Is $66,000 too much for unskilled labor?

Originally posted July 18, 2014; updated February 5, 2015




GM production workers hired before 2007 didn't get a raise in the 2011 contract. They continue to get $28 per hour, but they seem to be doing OK, earning over $60,000 a year. That doesn't include overtime, shift differential and fringe benefits. Here is the year-by-year breakdown, calculating annual base salary as $28 per hour times 2080 hours:

  Signing Bonus   Base Salary   Quality Performance Bonus   Profit Share   Lump Sum   Total
2011: $5,000 + $58,240 + $250 + $4.300     = $67,790
2012:     $58,240 + $250 + $7,000 + $1,000 = $66,490
2013:     $58,240 + $250 + $6,750 + $1,000 = $66,240
2014:     $58,240 + $250 + $6,750 + $1,000 = $66,240
2015:     $58,240 + $250 + $9,000 + $1,000   $68,490


Most of the above comes from the following chart copied from the UAW-GM website. Actual profit share figures for 2011 and 2012 were obtained here, 2013 and 2014 here.


Lump-sum table


Second tier workers - workers hired in or after 2007 - will see their wage rate increase from $15.78 to $19.28 over the life of the 2011 contract. They started out in 2010 at $14 per hour. They get the same lump sum, quality performance bonus and profit share as first tier workers.


Are first tier workers paid too much? $64,000 is a lot of money for unskilled factory work. Median household income in the U.S. in 2012 was $51,371, and the UAW auto worker may not be the only wage earner in a household. The fact that in 2010 GM had no trouble finding people willing to take those $14 per hour, $29,120 a year second tier jobs is proof that $14 per hour - or less - is the market wage for unskilled labor.


[Good article about the labor market in the 2/9/2015 Detroit Free Press.]


But these high wages and big bonuses are good for Michigan, we are told. The money gets spent here, creating demand for goods and services, helping local businesses and creating more jobs. It is the old "Give me money and I will spend/invest it to help the economy, create jobs, etc" scam used to justify not only excessive pay, but special tax provisions and other schemes to justify money grabs. It is the argument for taxing capital gains and dividends at a top rate of 20% (15% prior to 2013) rather than 35%, like other income. It was used by a local state representative to complain about Michigan's pension tax. He said if he didn't have to pay that extra $4000 in state taxes (on income that must have totaled $92,000), he would have spent it in Michigan businesses.


What would really be good for Michigan is for auto workers to be paid the market rate, the lowest rate needed to attract qualified employees. It would allow auto makers to decrease prices, which would leave more money in the pockets of Michigan car buyers. Lower prices would increase sales, requiring auto makers to expand production and hire more workers, reducing the number of unemployed in Michigan from the current 357,000. Without having to support as many unemployed with UCB's and other social  services, taxes would go down. Although some workers' wages would be lower, production would be higher, and since income is a measure of production, real incomes would be higher.


Some will argue that without high wages, auto makers won't attract the high-caliber workers they need. In other words, you get what you pay for. Paying high wages alone won't screen out the incompetents, however. Lousy employees like to make money, too. Employers have to come up with ways to determine which applicants are going to make good employees, and if they are not finding enough of them who meet their standard, they'll have to increase wages.


About those profit sharing bonuses. How nice it must be for the GM worker to get that $6,750 check on top of their regular pay. (Ford workers get $8,800.) The payments have nothing to do with how the employee performs. When times are bad for the company and they are losing money, there are no bonuses regardless of how terrific a job the employees are doing. The whole concept bothers me, but I suppose it was something the automakers could offer the UAW that would cost them nothing when business was bad. The employees share in the profit, but there is no payback when the company loses money. When losses are high enough, it is the taxpayers who are asked to bail them out. It is like the 13th check in pension systems, where retirees get a piece of excess when investments do well, but go unharmed when there are losses.