The $70 per Hour Labor Cost Reality

In typical scream-first-think-later style, Media Matters has gone all out with at least two very lengthy posts claiming to debunk the 'falsehood' that General Motors recently paid more than $70 per hour in labor costs. No matter how Media Matters may try and twist the truth, that $70 figure is an accurate representation of the burdens GM faced under their union contract. More imporantly, under their new union contract, GM will continue to face higher labor costs than their non-uninon competitors.

The disagreement in figures boils down to this: in their 1996 SEC filing, GM claimed they faced labor costs of $73.26 per active hour worked. The total was made of two main components: cash compensation ($39.68) and benefit/government required programs ($33.58).

The UAW disputed those numbers at the time and wrote:

In 2006 a typical UAW-represented assembler at GM earned $27.81 per hour of straight-time labor. A typical UAW-represented skilled-trades worker at GM earned $32.32 per hour of straight-time labor. ... In addition to regular hourly pay, the labor cost figures cited by the companies include other expenses associated with having a person on payroll. This includes overtime, shift premiums and the costs of negotiated benefits such as holidays, vacations, health care, pensions and education and training. It also includes statutory costs, which employers are required to pay by law, such as federal contributions for Social Security and Medicare, and state payments to workers’ compensation and unemployment insurance funds. The highest figures sometimes cited also include the benefit costs of retirees who are no longer on the payroll.

So basically the UAW/Media Matters argument is that the $70 per hour figure is misleading because that is not what the average UAW member takes home in cash. But GM's labor costs, thanks to bloated union contracts and other government taxes and mandates, include a whole lot more than just wages.

As the UAW details, some of those costs include "overtime" "shift premiums" "vacations" "health care" "federal contributions for Social Security and Medicare" and "state payments to workers' compensation and unemployment insurance funds." Just because an auto worker doesn't take these benefits home in every pay check, doesn't mean their free. All of these benefits cost money and that money does not come from magical fairies. These labor costs come out of GM's bottom line.

So yes, the UAW did recently sign a labor contract with GM that will lower GM's average labor costs to $62 per hour by 2010. But that would still be $9 higher than the $53 Toyato currently pays, and Toyota claims total labor costs at its older U.S. plants are around $48.

So the fact still remains that Barack Obama and the Democratic Congress are about to nationalize three auto companies that, unless significant changes are made to current labor agreements, will face a significant comparative disadvantage on labor costs. Those are the facts.