The Myth of the $70/hour Job


You may have heard that UAW members working for the Detroit firms make $70 an hour. That’s a lot of scratch. Forty hours a week, fifty weeks a year, and you’ll be earning $140,000 a year. Which makes you wonder why there are all these people wasting time in law school. Except as John Cohn writes it’s not true. The way you get the $70/hour figure is that you take the total costs of paying benefits to retired auto workers — legacy costs wracked up long ago — and then average that out over the number of current employees. The big three used to have a much larger share of the US market and manufacturing techniques used to be less efficient, so their past workforce was much larger than their current workforce. Consequently, the per worker figure is astronomical.

Now that was a real problem for the Big Three. It was, frankly, an idiotic thing to agree to. In exchange for getting to pay their workers less in the short-run, they agreed to a benefits structure that was guaranteed to destroy the firms in the long-run unless they could perennially maintain a huge market share. But it’s also a problem that’s largely in the past thanks to an agreement reached last year to offload and ultimately shrink the size of these costs.

All things considered, I think I still prefer the idea of prefab bankruptcy for these firms combined with massive stimulus outlays to the idea of bailing the firm out. But nobody should let themselves think that anyone is making $70 an hour building cars.