NEAL CONAN, host:
This is Talk of the Nation. I'm Neal Conan in Washington. Today the White House described the prospects of a deal with Congress on the auto bailout as very likely. The agreement would provide Ford, GM, and Chrysler with relief, a package of loans somewhere in the ballpark of $15 billion. Over the course of the bailout negotiations, the auto industry came in for withering criticism. The industry is poorly managed, it builds cars no one wants and pays its workers too much money to name just three. And it looks like some executives may lose their jobs, some famous makes may vanish and there will be fewer jobs that may pay less. Today, a look at that last controversy, how much should you get paid to build cars? And we especially want to hear from listeners in the auto industry today. Do you think you're paid too much? Our phone number, 800-989-8255, email address firstname.lastname@example.org. You can also join the conversation on our website, go to npr.org and click on Talk of the Nation. Later in the program, electoral arithmetic on the opinion page this week is the Minnesota senate race to call even, too close to call even after the recount. But first, autoworkers and pay, it's been widely reported that each union autoworker costs the Big Three more than $70 an hour. Jonathan Cohn wrote an article that breaks that number down for The New Republic, where he's a senior editor and joined us now from member station WUOM, Michigan Radio. Nice to have you on the program today.
Mr. JONATHAN COHN (Senior Editor, The New Republic): Thanks for having me.
CONAN: And where does that $70 per hour come from?
Mr. COHN: Well, it's very simple. Somebody takes the amount of money that a company like General Motors spends on its labor costs and divides it by the number of hours worked over the course of the year by all of the unionized labor there and comes up with the figure. And if you do that calculation, you do indeed come up with a figure of $70 an hour. Now, if you do the math and you look at it. You'll see that it comes out to more than a $150,000 a year. And you could be asking here.
CONAN: Pretty good job, yeah.
Mr. COHN: Yeah, that's pretty good work if you can get it. But you ought to ask yourself, does that sound right, well it no. It's not right. I mean it's an honest figure but it's grossly misleading about what it represents. For actually for three reasons, the first is when you look at the wages, just this we're talking the salary. You know the money in your paycheck. The hourly wage for the Big Three as of 2007 was around $28 per hour. Now, if you look at the factories that, what we call the transplant factories, the Honda, the Toyota factories in the south. They were somewhere between 20 and 26 probably around $25 an hour, so that's actually pretty close on wages. It turns out this big difference is all about benefits. And then, if you look at the benefits, something else emerges. It's not just the level of benefits primarily. It's who's getting the benefits. You know a company like General Motors, it's been around for a 100 years, it's got literally hundreds of thousands of retirees and their spouses who it's supporting with retiree health benefits. Company like Toyota, its factories have only been around for about 25 years. Literally until a few years ago, they literally had no retirees. And it turns out that huge gap is mostly about retiree health benefits, retiree benefits. So, when we say that they're paying $70 an hour in Detroit. And these other companies, well they're paying 40 something an hour clearly they must be doing something wrong in Detroit. Well, yeah, what they did wrong in Detroit was they'd been around for a 100 years and they have a very old workforce.
CONAN: So, that is those legacies as they're sometimes called, these health care benefits, pension plans, that sort of thing. The legacies are the big difference between the General Motors worker who costs the company something like $70 an hour and the Toyota plant in Georgetown, Kentucky who cost that company, what 40, $45 an hour?
Mr. COHN: Exactly and I want to be clear. I'm not saying they aren't a lot of other, the differences. And you will, if you talk to people who follow the auto industry you'll hear a lot about the differences in the labor culture between the Big Three and their competitors and a lot of that is true. On the other hand, it's also worth mentioning the one last part. And this is what I think is really the most misleading part about that figure, which is that in 2007 there was a huge breakthrough agreement between the Big Three and it's autoworker's union. And they said, look you know, whatever that number represents it's the cost that these companies are carrying and we're not going to be competitive if we keep carrying those costs. So they got together and they agreed on a scheme for lowering those costs. And the upshot is, that if they're allowing - if they can find a way to make it to, for another two or three years, and if they can find the money to deposit in a special trust they have created, is to come 2011, united autoworkers, the average wage of an autoworkers at the Big Three will actually be lower than for one of the transplant factories in the south.
CONAN: And there's another question involved here and that seems to be equity, are we paying workers too much? And what you're suggesting is the union at least seems to agree, yeah, and at least in terms of a competitive market, maybe we are.
Mr. COHN: Well, yes, and I think in terms of the competitive market unquestionably we are. I mean, that's the reality of the market. The reality of the market is you can't support a car company. A car company can't survive in this global environment competing with non union labor paying what Big Three autoworkers have been making. Now, that's an economic question. As a moral question, should we be paying autoworkers? You know, well that's a whole other question. I mean, is the problem that we don't - that we pay the Detroit workers too much or is it the problem that we're paying everybody else too little?
CONAN: And you do the straight calculation. I'm not counting shift differential and holidays and all that sort of stuff. But at that $29 an hour rate, if you work 40 hours a week, it's what 62 and change, right?
Mr. COHN: Sixty two and change, I mean, remember a lot of these jobs are very physically demanding. They are also tedious. A lot of them, you know, if you're looking at the skilled craftsman, the people who have been the dye makers, the tool makers. There's a lot of learning, even a lot of book learning that goes into these jobs. I don't think, a lot of Americans I think have this notion of the pampered lazy autoworker and surely there are pampered lazy autoworkers. On the other hand, I know lots of pampered lazy workers in other industries too.
CONAN: One and two in journalism too?
Mr. COHN: At least.
CONAN: At least. So therefore, it comes down to though, and this may have to do with a lot that may not have to do with people's beliefs about what autoworkers make. But when you have more than 60 percent of the American public saying, look we're opposed to this bailout for the Big Three in Detroit. At least, part of that is due to these perceptions about these deals that the unions and these workers have made over the years.
Mr. COHN: Well absolutely, I mean, look this is a complicated question. I don't know any serious economist looking at this, who is a 100 percent certain about the right strategy for the United States, for the government, how to handle this. You know, we're talking about a very large bailout of companies that have had a lot of problems. And yes, we are talking about unions that have not always made good decisions. But at the end of the day, if you're going to oppose the bailout because you think we are paying autoworkers $70 an hour, that's just wrong. There are other reasons to oppose the bailout and I think you know you can debate those. But fundamentally speaking, that is a misleading figure. And frankly, I think a lot of the people putting it out there know that. And I think they're using it because they don't like unions and they oppose this bailout.
CONAN: So, it's being used as a propaganda claw?
Mr. COHN: I would never suggest such a thing but yeah, well, yeah.
(Soundbite of laughter)
CONAN: Thanks very much for your time today Jonathan.
Mr. COHN: Thank you very much.
CONAN: Jonathan Cohn is senior editor for The New Republic with us today from a studio at the University of Michigan. We're going to get a couple of serious economists on to discuss this question. We also want to hear from you. How much should you get paid for building cars? 800-989-8255, email us email@example.com. We'll begin with Harley Shaiken, a professor at the University of California at Berkeley. He's specializes in labor and the global economy with us today from the studio on the campus there at UC Berkeley. Nice to have you back on Talk of the Nation.
Prof. HARLEY SHAIKEN (Center for Latin American Studies, University of California, Berkeley): Nice to be here.
CONAN: And getting back to that question and you know, again we get back to that idea, are we paying autoworkers too much or too little? You know, I guess in theory, you're getting paid whatever anybodies willing to pay you. But on the other hand, in this global market, in this economy, at this time are they making too much money?
Prof. SHAIKEN: No, I think that may be the wrong way to look at it. Certainly, the auto industry is in real crisis now. And any amount might be considered too much. But if we take the long view over the last 100 years, even the last decade, this is one of the most productive industries in the United States, if not the world. And the high wages that autoworkers earn don't drop out of the sky. It really reflects that high productivity over many, many decades. Now, when a company is in crisis, for strategic errors the company made, because the economy has collapsed, because credit has frozen up. Obviously, wages are an issue but I think we've got to take that larger view because the success of these companies historically has also been the success of the U.S. economy. The flip side of high wages when you have this kind of productivity is high purchasing power and that's resulted in the real growth and success of the United States as an economy.
CONAN: Are you suggesting therefore if the companies are productive and profitable that the autoworkers ought to benefit? And if they're not well, maybe we ought to be able to be flexible as opposed to having these contracts locked-in for any number of years.
Prof. SHAIKEN: Well, it isn't so much a question of locking them in, of course the contract does that but what it really does is it ensures that the workers of a company really benefit from that company's success when you have the kind of downturn that we've seen now that obviously has reflected in how contracts are negotiated. The contract that was negotiated last year resulted for new hires in a reduction of wages and benefits of two-thirds. A starting worker at General Motors today, admittedly there are a few, but a starting worker coming in to that company earns $14.20 an hour. The total compensation costs with all the benefits, comes out to about $25 or $26 an hour. That's an extraordinary change but the impact of that goes beyond General Motors because this is an industry, the company and the union over time that has set the standard for wages and benefits throughout the economy. Many Americans and very, very, distinct occupations have paid health care or pensions, in part because this was pioneered by the union and the company in the auto industry.
CONAN: Let's get some listeners in on the conversation. 800-989-8255, email firstname.lastname@example.org. Chris joins us. Chris calling from Wichita, Kansas.
CHRIS (Caller): Hi, Neal, great show. I am pro-union, been in the aerospace industry for 15 years. We don't have the wages that compare to the autoworkers and we build aircraft. I will argue that we are more skilled. We are tedious. Our work is just as tedious if not worse. We don't have any kind of the job security that your workers, the autoworkers do. When we have a layoff there is no such thing as a job bank, you're out the door. That's all there is to it. And our industry has been through more ups and downs in the past 15 years than the auto industry has ever dreamed of. Frankly, I think these guys and I am pro-union, like I said, have priced themselves out of a job. They have priced themselves so high, their companies, and I am not defending the companies in anyway. Their companies have run themselves in the ground. Not only due to mismanagement but their labor costs are sky high compared to every other industry in the world.
CONAN: Harley Shaiken, we just have a 30 seconds left for you to give a reply before we have to go to a break.
Prof. SHAIKEN: Let's look at 1996 through 2000 when the automakers were making cars that people wanted. Ford Motor Company in that period with these wages and benefits earned $38 billion with the very same competition out there. It shows companies can succeed at high wages.
CONAN: Chris, thanks very much for the call. We hear your pain. We'll get more to that part of the conversation in just a moment, so stay with us if you would but we appreciate the phone call. We're going to talk more with Harley Shaiken and also introduce another economist, Henry Farber at Princeton University. I am Neal Conan. It's the Talk of the Nation from NPR News.
CONAN: This is Talk of the Nation. I'm Neal Conan in Washington. And Congress and the White House appear to be close to an agreement on a bailout for the Big Three automakers, General Motors, Ford and Chrysler, something in the neighborhood of $15 billion in federal loan guarantees. Of course, it'll come with conditions but a lot of the discussion has been around, how much labor does it take? How much does that labor cost to build a car profitably, competitively in the United States? That's what we're talking about today. 800-989-8255, email us email@example.com. How much should you get paid for making a car? Our guest is Harley Shaiken, he's a professor at the University of California at Berkeley where he specializes in labor issues and the global economy. And let's take another voice into the conversation. Now Harley Shaiken, professor at the University of California, excuse me, that's the person I just introduced. Harley Shaiken is at University of California at Berkeley and Mr. Clever was trying to introduce Henry Farber, who's the Hughes-Rogers professor of economics at Princeton University. I apologize for the error, professor.
Dr. HENRY FARBER (Department of Economics, Princeton University): Oh, no problem.
CONAN: Thanks very much. I apologize for just reading off the wrong the piece of paper here. And clearly my productivity has gone way down and I am going to be docked in pay, but in any case, as we look at this issue, how should we look at - are we going about this the right way to look at how much people should be paid for making a car?
Dr. FARBER: Well, I don't think most economists would think about what people should be paid. They think about what the market will dare to pay them. And I think it's important to understand this is a little bit of historical perspective. The reason that autoworkers are so well paid and have such a generous benefits scheme is because they have a very effective union that came of age in an era when Americans really only wanted to buy cars made in America. And it gave them a protected market and there was an understanding really between the union and the manufacturers to share some of the gains of that protected market. And as a result, they got a high wage and a high benefit package. The problem is of course, that the automakers did not fully fund their long term obligations for retirees and for health care, and basically assumed that the industry would keep growing where this companies would keep growing and that would take care of it. That has turned out not to pass and frankly, since the mid-70s, there has been a slide in this industry as the reality of the global economy has taken hold.
CONAN: Nevertheless, as we just heard from Harley Shaiken, a minute ago, they were making a lot of money, making products that people wanted just a couple or three years ago.
Dr. FARBER: Well, there is always a cyclical changes but I think Harley would agree that the story of the past 30 years, 35 years since the first OPEC oil embargo, is really a story of problems for the U.S. automobile industry. And frankly, I think they've not been as nimble as they needed to be to survive in the global economy and in particular, they've not found a way to work with the union in a way that lowered their long grown obligations to their workers to levels that were sustainable.
CONAN: Harley Shaiken.
Prof. SHAIKEN: Well, I certainly agree with part of what Henry is saying. There have been a lot of errors that the industry has made, broad, strategic errors since the 1970s. But in part, they reflect the industries' very success. They have been able to make billions of dollars with strong global competition through imports and through internationally-owned factories in the United States, when they had the right product for the market, when they were producing SUVs that consumers wanted, when gas prices were low. We might argue about the desirability of that but they were making billions at these wage packages. But when the market turned, the scene at Detroit wasn't that they made all this money but they didn't hedge their bets going into it. Toyota made the same miscalculations. They built a huge new truck plant in San Antonio, Texas that's pretty idle right now, but they also invested in Priuses and Hybrids and fuel-efficient cars. GM went the Hummer route. So those were errors but I think it's a mistake to look at the wage package and say, that's the problem and the reason is quite simple, that's what fuels are own prosperity. And in a way we could go back to the first Henry Ford for the secret of that, 1913, he introduces the moving assembly line. In 1914, he doubles the prevailing wage to $5 a day. Everyone said he was nuts that he would drive all the other manufacturers out of business and bankrupt his own company. In 1915, sales go way up of the Model T because he lowered the costs of the car for productivity, wages were doubled but the profitability of the Ford Motor Company also went up.
CONAN: He's building cars since workers could afford to buy. So.
Prof. SHAIKEN: Absolutely.
CONAN: Let's see if we can get some more callers in. Jeannie calling us from Flint in Michigan.
CONAN: Hi, Jeannie. Go ahead please.
JEANNIE (Caller): Yeah. I am from Flint, Michigan. I work at an engine plant. I am an electrician. And as to your question about do we make too much money? In my case, I don't think so. With the technology advancing the way it is, we are constantly taking classes. The way we do things are changing, ever changing. And we are in a learning process all the time. And I think that companies have become very lean, I know the plant I work in is very lean. And I really don't think that I make too much money.
CONAN: And if it's - however, you look at those different numbers and partly for historical reasons and partly for a lot of different reasons. If you cost the company $70 an hour, that's not what you're taking home, I am not saying that. But if you cost $70 an hour because of the benefits not just to you but to people who've retired many years before you and somebody working for Toyota costs that company $45 an hour. You can see there is a big competitive disadvantage there.
JEANNIE: Well, sure because they don't have the legacy cost, but if you also look at their states and how much money they've given the foreign automakers to come into their states, donating land, paying for their peoples training. You know, that's…
CONAN: Tax incentives, that sort of thing, yeah.
JEANNIE: That's competition that General Motors cannot compete with, you know, because we don't have that benefit. I mean, we do get state aid. I am not saying that, we do get credits and abatements but we don't get land donated. We don't get where the state is paying to train us. Our company trains us.
CONAN: Yeah, the union and the companies are not without influence in (unintelligible) but anyway, Henry Farber, her point is accurate. Obviously, a lot of those plants that came in from overseas, you had counties and cities and states competing with each other to give a bigger and bigger tax incentive so that they would locate the plant here.
Dr. FARBER: No, that's correct. And when in fact, when the domestic automakers want to build a new plant too which they have done, they look for the same kinds of incentives. I am not a fan of those kinds of fiscal competition, because I don't think there's a winner in that. And but yes, these manufacturers that come in get some benefits. I think what's interesting in the comments that we hear, is that the legacy costs are counted as a per hour labor cost now and I don't think that's the right way to think about it. Those are obligations of the company that they failed to provide for when they actually were employing the workers who are now costing them legacy. So, the $70 figure to the extent includes legacy costs is not the right number to look at. So, I don't think that the per hour labor costs right now of an automobile worker is not as much higher than the foreign competitors in the U.S. but what's true is, the manufacturers have massive obligations left over from the past. And in fact, they priced their vehicles lower than maybe they should have because they weren't fully accounting for the long run cost of making that vehicle.
CONAN: OK. Jeannie, thanks very much for the call and…
JEANNIE: May I say one more thing?
CONAN: Go ahead please.
JEANNIE: That I think is kind of important is as a society, our working class needs to stick together. And it doesn't matter if you make $8 an hour or $50 an hour, we should not be against each other for how much we make. We should all stick together as working-class taxpayers.
CONAN: Thank you very much for the call, Jeannie.
CONAN: Bye-bye. And that's exactly what I wanted to ask you about, Harley Shaiken. There is the situation now, where a lot of people here in Washington, lawmakers, look at the opinion polls and they say, well, you know, the majority of the American public is opposed to this buyout - this bailout, excuse me, and so you know, we're going to go ahead with it for reasons that we think are important. Nevertheless, the amount that automakers work is not just negotiated these days across the negotiating table, it's in part and going to be more and more in the court of public opinion.
Prof. SHAIKEN: Absolutely. And part of this opposition I think really is misinformation. The person who called in from Wichita for example, said he earns less. Well, if auto wages decline, he won't be closer to them, he'll earn less yet because there is a certain relationship, historically, between wages through various industries. Two quick points, first, on this famed $70. If nothing changes based on the last contract that the Detroit automakers and UAW signed in 2007, by 2011 that will be roughly $47-50 an hour total compensation comparable, if not slightly lower, than the international automakers, number one. Number two, we may have a failure of public policy here. Another group of automakers which have a total wage and benefit cost comparable to the Japanese and Korean and German automakers in the U.S. are the Detroit automakers in Canada where you have national health insurance. That takes a huge chunk of the legacy cost particularly health care for retirees off the books of the company.
CONAN: Here's an email question we'll put to Henry Farber at Princeton. This is from Jenna in Baginton, Oklahoma. Could you talk a bit about the job bank American auto companies have? I've only heard that they pay people just to sit around and not work but I'm not sure why.
Dr. FARBER: Why do they do that?
CONAN: What is it and why do they do that?
Dr. FARBER: I'm not, to tell you the truth, I probably couldn't accurately describe it in great detail except to say that it was negotiated between the union and the companies in an era when they were shedding jobs and they were looking for a way to ease the transition of their workers. A good thing, you have long term employees who've dedicated themselves to your company and you no longer can use them and as a result, in order to be able to reduce the size of your company, at least for a period of time, you need to be able to take care of these workers.
CONAN: As a buffer. But Harley Shaiken, do you think can agree that this is a public relations disaster?
Prof. SHAIKEN: A public relations disaster of the first order. The jobs bank has a target on it. It's just become a symbol for everything that's wrong with the industry but I think, Henry's got a very good point. Historically, it was meant to be a transition. It is modeled after what Toyota does which seeks to provide lifetime job security for its core workers. Toyota still does that in a plant like San Antonio. They're not laying off to the bone. They're trying to keep as many people on board because that improves productivity when things do pick up. But there's no question the jobs bank is a public relations nightmare. The union indicated several days ago it plans to sit down and talk about phasing it out or much reducing it. Even now, though, there's only several 1000, I think 3,000 workers in it across all three automakers.
CONAN: Harley Shaiken, a professor at the University of California at Berkeley. Also with us Henry Farber who's an economist at Princeton University. You're listening to Talk of the Nation from NPR News. And let's get David on the line. David with us from Fort Wayne in Indiana.
DAVID (Caller): Good evening. I mean, good afternoon, gentleman. I'm here to talk about the wage. I work at the local plant over here, the truck operation. Our $70 an hour are really not that high. What makes them really higher is supposed to be the fantastic medical benefits that we've been getting. But actually, reality, our medical benefits have gone down two contracts ago. One of the things that gets me mad is that the president has been there for eight years. Eight years ago, this president said he wants to give little businesses, the big discount that big businesses get. For the last eight years, our big business, GM has been complaining about their medical insurance. So actually, they haven't been getting a discount, it's that much money, it costs a lot.
CONAN: It does cost a lot. Henry Farber, there's also the question that if these jobs are lost, all those costs are going to be passed on somewhere else in the economy.
Dr. FARBER: Well, I think that's right. Medical costs have risen dramatically in the last decade after a period of leveling off a bit actually and as a result and this was unanticipated so that this has been trouble for all businesses in America and it's a separate issue to ask whether it's appropriate to have employer-based health insurance but one thing you might argue that's surprising is why the Big Three automakers were not in favor of some third party payer national insurance system. So, this is a real drain. I don't think you could argue that the Big Three have been harder hit than others by this. But anyway, let me leave it at that.
CONAN: All right. Thanks very much for the call and David, good luck.
CONAN: This is an email from Stephanie in Berkeley, California. I was born and raised in Detroit and my first job out of high school was for a life insurance company the UAW helped establish. I processed death claims. I quickly realized there were a lot of suicides in the ones I was seeing. Then I began to count how many of them worked in the stumping plants. Workers there took sheaths of metal off a pile, put them in a huge stumping machine that turned them into hoods, doors and so forth, then they put the part, that part on another pile all day, everyday. The noise was deafening. The people who did this were blowing their brains out in an alarming rate, paid too much. Those of you in comfortable jobs should try it for a month. And Harley Shaiken, we do hear comments like that and it does sound soul deadening but well, so does mining coals, so do a lot of jobs.
Prof. SHAIKEN: That's true. But I think Stephanie does have a point. We tend to, particularly, we academics tend over two hour lunches on occasions to talk about autoworkers being underworked. It is a tough work. Now, as Henry and I both were talking earlier, the pay really reflects not the tough work. It really reflects both, the market, the union, the company and the productivity. But there's a little question that we need to look at the fact that these are tough jobs and in part, workers were attracted and are rewarded for that by the kind of wages that are there. But the perception is when something goes wrong, say, when health care costs sky rocket, we tend to blame autoworkers or auto companies because they have these high costs. In part, that high cost is their past success. GM supports 400,000 retirees. Toyota supports 700. They'll have the same problems but down the road.
CONAN: And we'll continue to have this conversation as this controversy continues to develop. Henry Farber, I heard you trying to get in there. I can give you 30 seconds.
Dr. FARBER: OK. I would just say that Toyota may not have this problem down the road. Particularly because GM finds itself and the Big Three find themselves in this situation with a huge overhang of retired workers because they're been shrinking, not because they've been around for, obviously, they've been for a long time. But they've been shrinking. And as a result - and they didn't fund their benefits earlier on and those benefits were a legacy of a time period when the U.S. had a protected automobile industry. So I don't think we can forecast the future for Toyota from what's happened to GM.
CONAN: All right, again, I'm sure we can have arguments about that. It sounds like the social security problem, too. But anyway, we'll talk about that down the road. Gentleman, thank you so much for your time today.
Prof. SHAIKEN: You're welcome. Thank you.
Dr. FARBER: Thank you.
CONAN: Those were Harley Shaiken, a professor at the University of California at Berkeley who specializes in labor and the global economy, Henry Farber, the Hughes-Rogers Professor of Economics at Princeton University. One final email from Scott in Hamtramck, Michigan. Why are we fixating on what the line worker makes yet nothing is said about what mid level and upper management levels are making? That's another subject for another day. Stay with us. The opinion page is next. We'll be talking about the right way to solve the senate race in Minnesota, flip a coin? It's the Talk of the Nation from NPR News.
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