median income,"
I made no such claim. Someone claimed that the poor are fat because they work hard and have no time for healthy cooking and exercise. I refuted that claim by providing information on the working hours of the poor.
By the way, you still haven't sourced your claim for median productivity. You didn't even define it. So I guess that makes you a liar too, eh?
Let's do the replay, shall we?
So, it looks like _you_, not Herb brought up cutting CEO pay, as opposed to cutting 'executive pay'. Try to keep things straight, eh? Further:
Iow, yes, Herb is talking about multiplying small numbers by large numbers to get - surprise! - a large number. Did you actually search for the specific quotes, Rob? It sure doesn't look like it.
In most places, working for these manufacturers and mills are the best jobs for a 50 mile radius. If people need to work their way into the middle class in these places, that probably means the rest of the population that does not work at these plants are not going to have much money.
But 'working for these manufacturers' can mean a lot of things, from floor sweeping, to skilled trades, to supervisory, management, and engineering technical positions. It's reasonable that positions in these companies requiring skills and education should be among the best paid jobs in the region. But if unskilled labor in a plant is better than everything outside the plant, then there's something seriously wrong -- either those positions are being paid way above market rates (and that manufacturer is headed for a fall sooner or later) or the region itself needs serious upgrades in education and infrastructure.
And I can tell you with complete certainty that working on an auto assembly line is nowhere close to being the best job available in a 50 mile radius from Detroit (which encompasses a metro area of about 5 million people). Working on the line may be the highest paid unskilled job in SE Michigan (or just about anywhere for that matter), but we already know that's not sustainable.
Bottom line -- if you want to make a median income, you're going to need a median level of skills and education. No, you can't make professional-level wage with minimal skills and education--that was an unsustainable historical anomaly.
I thought we supposed to be getting richer rather than poorer. Richer would mean the same jobs get paid more in real dollars. This does not seem to be the case.
We become richer by getting smarter and more productive, not by doing the same damn jobs the same damn way our fathers did (but automagically getting paid more for no apparent reason).
There's a lot of unquantified assumptions here. Median wages are around $36K/yr. So what sort of skills/education do you need to make this sort of money? Note that far less than half the population holds even a minimal college degree.
ScentOfViolets, repling to Rob Lyman, wrote:
So, it looks like _you_, not Herb brought up cutting CEO pay, as opposed to cutting 'executive pay'.
Speaking of executive pay...
If you take a look at GM's web site, you'll see that the "Senior Leadership Group" is about 50 people. See: http://www.gm.com/corporate/investor_information/corp_gov/officers.jsp
I wonder what the median pay is in that group. And how many direct reports this group has.
There's probably a layer of management whose purpose consists of preventing people below them on the food chain from talking to people above them on the food chain. Strike that, I'd say several layers.
I suggest that eliminating 10% of the positions in the Senior Leadership Group, cutting the pay of the remaining members by 10%, and reducing the direct reports by 25% would improve company management, save some real dollars, and be a useful symbolically when asking others to cut back.
Tony, historically, this has been the biggest problem with the Big 3 vs the UAW. For that matter, it seems that this has been one of the biggest problems in general between management and labor.
It seems that for the last thirty years or so (at least) labor has systematically been called upon to make disproportionally large sacrifices wrt management; in fact, the management class seems very often to get bonuses despite dismal performance by the companies in question. This gets pretty old after a while, and far from being 'symbolic' - assuming for the sake of argument that their compensation has only a miniscule effect on the bottom line - if GM had actually cut managerial pay back in the 90's or 80's, I suspect that the UAW would have been far more amenable to 'sacrifices'.
And of course, it's pretty obvious by now that executive pay has not been a matter of econ 101 the way right-wingers would have us believe. Which in turn suggests that most compensation has relatively little to do with econ 101 and a lot more to do with bargaining power. Like that nice man Galbraith said many, many years ago.
There's a lot of unquantified assumptions here. Median wages are around $36K/yr. So what sort of skills/education do you need to make this sort of money? Note that far less than half the population holds even a minimal college degree.
A college degree isn't required. Most skilled tradespeople (plumbers, electricians, etc) earn considerably more than that.
That's not the question I asked, Slocum. Please give me a set of minimal qualifications that would, in your mind, justify a median wage. Don't tell me about the qualifications that will justify a salary well over this median.
That's not the question I asked, Slocum. Please give me a set of minimal qualifications that would, in your mind, justify a median wage. Don't tell me about the qualifications that will justify a salary well over this median.
But it doesn't work that way--'justification' is the wrong mindset. Wages are established in a market. You can't go to school for any qualification whatsoever (without paying any attention to whether there's a demand) and expect to make a particular level of salary. You could go to an Ivy League school for, say, a B.A. in Art History and end up driving a cab, waiting tables, or making $20K a year at a non-profit, while on the other hand a building trades contractor with a high school degree and adult vocational training classes and certifications may earn much more.
The point of gaining qualifications is to learn skills that a) not everyone can do shortly after walking in off the street, and b) make you productive. So there's no set of qualifications that guarantees or 'justifies' a median wage, but it's completely unreasonable to expect median level wages for a job that anybody with a 10th grade education could learn to do after a short period of on-the-job training.
"Please give me a set of minimal qualifications that would, in your mind, justify a median wage."
Who cares what qualifications Slocum, or you, think "justify" a median wage; your labor is worth what an employer (or, if your self employed, a customer) is willing to pay you for it. You can have a masters in art history and make $8 per hour at Starbucks, or you can be a self-employed plumber and charge $60 per hour. Neither is entitled anything more than what the market will bear.
Blink. Well, that was easy. I thought it would take longer for Teh Stupid to be made manifest, but it only took two additional postings:
contrasted with:
Slocum, do you actually think about what you've already posted in the very same thread on the very same day before you dip your toe into the water again? Even for a knee-jerk blatting of postions, this is an unusually short short-circuit.
Tony, historically, this has been the biggest problem with the Big 3 vs the UAW. For that matter, it seems that this has been one of the biggest problems in general between management and labor.
It seems that for the last thirty years or so (at least) labor has systematically been called upon to make disproportionally large sacrifices wrt management; in fact, the management class seems very often to get bonuses despite dismal performance by the companies in question.
Sure. The workers are supposed to act like communists instead of capitalists when it comes to their wages, turning down money that they bargained for, whereas management is justified in acting like capitalists and getting whatever the traffic will bear.
The ratio of CEO-to-worker pay has been going up all the time. In the case of GM, Wagoner just got a nice pay raise.
Since he's the guy at the top and responsible for his company's decisions, why not put the retiree's costs on his salary?
Slocum's bottom line is that the middle-class wages paid to autoworkers and others was an "unsustainable historical anomaly".
My bottom line is this:
If your argument/proposal/irrefutable logic ends up with a declining standard of living for large segments of society, then I hope you have a tall fence around your castle, and guards you trust.
That unsustainable historical anomaly was the time when American democracy flourished (with a similar experience in Europe, Japan, and later in the Asian Tigers). We throw that away at our peril. The market ideologues here seem intent on justifying the words of a certain pair of German philosophers who wrote in 1848:
(Marx and Engels, The Communist Manifesto)
The great project of America was to proving that the Marxian contradiction of capitalism was not inevitable. That proof rested, above all, on the ability of "the masses" to enjoy the pursuit of happiness and lack of scarcity; in our day measured by home-ownership, the family car, sending children to college, and freedom from fear of destitution. But maybe the historical anomaly was in fact unsustainable, and Marx was right. I hope not.
ScentofViolets:
Good God, man, do you have a job or otherwise produce anything of value in this world? You've spent practically a whole day commenting on this blog post.
Slocum, do you actually think about what you've already posted in the very same thread on the very same day before you dip your toe into the water again? Even for a knee-jerk blatting of postions, this is an unusually short short-circuit.
And do you read before commenting or is it a comprehension problem? Qualifications above and beyond those of an ordinary unskilled laborer are a necessary (but not sufficient) condition for a sustainable median wage. It's just not that complicated.
Asking about 'justification' for a salary suggests 'just price' thinking -- that a certain level of education 'deserves' a particular salary and it would be 'unjust' for a worker not to be paid what his qualifications say he 'deserves'.
That's an archaic form of economic thinking (Thomas Aquinas was a proponent), and I certainly don't think that way, but even if you DO think that way -- even then -- you should come to the conclusion that an unskilled laborer (a the bottom of the qualifications scale) does not 'deserve' a median salary (which is, by definition, in the middle of the income scale).
Herb challenged those who dissed the 0.02% contribution to the problem by the CEO whether they would therefore be willing to shovel out a 0.02% increase in taxes.
Herb, a 0.02% isn't close to enough. The Federal government tax load is approximately $2T, so 0.02% is $4B, or only about one tenth of the amount of money the so-called Big Three would really need to survive 2009.
-dk
Somewhat related, it appears that the federal government is about throw a few score billions at Citigroup.
I think it's now 150 billion for AIG, 29.5 for Bear-Stearns, 300 billion for the Money Market Investor Funding Facility, 700 billion for TARP, 300 billion for FHA, 350 billion for Fannie Mae and Freddie Mac. I'm leaving out the Commercial Paper Funding Facility, the Term Securities Lending Facility, and bog knows what else.
Why shouldn't Citigroup's losses be socialized? It's not that the money will go to undeserving UAW workers, so pour on the dollars!
No, Slocum, you don't get to have it both ways. You say that a 'tenth-grade education' won't cut it. How about an eleventh-grade education? Or a twelfth-grade? Oddly enough, people do expect you to be consistent in your presentation. The issue is - since you want to duck it - that you will say on the one hand will not be enough to earn a median wage, but refuse to say what will as a floor . . . on the grounds of a theory you didn't bother to apply to the first instance. And you know, for all of your insistence of an 'antiquated' theory, you sure do use it a lot.
Do you wish to retract your initial statement, or modify it in any way?
bouncing_b,
I understand what you are saying - but how would you enforce it?
For example - the oligopoly enjoyed by the Big Three back in there heyday was very secure for both executives and employees. Each year wages and benifits for the workers improved and vast new layers of management accumulated to provide cushy jobs for middle management. This was eventually undermined by the arrival of the japanese.
Now, at some even without the arrival of the japanes, some young entrepreneur would have eventually figured out that if he got some VC money together and started a car company, with only 4 levels of management and opened a plant in South Carolina or Alabama, he would be able to seel cars that were 30% better and 30% cheaper than the Big Three.
How would you propose to prevent new more efficient competition for undermining these cosy and secure structures?
After reading SoV's comments, I'm convinced.
Everyone should make above the median salary.
Good Lord! What did I say that would make you think that, FR? I said nothing about what anyone 'should' be making.
I have no perfect solution for the auto companies, and it does seem that there are overall too many cars being built, so some of this excess capacity has to go.
But one thing that would take some of the sting out of this for Michigan and Ohio would be a solid social safety net, a la western Europe. If people were not worried about having health care and a decent retirement, a lot of these arguments would go away. Right now you have thousands or millions of desperate people who see the possibility of losing everything after a lifetime of work. A safety net would give the breathing space, the political space, to deal with over-capacity and building those new green industries that Obama talks about.
I accept that zombie industries can't be propped up forever, but there is a very big difference in doing that by discarding people vs taking national responsibility for decisions that are in the best interest in the nation as a whole. That is, if we make a national decision that there are no longer going to be millions of well-paid jobs in the auto industry, then we pay the consequences as a nation. We don't just tell people to "be flexible" and absorb the costs of that national decision personally.
The winners of this decision would then be paying something to the losers, with the knowledge that if a decade or two down the road it happens to them, they will similarly be taken care of. "We're all in it together". It is clearly not ideal to have what is in effect a large welfare system, but if that is the cost of gaining political room to increase economic flexibility, it seems a bargain.
No, Slocum, you don't get to have it both ways. You say that a 'tenth-grade education' won't cut it. How about an eleventh-grade education? Or a twelfth-grade? Oddly enough, people do expect you to be consistent in your presentation. The issue is - since you want to duck it - that you will say on the one hand will not be enough to earn a median wage, but refuse to say what will as a floor . . .
Aaargh! Please, learn the difference between necessary and sufficient conditions. There is NO particular level of education that will absolutely 'guarantee' or 'justify' a median income.
If you want at least a median income, you're going to need education/training/qualifications beyond those of an unskilled laborer. How much more? It depends -- there's no right answer -- it depends on the market. But if you want an example...how about, say, nursing. That seems like a pretty safe choice at this point (given the nursing shortage and our aging population).
Bouncing_b,
Isn't the real problem that people don't save enough to deal with adverse life events?
We used to have a problem with people not saving enough to provide a somewhat decent retirement. So, we said everyone who works needs to contribute 7.65% towards their retirement. Couldn't we do the same thing for people who don't save enough to deal with other adverse life events, layoffs, retraining, etc. etc?
Instead of raising income tax rates by 5% we could mandate that everyone contribute 5% of their income to a "rainy day" fund?
So then this applies to union members too, eh?
Get this through your thick, ideologically fogged head, Slocum: if you can't list what the minimal qualifications are for some sort of reasonable shot ('guaranteed' was your blinkered addition)at a median income, then you can't list what are not the minimal qualifications either. And you said, most definitely that a 10th-grade education won't cut it. Well then, it's reasonable to ask if an 11th-grade education won't cut it either. Or a 12th-grade education.
This isn't rocket science; this is a matter of you being consistent within the particular confines of _your_ ideology.
Of course, what you initially wrote wasn't anything thought-out or consistent; it was just gratuitous, emotive union-bashing. Nothing more.
But one thing that would take some of the sting out of this for Michigan and Ohio would be a solid social safety net
An even better thing that would take the sting out is workers saving for their own safety net. There is a place for government keeping people from starving to death. But beyond that, workers that do have good jobs should live *below* their means and save for a rainy year. Otherwise they'll eventually become dependent on (or for the overly dramatic, slaves of) corporations or government.
That doesn't make any sense... What are you trying to say?
jmo:
Still sounds to me like SoV believes the majority of workers should make above the median income.
But let's face it, if you don't have the drive to make it through high school, you probably don't have the drive to develop the skills and work ethic necessary to make more than most people.
After that, other factors come into play, like the marketability of the skills you develop. Face it, the market for jobs gets more demanding not less. The skills that got you an above median pay job in the 1950's aren't going to do so in the 21st century.
Manufacturing workers could demand high wages in the 50's and 60's because the other major industrial nations were bombed out husks. The US (and by extension, American unions) had a monopoly in those days, but that time has passed like it eventually does for all monopolies.
Fraggle,
SoV is not trying to make a point about the median income or the people who make it. He is trying to make a point about Slocum's intelligence and/or intellectual probity.
According to the UAW's own stats (of course, if Rush Limbaugh quotes them, they will instantly become wrong), only 25% of its members that worked for the big 3 are working now. The rest are retired or surviving spouses.
Next, the UAW says that "nearly half the 180,681 UAW members at the automakers will have the necessary combination of age and years of service to retire within the next five years."
And finally, the UAW claims "as of the end of 2006 the U.S. pension plans for Chrysler and General Motors are fully funded and Ford is 99 percent funded."
http://www.uaw.org/barg/07fact/fact02.php
So, if these fabled defenders of the working class are telling the truth, there shouldn't be much of a problem.
They ARE telling the truth, right?
jmo says: Isn't the real problem that people don't save enough to deal with adverse life events?
And Nelson says: An even better thing ... is workers saving for their own safety net.
Well, yes. But here we are. Hundreds of thousands of auto workers did not follow this good advice, in the rather well-founded belief that their years of work at GM et al would provide them with an adequate cushion. Now it probably won't, and we have to deal with things as they are, not as they should be.
All this advice ignores the fact that the American Dream is badly tattered, and getting worse, for many or even most. This fact cannot be papered over with good advice about what people should have done. As I said above, the mid-20th-century flowering in this country was based on showing that Marx was wrong, and that we really were lifting all boats. I am not sanguine about the result if it turns out that mid-century America really was an "unsustainable anomaly" (per Slocum above). Like a lot of things in these troubled times, some things have to be done that are hard to swallow.
Fraggle Rock writes: And finally, the UAW claims "as of the end of 2006 the U.S. pension plans for Chrysler and General Motors are fully funded and Ford is 99 percent funded."
The pensions might be funded. Doesn't say a word about health care benefits.
Yes, when a skinny black boy, the son of an african immigrant and a white woman - born to a marriage that was illegal in nearly a dozen states, raised by his grandmother who had risen from secretary to VP of a bank becomes the President of the United States. Yeh, the dream really is in tatters.
Please. We can celebrate the election of Obama and still realize that all problems have not been solved. You can choose to deny those problems but that won't make them go away. Just the fact of the serious comments in this thread is a recognition of their intractability. Bringing up Obama to shut off discussion is really bad faith.
I am not sanguine about the result if it turns out that mid-century America really was an "unsustainable anomaly" (per Slocum above).
Well, it's sustainable in the sense that if the rest of the world loses its production capacity due to war or natural disaster, the country with production still standing will be better off, relatively speaking. To return to the 1950s we just have to carpet bomb the rest of the world and hope they don't do the same to us.
Sustainable with peace and a growing world economy means not accepting promises or guarantees about the far future in return for labor today. Accepting a promise to get paid at the end of the week is fine, accepting a promise to get paid in 40 years is not.
Rant: Why the hell do unions insist so much on future pay? Why not just get more pay today and take part of that to fund their own retirement/medical under their own watch instead of letting other people handle it (or not, as the case may be)?
About our retirement plans: The good thing about social security, medicare and other programs is they *are* forced savings for those without foresight or who don't think about their own future. The bad part is they leave a false sense of security. You may think they'll be enough so you might not save in addition to those programs, even though you should. Pensions/corporate paid retiree medical care are the same way, but they have less chance of being around at retirement so you may get nothing, or close to nothing.
Sustainable also means not imposing work rules that stifle flexibility. Safety is one thing, but some of the work rules aren't designed for safety. They're just there to maximize employment through inefficiency (which is unsustainable).
What a galactically stupid analysis. If GM makes a productivity breakthrough and is able to sell as many cars profitably with half the workforce, each worker's share of past workers' retirement benefits will double, too. In other words, get more efficient, but get less productive.
When someone makes a statement this blindingly ignorant and indisputably uninformed by first-person experience or a pittance of labor history, that person, as I've written before, is simply not to be taken seriously as a thinker, journalist or "opinion maker," whatever the hell that is. But perhaps the entry requirements for "econoblogger" boil down to being able to stoop through the boss's door and tell him how many "hits" you've had today.
It is probably pointless to remind people that this was once the magazine of Twain, Lowell, Stowe and Holmes, all of whom would have guffawed at this dross of condescension and laziness.
Assuming that the person who provides this "content" has access to a library card, or the means of accessing one, might I recommend two works that would prove useful as a primer and whose value has not dissipated:
"The Road to Wigan Pier" - Orwell
"The History of the Standard Oil Company" - Tarbell
Yes, this will require more effort than skimming the CATO Institute newsletter. (Not that the CATO Institute lacks value. It does not.)
Tom Mashberg
Boston
Get back to the issue.
Here are failing companies looking for nationalization (lets call it what it is.)
The fact is that the United Kingdom went through a similar excercise years ago when it had overpaid, unionised workers who made poor quality products with inept management. The end result was millions were wasted bailing out which did little to incentivize anyone to solve the core problems, end result....closure and no auto industry other than the foreign firms which came in to create jobs in a more competitive way.
The bailout will be have to be paid for by someone, can you guess who?
People really shouldn't whine about not getting something they didn't pay for in the first place, 'negotiations' or no 'negotiations'.
http://www.centerforlaborrenewal.org/?P=A&Category_ID=24&Article=197&PHPSESSID=0f8d
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VEBAs in the Auto Industry: How Companies Dump Union Negotiated Health Plans
By: Jack Rasmus
(forthcoming in the December 2007 issue of 'Z' magazine)
Once partners in pioneering employer-union health benefit plans in the early 1950s, the United Auto Workers Union, the UAW, and the big-three auto companies�General Motors, Chrysler, and Ford�now find themselves jointly presiding over the rapid dismantling of that very same system as it approaches its final stage of terminal illness!
The transition vehicle which now makes possible the accelerating collapse of Employer financed health benefit plans is called a VEBA. VEBA officially stands for 'Voluntary Employee Beneficial Association'. On the shop floor in the auto industry, however, it is sarcastically referred to by autoworker rank and file as 'Vandalizing Employee Benefits Again'.
This past October the UAW and GM established a VEBA health benefits fund. It was quickly followed by a Chrysler-UAW VEBA. And as this article is being written, the UAW and Ford Motor Co. have begun preliminary discussions on establishing the same, as the company and union prepare for general contract negotiations.
What's a VEBA and What Is It Worth?
With a VEBA, what were once health benefit plans funded by the companies�with defined dollar contributions per employee per every hour worked deposited into the fund�are now transferred in toto from the companies to the Union to manage and run. The companies transfer the plans and the funds that remain left in them; the Union now 'owns' and administers them. The companies abandon all financial responsibility and liability for providing or financing health care benefits; the Union assumes that same full liability and responsibility.
The problem is that the VEBAs of the U.S. big three auto companies are severely under-funded�individually and collectively. They have a total liability of approximately $100 billion, according to a New York Times article of October 6, 2007. However, the three will have only available total funds upon transfer to the UAW of around $50-$52 billion. That leaves about $48-$50 billion short.
By any definition from any fiduciary source, a trust fund (a VEBA, pension, or other) with only a 50% funding ratio would be considered severely underfunded, a candidate for bankruptcy, and would be at significantly great risk of collapse!
The estimated $50 billion collective shortfall for the three auto company VEBAs also represents the dollar amount that the Union and its members may eventually have to come up with in the years immediately ahead to ensure the VEBA funds remain solvent. The day of reckoning for funding the $50 billion shortfall may come sooner than later, as the auto companies know full well. For new, emerging U.S. financial accounting rules being rolled out this year and next will require trust funds like VEBAs and pensions to be valued accurately and fully funded going forward. That will require additional major financing and contributions by whomever 'owns and manages' a fund if it is 'under water'. The auto companies are thus conveniently exiting the game just in time, leaving the union and workers holding the bag.
The Three VEBAs
Various sources estimate the GM VEBA fund's total liability as high as $55 billion and its available funds at only around $35 billion, which leaves roughly $20 billion under-funded. But the available $35 billion includes only $29.9 billion 'cash' and $4.4 billion company securities. The securities element thus is about 15% of the total $35 billion. GM will therefore have to get a federal exemption to the legally allowable limit of only 10% of company stock in such funds. The 10% limit was established in order to avoid 'Enron-like' events where funds overloaded with company stock become worthless when the company goes bankrupt, leaving nothing for employees. The point is that the under-funding in the GM VEBA may rise well beyond $20 billion should the value of the securities in the VEBA fall�which may well happen should recession occur in the US in the near term as appears increasingly likely. That possibility aside, the GM VEBA shortfall therefore is at least $20 billion.
In the case of Chrysler the actual amount in the VEBA and its unfunded liability is more murky. Recently purchased by a private equity firm, Cerberus Capital Management, Chrysler is no longer a public company and need not report its finances in as much detail as GM or Ford. But it appears that Chrysler's VEBA is even more poorly funded than GM's. Whereas GM's fund will have roughly $35 billion in it at transfer, or about 70% funded, Chrysler's VEBA is reportedly only 53% funded according to business sources. Given that the total liability for all the 'big three' US auto companies is about $100 billion, and assuming the remaining $45 billion ($100 billion � GM's $55 billion) is evenly divided between Chrysler and Ford, then the Chrysler VEBA total liability is estimated around $22 billion. Sources like the Financial Times reports Chrysler's VEBA currently has no more than $8.8 billion in the fund. Chryslers' VEBA shortfall therefore may be around $13 billion.
With bargaining about to commence between the UAW and Ford as this article is written, it is virtually certain that a third VEBA will be agreed to by the union. The only question is what percentage of the total liability will be available in it at transfer. Ford claims it is financially the least profitable of the 'big three'. It will no doubt request even greater contract concessions from the UAW and offer less of a contribution to its VEBA than Chrysler or GM. In a Wall St. Journal article of October 26, 2007, one of the participants on the bargaining teams, noted that "the two sides still haven't agreed what Ford's retiree health-care liability is�let alone how it will be funded". One thing is certain, however, Ford is "trying to figure out a way to get more than GM got". It is virtually certain that Ford will contribute less than Chrysler's $8.8 billion to its VEBA. Most likely around $7 billion. With a total liability of around $22 billion, and available funds of $7 billion, that leaves an unfunded liability for the Ford-VEBA of roughly $15 billion.
In summary, the total un-funded liability for the VEBAs for the three companies combined now being dumped on the union and the autoworkers is approximately $50 billion by best available estimates: $100 billion total liability minus the $35 billion for GM's VEBA, and $8.8 and $7 billion respectively for Chrysler's and Ford's.
UNFUNDED LIABILITIES OF THE UAW VEBAs
Contributions to VEBAs
Estimated Total Liabilities
Unfunded Liabilities
GM:
$35 billion
$55.0 billion *
$20.0 billion
Chrysler:
$8.8 billion
$22.5 billion **
$13.7 billion
Ford
$7.0 billion
$22.5 billion **
$15.5 billion
TOTALS:
$50.8 billion
$100 billion
$49.2 billion
* Wall St. source estimate
** Writer's estimate based on publicly reported total liabilities
This scenario of grossly underfunded liabilities raises the key strategic question: where will the UAW and autoworkers get $50 billion future financing�especially given the likelihood of imminent recession, continuing double digit rises in health care costs, anticipated sharply rising worker retirement rates as the companies quickly push a new round of employee buyouts, and, as especially noted, given the pending stringent new accounting rules to require full financing and solvency of such funds by accounting agencies?
When VEBAs Go Bust
UAW union leadership has thus far been unable to save other VEBAs it has negotiated in recent years. The most notable example was the early VEBA set up with the UAW represented unit at Caterpillar Corp. in 1998. The VEBA there ran out of funds in 2004. The union has been in litigation ever since. Other UAW VEBAs recently at Detroit Diesel and Case are reportedly faring no better.
Other unions like the United Steelworkers have also set up VEBAs and they too are doing poorly. Which leads one to suspect that perhaps VEBAs are not meant to be long term solutions, but only transitional devices, 'halfway houses', 'holding pens', on the way to what is the real endgame�i.e. to get workers to 'cash out' their respective share of the fund at some future point and go buy some individual insurance based health plan coverage.
The latter is called a 'Health Savings Account', or HSA. HSA's represent the fundamental strategic direction Bush and Corporate America want to drive the health benefits system longer term. A VEBA is the intermediate stage on the way to HSAs and what Bush & Co. call 'consumer driven healthcare'. As the editorial page of the Wall St. Journal recently suggested, once the VEBAs are transferred the UAW should "rethink its coverage plans, using the new generation of consumer driven health care options (such as personal health savings accounts)". Corporate sources thus clearly see the link between VEBAs and eventually converting VEBAs to a more individualized, consumer driven health care system with HSAs playing the central role.
If this preceding scenario is correct, the long term corporate-government plan may be somewhat similar to what has been happening with defined benefit pensions on the retirement benefits side for the past decade: namely, convert the Defined Benefit Pension plans to interim 'Cash Balance' plans and then allow workers to 'cash out' and go purchase an individual 401k pension plan. VEBAs on the healthcare side are thus close cousins to Cash Balance Plans on the pension side.
Unattractive Alternatives
It is highly likely that the under-funding crisis for the auto industry VEBAs will further deteriorate. There will be few choices or options for effectively dealing with it. The following are some of possible, and not so attractive, alternatives as VEBAs go bust.
First, the union can attempt to restore its under-funded VEBAs by raising dues for its members to restore the VEBA funds. Or, it can reduce benefit levels. Or both. Retiree members will resist benefit cutting and favor dues increasing. Actively working union members will reject the dues increasing and prefer benefit cutting. The two elements in the union�retirees and actively working members�will thus attempt to protect their respective interests at the other group's expense. Internal dissension in the union will grow, undermining further the union's future bargaining effectiveness. Both groups in turn will blame the union, since the union will now have to make the unpalatable decision to cut benefits or raise dues�not the companies and management as before.
Instead of raising dues the union could negotiate with the company to divert part of current hourly wages to the fund. But with new 'two tier' wage structures and wage cuts of 50% or more in the new UAW-GM contract, it is not likely that wage diversion would be supported by union members.
An alternative route to saving an under-funded VEBA might be for the government to prop up VEBA funds in general by setting up an agency similar to the Pension Benefit Guarantee Corporation, the PBGC, which currently administers the dismantling of pension funds. A PBGC 'socializes' the costs of pension funds going bankrupt by contributions from other companies whose funds are more stable. The PBGC then uses those contributions to partially 'pay out' workers whose pensions go bust. Workers get a cash out about half of what they would have earned in retirement from their now defunct pensions. Something similar might be instituted for VEBAs. At present, however, it is politically not likely that a PBGC-like agency for VEBAs would happen.
Another possible route is for the government to change rules that now allow companies to transfer money from company pension funds to health care, in effect increasing the amount limits that can be transferred. Companies siphoning off pension funds to pay for rising health care costs has been going on for more than a decade now. The practice has contributed to a parallel crisis of under-funding for defined benefit pension plans. This option would simply move money from one leaky bucket to another. It's not a real solution to under-funded VEBAs or under-funded pensions.
Government might let private sources like Insurance companies and Investment banks 'buy out' an under-funded VEBA (at bargain discount prices of course) and then 'cash out' workers from the VEBA at a fraction of its value. Insurance companies in the U.K. are now being allowed to pilot such 'leveraged buy outs' of pension funds, in effect 'buying' the fund and then managing it at a profit (and cutting benefits to make it profitable in the process). The concept could easily extend to VEBA funds. Severe cuts in benefit levels would almost certainly accompany such an option, however.
Finally, the government could simply 'bail out' VEBAs on a case by case basis at direct taxpayer expense. After all, the Savings and Loan banks were 'bailed out' to the tune of a $1 trillion dollars at taxpayers' expense in the 1980s. Companies are 'bailed out' by government-funded special deals all the time. Why not VEBAs? But what government might thus do for businesses, it is not likely to repeat for a union and its members. That's just not how the current U.S. capitalistic system operates. Thus, case by case bailout of troubled, underfunded VEBAs is a highly unlikely option.
Yet the preceding option may be the long term solution UAW leadership may very well be hoping for. UAW union leaders surely know the precarious under-funded condition of the current auto industry VEBAs. It may be that Gettlefinger and staff are hoping the VEBAs can be kept afloat for a few years until some kind of national health insurance can be enacted by Democratic Party congresses. At that point they could roll the VEBAs into such an arrangement and get out from under the liability.
On the other hand, currently proposed plans by all Democratic Party presidential candidates are essentially plans to ensure that insurance companies maintain a central role in any future health benefits financing system as individual companies like GM, Chrysler, Ford and others exit from direct financing of those health benefits. If this is what the current UAW leadership is thinking, it is a highly risky gamble. But then, they themselves will be retired and comfortably out of the picture.
The 'Selling' of VEBA
The recently negotiated union contracts at GM and Chrysler containing VEBA agreements were nonetheless recently ratified by UAW autoworkers this past fall. GM's was ratified by about a 2 to 1 vote. Chrysler's ratification margin was about 55%. A UAW-FORD contract and VEBA will almost certainly pass as well, given the passage at GM and Chrysler.
Despite the approval of the VEBAs in recent contracts, internal UAW membership opposition to the contracts was significant if not sufficient to prevent passage. A number of large plants, both at GM, and in particular at Chrysler, voted by significant margins to turn down the proposed contracts. Significant rank and file movements also began to appear during the ratification process, although they were not able to link up in time to form an effective national opposition movement. Many highly regarded and long respected local union presidents and leaders came out publicly opposed to the VEBA deals and overall contract. As did several retired, regional directors and international UAW executive board members, who voiced their opposition in writing and in communications to the membership, laying out their concerns in particular with VEBA.
There was even a flurry of outside legal opposition to the GM-VEBA deal aimed at obtaining a temporary restraining order to stop the vote. This legal move was based on the argument that UAW leadership did not fully or properly inform the membership during the voting of the full details of the financing of the VEBA, as was required under federal securities laws.
Why then, one might ask, did the recent auto industry contracts, containing not only VEBAs with $50 billion under-funded liability but tens of billions of dollars of wage and other concessions as well, nonetheless pass? Why were the union and autoworkers willing to agree to such a massive shift of income from themselves to the companies, and, in particular, agree to assume the risky $50 billion liability represented by the VEBAs? The answer to this key question is perhaps complex but not impossible to comprehend.
First, it must be recognized that major verbal assurances were given by both the auto companies and the UAW leadership to the workers to get them to vote for the contracts. The assurances were dubious at best, and in most part will not be delivered. But most autoworkers still want desperately to believe them. To begin with, there was the assurance by UAW President Gettlefinger that the VEBAs would have sufficient funding to ensure payments to retirees for 80 more years�a claim without any verifiable proof or substance. Then there was the assurance by GM itself that in exchange for offloading the VEBA from the company to the union (as well as in exchange for the historic wage cuts and other concessions), the company would provide more job security. Specifically, it would place a moratorium on outsourcing of jobs and would commit to new investment in 17 of the companies' 82 plants in the U.S.
These two major assurances were presented to workers essentially as guarantees, although no such guarantees were made if one consulted the fine print. The outsourcing moratorium could be lifted. And investment in plants does not necessarily mean job-creating investment. Even the company made it clear the investment was depended on market conditions. Nor did investment mean a guarantee of no lay offs.
In fact, no sooner than the GM contract was ratified, the CFO of the company, its chief financial officer, declared in a public forum that investment did not mean there would be no layoffs in the future. On October 3, GM announced it planned to close 13 plants, four more than originally announced, and within the next four years. A few days later GM also announced plans for a new early retirement 'buy out' package for 18,000 more of its remaining 73,000 workers. Moving them out would make way for the now much lower paid, second wage tier workers now earning only $14-$16 an hour compared to the $28 an hour average of 1st tier wage workers.
Concurrent with the above assurances (the carrot) was the threat (the stick)�pushed by both the company and the union�that if major concessions were not agreed to in the contracts GM might well go bankrupt. If that happened, it was argued, there would be nothing left in the health fund to pay for benefits. Better that the union take over the fund in the form of a VEBA and manage it, the UAW argued to its members. That way at least something could be saved of past worker contributions to healthcare should GM go bankrupt.
Fears of bankruptcy at Chrysler and Ford were projected as even more likely. Given that the Chrysler was recently bought out by the private equity firm, Cerberus International Management, a company notorious for buying then splitting up and selling off parts of companies, the threat of bankruptcy was an easy sell. Similarly, having publicly announced intentions to sell off divisions of the company, at Ford it was easier still to raise the bankruptcy red flag. Companies typically raise such threats in negotiations. But what was qualitatively somewhat new now was the union itself aggressively pushing the 'fear factor' on behalf of the company in the appeal to its members. In plants and local unions where the vote was particularly close, UAW staff descended on union meetings and played the company's 'bankruptcy card' threat to the hilt.
The Profitability of Terror
But in reality neither GM, nor even the other companies, are approaching financial collapse. On October 19, for example, the major story appeared in the business press that GM had achieved a record 9.1 million in global vehicle sales of for the past year. And the most recent quarter was the highest on record with sales of 2.38 million cars worldwide. GM senior management further announced it expected another record year to come. While GM's sales in the U.S. had dropped 6% in the most recent quarter, that was largely due to the company's decision not to sell to car rental fleet companies, i.e. its own unilateral decision. Finally, GM noted it did not expect its sales in the U.S. next year, 2008, to decline despite rising gasoline prices and housing market woes. This is hardly a picture of a company about to go bankrupt!
When examined globally the big three companies worldwide are highly profitable and have aggressive expansion plans�outside the U.S. GM in particular now sells more than a million cars a year in China and is rapidly expanding its output there as well as in India and Russia, including a new state of the art plant in St. Petersburg in that country. Similarly, Chrysler recently announced plans to double its sales outside the U.S., particularly in China and Europe. Despite this global focus and profitability, the UAW bargaining team, it was reported to this writer by a seasoned UAW negotiator, does not insist in contract negotiations with the companies that they provide it data reflecting their worldwide operations and profitability. Only the relatively weaker U.S. data is provided as a basis of US bargaining. The union thus negotiates with half a dataset, while the companies view themselves truly as international entities and calculate their profitability worldwide.
In short, the selling of the VEBA deals was made possible by the cumulative decades of what can only be called the 'terrorizing' of autoworkers by their companies and with the increasing assistance of the union in that task. One must remember most of the current workforce in auto has spent most their working lives over the past thirty years, i.e. since the beginning of concession bargaining in 1978, living with the constant fear of loss of their jobs. That fear of job loss and deep, decades-long ingrained insecurity has a real, not imagined, basis.
In the 1980s there were 350,000 autoworkers at GM alone. That declined to 270,000 in the mid 1990s. Today it is only 73,000 and rapidly still falling. That kind of constant, massive job loss generates a level of insecurity that is easily preyed upon by management and union negotiators alike. Given the fact that over half of the remaining 73,000 workers at GM will approach retirement in the next four years, the insecurity and anxiety is such that many older workers are inclined to agree to the severest terms imposed on them so long as they can 'reach the magic retirement finish line'. And they outnumber the younger workers and union members. The companies know this. So does the union. Consequently assurances of job security and false promises of the continuation of health benefits, combined with exaggerated scenarios of pending company bankruptcies (i.e. threats of job loss), can play a deciding role in contract ratification votes in the auto industry. And so they have in the recent agreements.
The Strategic Significance of VEBAs
The coming of VEBAs in auto means VEBAs will not only become generalized throughout the industry, but will now quickly spread throughout other unionized companies in the U.S. There probably is not a major company with a union contract that will not now assign a team of human resources, lawyers, and accountants to quickly study how to implement a VEBA of its own. Many will attempt to reopen current contracts with their unions in order to negotiate the changes. Already Bloomberg, the financial news company, reports that companies like AT&T, Verizon, and others have internal preparations underway to shift their health benefits to VEBAs.
VEBAs are strategically significant as well because they represent the analogue in negotiated health benefits that Cash Balance Plans represent to negotiated defined benefit pensions. Cash Balance plans have been the device over the past decade to convert defined benefit pensions to an intermediary stage (i.e. Cash Balance plan) on the way to fully privatizing pensions in the form of an eventual 401k plan. VEBAs are the same halfway house on the way to converting union negotiated health benefit plans to privatized, individual Health Savings Accounts. VEBAs, like Cash Balance plans, are thus transition vehicles to the eventual 'cashing out' of benefits and to a full privatization benefit delivery system. That's the essence of Bush's and corporate America's plans for a so-called 'ownership society'.
If the rise of private, individualized 401k pensions marked the beginning of the demise of traditional, employer-union negotiated defined benefit pension plans, the coming of VEBAs represents the further, and now accelerating, decline of the union-employer negotiated health benefit plans. Employers today are clearly getting out of the game of providing either retirement or health benefits for their employees. However, nothing equivalent is being proposed to replace those two benefits so central to the American workers' standard of living. VEBAs and Cash Balance plans represent the 'wake' before the funeral for the post World War II retirement and health benefits systems that are now in their final stages of decline.
What VEBAs also represent is a major acceleration in the shift of relative income from workers to corporations and their investors. An example of how much an income shift can be shown by the following calculation: GM estimates that its total cost per hour per employee is approximately $78. Most studies show health benefit contributions are equivalent to about 20% of the total hourly labor costs. That's about $14 based on the above $78 assumption. With VEBA, GM will no longer have to pay the $14 per hour per employee. For GM that's savings equivalent to about $2.1 billion per year. Add another $2 billion at least for Chrysler and Ford. Now factor in rising health care costs over a typical contract term, and the total corporate savings comes to at least $15 billion. Include the discounted future value of those savings and the total savings easily equals $20 billion. That's $20 billion that the companies once paid but no longer have to; and $20 billion the workers did not but now do. That's a $20 billion income shift�each year and every year going forward. And that's only three companies.
VEBAs also represent a fundamental change in both the institution of collective bargaining and the very nature of Unionism in America. From the late 1940s to the mid-1970s, collective bargaining expanded in scope, adding new areas to contracts like health benefits, pensions, cost of living clauses, job banks and a host of other innovations. Collective bargaining also expanded in terms of magnitude, as levels of funding for these areas were increased and wages were also raised in synch with rising productivity levels. This was the golden age of contract bargaining�and of what might be called 'Contract Unionism'.
From about 1978-1982 on, however, a major shift occurred reflecting the new, aggressive Corporate Offensive launched about that same time. Nationwide bargaining agreements were broken up, balkanized, and instead of collective bargaining characterized by expanding in scope and magnitudes, the primary focus of bargaining increasingly was on concessions in and on reductions in the magnitudes or dollar value levels in contracts. Wage gains also increasingly fell behind productivity year after year. This period, which lasted until the present, might be called 'Concessionary Unionism', with its focus on minimizing the reduction of magnitudes and values in bargaining.
But VEBA funds may represent the beginning of yet a new phase or stage and the further fundamental transformation in the nature of collective bargaining, and even unions themselves. With VEBA the focus is not just on reducing the values or magnitudes of contracts, but now on rolling back the very scope of bargaining and on the incremental, piecemeal dismantling of contracts. With VEBAs, unions now find themselves directly cooperating with companies on the actual dismemberment of contracts and jointly eliminating previously sacrosanct contract provisions won over the course of many decades. One can easily imagine, for example, not only the rapid spread of VEBAs throughout various industries, but also the extension of the basic concept inherent in a VEBA�i.e. the idea of negotiating the spinning off entire sections of contracts, excluding them from future bargaining, and even turning their function over to third parties. For example, the imminent trend, now piloting in the U.K., is for third parties such as insurance companies and investment banks to 'buy out' pension plans and directly managing them for profit.
This new condition, symbolized by the advent and spread of VEBAs might be identified as the era of 'Corporate Unionism'. In the era of Corporate Unionism, unions increasingly cooperate directly with management in the process of contract dismantlement and become even more integrated with the strategies, aims and objectives of global corporate management. Corporate Unionism means, at the level of collective bargaining, the basic 'outsourcing' of the union contracts themselves. VEBAs clearly lie in that orbit and are strategic precursors to a new Corporatism in union-company relations.
Jack Rasmus
Jack is the author of THE WAR AT HOME: THE CORPORATE OFFENSIVE FROM RONALD REAGAN TO GEORGE W. BUSH, 2006. www.kyklosproductions.com. He is also a past national VP of UAW Local 1981 and currently co-chair of the National Writers Union, UAW 1981, in northern California.