Managers and Janitors

The current debate on the request for a large federal loan from the American car manufacturers is very telling about the declining influence of the American worker.  One congressman, Bob Corker, Republican from Tennessee, suggested that the failure to reach an agreement lay with the United Automobile Worker’s (UAW) union.  The UAW appears to be holding up on politicians dictating that the wages of their members should be ‘competitive’ with foreign vehicle manufacturers with plants in the US.  Of course, competitive means lower. 


In the news, they like throw around figures like $70 per hour for unionized workers.  Before we look at the wages for a worker let us see what our representatives like Mr. Corker and his colleagues earn in Congress.  In the U.S. Congress, the average annual salary is $169,000 with cost of living adjustments (COLA) taking effect annually – unless they vote not to accept it.  As my young son would say, sweet!  Of course, this does not include the cost of health and retirement benefits.  Of those retired from Congress, based on 2006 government figures, their annual pension averaged from $35,000 to $60,000.  (If I knew how many hours a year a member of Congress works then I could figure out their hourly rate.)  Now these folks come into Congress rich.  U.S. senators had a median net worth of approximately $1.7 million in 2007 while in the House, the median net worth was about $684,000.  Whereas for the general population in the US, according to 2006 Census Economic Survey, 70% of individuals earn incomes of $50,000 or less.  According to a 2007 article, the median net worth in the US is $86,000.  So much for representation.


Consider also that only a few months ago, the same Congress agreed to provide over $700 billion in loans (or whatever you want to call it) to help banks and other financial institutions with no apparent oversight or accountability.  These financial institutions are not companies that make anything or employ large numbers of middle-class Americans but rather they sit and dream up complicated and often devious ways for rich people to get richer and avoid paying taxes.  In this case, like many before them, such as the Long-Term Capital Management debacle, the Mexican Peso Crisis, the Savings and Loads bailout, rich people make very risky bets with money and then when it blows up in their face (and ours too) they go around asking for help because they are just ‘too important to fail’.  So the Treasury Secretary, Hank Paulson, a former Goldman-Sachs partner, puts together a 2-page report asking for $700 billion to help companies whose management team pocketed millions and millions of dollars in salaries and bonuses pushing these risky financial instruments.  Congress quickly approves the package with some token questioning of excessive management pay.  Some institutions, such as Goldman-Sachs even restructured themselves as a bank to qualify for the government corporate welfare handout.  Remember what my young son would say, sweet!  Meanwhile the average American struggles with the aftermath of a housing bubble, credit crunch, and job loss as a result of an intentional policy of lax government oversight of the risky and greedy activities of these financial institutions.


But now comes the so-called highly paid autoworker knocking at the door of Congress and what do they say?  They say wait you are making too much.  And we will not help you until you agree to make less with fewer of you even having jobs.  Well, let us first look at the numbers for the highly paid American autoworker.    One of the most highly cited numbers for unionized automobile worker is $73 per hour.  This number is not the actual hourly wage – which would lead to a $150,000 per year salary – but includes other costs related to labor that the American vehicle manufacturers have lumped in together.  Calculations by Wall Street Analysts, maybe a little less bias, show that this $73 per hour figure consists of costs associated with 3 different items.  First, the actual take home pay is approximately $40 per hour, which includes wages, paid vacation, and overtime.  The next category is benefits such as health and pension.  The calculated real value for these first two categories amounts to about $55 per hour.  For workers in non-unionized Automotive companies such as Toyota and Honda, the comparable figure is close to $45 per hour mainly due to the difference in the value associated with the benefits category.  The final category is the cost of retiree benefits.  These have been mixed into the cost of labor and add another $15 per hour.  Now as David Leonhardt of the New York Times points out, the reason this number is large is simply because GM and Ford have been doing business for a long time and had a large pool of retirees even before the Japanese automobile manufacturers built plants in the US.  The other thing that bothers me about blaming the current devastated state of the US car manufacturers on union wages is that of all the factors that can affect business performance, the calculation of how many retirees and the expected cost is relatively simple and certain, not like the cost of gas or customer preferences.  In the end, this extra cost of the worker ‘pay gap’ between Detroit and transplant car manufacturers would only reduce the cost of each car from the Detroit Three by $800 on average.  This is hardly a reason for significant market share decline considering that Detroit car manufacturers have been doling out incentives of $1,000 to $3,000 per vehicle in the last few years to car buyers. 


Meanwhile, this discussion on the wages of union workers is a distraction in another way.  While Congress focuses on the wages of the average worker, the ratio of the average CEO pay to the average pay of the production workers is approximately 400 to 1 in 2004 based on a report from the Institute for Policy Studies.  The same ratio is much lower for Japanese and European companies.  No outrage on this point.  Actually, another slap in the face to the union worker is the ‘symbolic’ decision by the management of GM and Chrysler to accept $1 per year for salary.  I do not know anyone who could live on a $1 per year right now without becoming homeless.  Now that is a wage gap.


In any business, it is usually the decisions and policies of the management team that greatly determines the economic performance of a company not the labor costs.  I have never seen a restaurant put up a banner, ‘new tables’ or ‘lower-paid waiters’ but rather we always see ‘under new management’.  Isn’t strange also that the very point of corporations and businesses is to provide a livelihood to real people but instead all these companies want to do is keep this ‘cost’ of (non-management) labor as low as possible?


Clearly the political influence of workers in the US is diminishing very quickly.  Another point of hyporcrisy: corporations, which go to great lengths to prevent worker gatherings, understand the power of numbers as they put in large resources to form unions such as chambers of commerce, lobbying groups and trade associations to fund and further their own interests.  Whereas, worker unions benefit all workers as a rising tide lifts all boats.  


During a ‘crisis’, we must be even more mindful of the anti-worker activities of businesses and their buddies in the government.  As Naomi Klein details in her book, The Shock Doctrine, it is in times of crises, that powerful political and economic entities make changes to policy that the public would not agree to normally.   If we are not careful, this economic crisis will lead to significant drop in the wages and influence of the average worker. In the end, US workers will be mostly janitors – low-paying hourly workers with few rights and benefits – governed by a small elite of very highly compensated managers.  As citizens and workers, we will be cleaning up their offices and the crises generated by their greedy and risky behaviors through our taxes.

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