Wages in the Automobile Sector: US v. Japan – According to the WSJ

Jeffrey McCracken begins his piece entitled Detroit Pursues Sweeping Cuts In Union Talks with:

Detroit’s Big Three, facing their worst crisis in decades, are seeking unprecedented concessions from the United Auto Workers union in a bid to narrow what they say is a $30-an-hour labor-cost disadvantage against Asian rivals like Toyota Motor Corp. and Honda Motor Co., auto executives say.

$30 an hour labor cost disadvantage sounds serious but then Dean Baker does some fact checking:

It’s contract time for the United Auto Workers and the Wall Street Journal is working hard to build the case for big pay cuts. The paper tells us that compensation for UAW members is in the range of $70-$75 an hour. Well that’s serious money. At that rate, with overtime, an autoworker can earn as much in a year as an incompetent CEO gets in a day. Clearly things are out of line. Seriously, $70-$75 an hour is pretty good pay, but it is also not really what UAW members earn. The base pay for these workers is around $25 an hour. To get to $75 an hour, you would have to believe that autoworkers get $100,000 a year in benefits. Is that plausible? Assume that they get $15k for their pension and $25k for their health insurance, that gets you to $40k. Where is the rest of the $100k? Well, what the auto industry does to get this figure is they average in their health care and pension costs for their retirees. These are real expenses for the industry, but they have nothing to do with the compensation received by current workers. News reporting on the UAW contracts should clearly distinguish between the compensation received by current workers and the legacy costs from retired workers. UAW members are well-paid, but averaging in the legacy costs hugely exaggerates their earnings in the mind of readers.

So if McCracken comes up with a $30 per hour differential by inflating UAW compensation by $30 an hour, doesn’t it sound like we have very similar wages to those Japanese auto workers? If so, the woes of GM and Ford lie elsewhere.