Big 3 vs. Toyota: Big 3 Pays Less!
The assumption is that the Big 3 are overpaying their US assembly line workers, and Toyota and other non-union automotive employers pay substantially less.
Based on the usually definition of pay, money in the pay check, this is simply not true. PayScale data collected over the last couple of years shows that, while the hourly wage is slightly (<10%) higher at the Big 3, when profit sharing bonuses are included, Toyota has actually been paying more to US workers than the Big 3.
Assembly Line Worker
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With overtime + profit sharing
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Auto Industry Engineer
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While the current debate is about the hourly workers in factories, I have added here for reference the pay of a mix of engineers at both companies as well.
Given a choice of installing dashboards for 8 hours a day, or designing headlights, they would have to pay me more to work the line, but that is just me.
How come no one is complaining that Ford, GM and Chrysler are overpaying their salaried engineers, or senior management for that matter?
Ford Benefits Too High?
So where is the other $44 per hour (~$90,000 per year!) going for "pay and benefits" for hourly workers?
A document produced by Ford around the negotiations last year goes a long way to explaining the discrepancy between $27 and $73 per hour.
First off, all employers have expenses, beyond the wages in the paycheck, for "benefits":
- 7.65% social security tax
- Unemployment insurance
- Workman’s compensation
- Paid sick time off
- Paid vacation/holiday time off
- The Ford contract is generous relative to most American workers, with 16 holidays and 4 weeks of paid vacation
- Pension plan or contribution to 401K
- Ford’s pension plan is more generous than typical for private industry at ~½ pay after 30 years
- Ford has to set aside money to fund the pension every year, based on the estimate future actuarial liability
- The pension was fully funded as of 2005
- Health plan
- The worker health plan is not atypical for top tier employers, e.g. IBM and Boeing
- It is very good compared to other industries, like retail
For the benefits paid to current workers, Ford is spending about 10% more than Toyota for better vacation and pension plans. However, Toyota is spending 10% more for profit sharing, so that is a wash.
Promises Made in 1985 Must Be Paid Now
The Big 3 did something very stupid over the last 40 years: they signed contracts promising to pay retired workers' health care before the age of 65, when there is no Medicare program to cover most of the cost.
The UAW did something very stupid over the last 40 years: they did not demanding that the Big 3 fund health care each year, based on the actuarially estimated costs, as the pension has been funded.
The result is a double whammy of increasing health costs, coupled with a shrinking work force - Ford's workforce is 50% smaller than its peak, and GM 60% smaller. Only the active workforce can produce the cars that earn the profits that pay for retiree health care, so the more retirees per active worker, the more profit per car required to pay for retiree health care.
Imagine what a mess social security would be if, over the next 10 years, the US workforce became 1/2 as large, while keeping all the retirees? Thank goodness for immigrants and children to work when I am old and can't :-)
The huge number of retired workers who need health care, together with a shrinking and older active workforce, which generally will have high health care expenses than the growing and younger work force at Toyota, accounts for the $16 to $19 per hour cost disadvantage Ford has relative to Toyota.
How Atypical is Ford's Situation?
At PayScale, we look at a lot of tech, white-collar, and non-union employers, where hourly wages are $30 or more, and benefits are of much lower dollar value.
However, even for broad national averages, like the reports done by the BLS on benefits, this level of benefit cost per hour is really high.
Another way to look at the cost of health care is to divide the $3.1 billion Ford spent on health care for hourly workers and retirees in 2006 by the 77,500 employees they had then. This is $40,000 per year per active employee!
According to the BLS, for all workers, health insurance only averages $4,000/year or $1.92 per hour. Even for only union employees, who generally negotiate for good health care programs, health care only averages $8,300/year or $3.98 per hour.
Ford pays an amount per hour worked for health care that is about as much as the typical US worker earns for all wages and salary, which is $18.92/hour!
David Leonhardt argues in the New York Times that the added cost of about $800 per vehicle for extra benefits and older workers is not the root of the problem. It is that the Big 3 just do not build cars people want.
That is not something on which our salary data sheds any light, other than to note that the US engineers at Toyota, who design the cars and factories, are paid a little less than at the Big 3.
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