Tuesday, March 31, 2009

Is the auto industry crisis due to overpaying auto workers?

The NY Times ran an Op-Ed piece today that astonished me in its blinkered view of the GM crisis.  (One Roadblock too Many for GM.)

Mr. Holstein's bias is evident in the second paragraph when he says "While not every decision Mr. Wagoner has made was wise, over all he had been putting G.M. through a wrenching restructuring that tried to undo decades of management acquiescence to the United Auto Workers." He then applauds the decision to pay new workers only $15/hour. Let's think about this a minute. Wagoner walks away with $42 million. I don't know how much his last twenty years' salary adds up to, but consider an average worker. An average annual salary of $50K over 40 years is only $2 Million total, over an entire lifetime. Worse, this salary is, for reasons that escape me, subject to a higher income tax than salaries over $500K -- and blue collar workers don't have tax shelters, and may not be able to even take advantage of a simple mortgage deduction if they cannot buy a house. So Wagoner makes over twenty times as much just for being asked to resign as a guy or gal making $50k/year earns over a lifetime of hard work.

While we're on the topic of hard work, let me bring in another op-ed piece published last week, the letter of resignation from an AIG employee to the CEO Edward Liddy. (Dear AIG, I Quit! NYTimes Mar 24, 2009) Three times the writer, Jake DeSantis, mentions "hard work": for example, he says, "I know that because of hard work I have benefited more than most during the economic boom..." It was also hard work that led him to MIT and enabled him to "fulfill the American Dream." The assumption is that hard work invariably =good (or great!) pay. I don't doubt the author works hard during his 12-14 hour days. But I also do not doubt that professional auto workers, schoolteachers, janitors, nurses or construction workers work equally hard. Yet they earn averages of $16,000-80,000/year across the country, with no prospect of a bonus.

Mr. DeSantis feels cheated that AIG reneged on its contract to offer bonuses. But why are financial company's contracts considered sacrosanct, while contracts with regular folk are always up for renegotiation? Union workers are always having to renegotiate contracts. And just about everyone at one time or another has been offered a "fixed" interest rate contract with a credit card company, only to have them change the interest rate a few years later without asking permission.

Back to Mr. Holstein's complaint that union employees drove GM into the financial gutter. Let's imagine that 10,000 workers are getting paid $10 too much an hour. That's $400/week, $20,800/yr per worker - about $208M/year for all 10,000, or $570,000 per day. Yet GM has been losing 11 billion dollars a year -- almost $30 Million per DAY. So the worker "overpayment" in this case would amount to 0.0000518, well less than .01 percent, of the daily losses. Mr. Holstein's argument doesn't hold water.

The only real question is why the Obama administration is not being equally tough on the financial sector.

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