Labor Killed Detroit? Not So Fast

Detroit has larger problems.

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The New York Times has an interesting column on its front page today that breaks down the much-touted $73 per hour that the average auto worker allegedly pulls down.

Of course, most of us would be delighted to make $73 per hour, which would be an annual salary of roughly $150,000. The piece does a nice job of breaking down the origin of the $73 per hour figure: Detroit auto workers actually make about $55 per hour, which is about $10 an hour more than their nonunionized counterparts who work for Japanese companies; the rest of the money attributed to Detroit salaries are legacy costs of the generations of auto workers who came before.

The crucial point, though, is this $15 isn't mainly a reflection of how generous the retiree benefits are. It's a reflection of how many retirees there are. The Big Three built up a huge pool of retirees long before Honda and Toyota opened plants in this country. You'd never know this by looking at the graphic behind Wolf Blitzer on CNN last week, contrasting the "$73/hour" pay of Detroit's workers with the "up to $48/hour" pay of workers at the Japanese companies.

And then, here's the money part (as it were) of the piece:

So here's a little experiment. Imagine that a Congressional bailout effectively pays for $10 an hour of the retiree benefits. That's roughly the gap between the Big Three's retiree costs and those of the Japanese-owned plants in this country. Imagine, also, that the U.A.W. agrees to reduce pay and benefits for current workers to $45 an hour — the same as at Honda and Toyota.

Do you know how much that would reduce the cost of producing a Big Three vehicle? Only about $800.

That's because labor costs, for all the attention they have been receiving, make up only about 10 percent of the cost of making a vehicle. An extra $800 per vehicle would certainly help Detroit, but the Big Three already often sell their cars for about $2,500 less than equivalent cars from Japanese companies, analysts at the International Motor Vehicle Program say. Even so, many Americans no longer want to own the cars being made by General Motors, Ford, and Chrysler.

The broader lesson here pertains to the image of unions that has been painted over the last few decades as too-powerful, ossified, corrupt and corrupting, sprawling organizations that strangle American ingenuity. (An image that in too many cases unions have aided, by the way.)

Unions and the right to unionize are critical to a properly functioning modern free market economy. Have there been excesses? Yes. But are they to blame for Detroit's problems right now? Obviously not.