The real problem is productivity says Greg Ip at the Wall Street Journal. 
Greg Ip says American Labor’s Real Problem: It Isn’t Productive Enough
For the United Auto Workers, it makes perfect sense to demand more pay and better work-life balance from Detroit’s three automakers. After all, workers throughout this historically tight labor market are getting exactly that.
But what makes sense to striking factory workers makes no sense for manufacturing as a whole. Pay is ultimately tied to productivity: the quantity and quality of products a company’s workforce churns out. And here, American manufacturing companies and workers are in trouble. The issue isn’t with labor-intensive products such as clothing and furniture, which largely moved offshore long ago. Rather, it’s in the most advanced products: electric cars and batteries, power-generation equipment, commercial aircraft and semiconductors.
Yes, American companies still lead the world in design and innovation, but the resulting products increasingly are made abroad, especially in Asia. Biden, like former President Donald Trump before him, wants to reverse this, through tariffs, subsidies and other government interventions. Japan, South Korea, Taiwan and especially China certainly intervened plenty to help their manufacturers.
Unions need to accept they’re not yet up to the job. “Everyone loses the skills they don’t practice,” Kevin Xu wrote recently on his China-focused blog, Interconnected. Xu, who once worked with unions to get former President Barack Obama elected, says unions need to be told “that they are not the best, but they can be if they stay humble (and) soak up all the know-how and skills from workers elsewhere.”
Manufacturing Productivity Growth
The US leads the world in innovation and design. No one competes with Apple in phones, US companies in chip design, or Tesla in starting EV innovation.
But the best chip factories are in Taiwan and South Korea, Apple depends on China, and Tesla’s best plant is in Shanghai.
Labor Productivity Since 2009
The WSJ has this alternate chart that’s worth a look.
I would gladly have used that data in my chart except the St. Louis Fed doesn’t have it, the data is annual, doesn’t go back far enough, isn’t current, and percentages can be misleading.
The decline in 2022 was certainly influenced by the Covid pandemic.
Labor presents problems other than just cost, such as the shortage of skilled workers. “They find desirable candidates, they hire them, they train them, they don’t retain them,” said Jim Schmidt, an automotive expert at consultants Oliver Wyman. “A lot of the younger workforce doesn’t want to do that type of work.” For some, absenteeism is another problem.
“You need a lot of additional labor to backfill for absenteeism,” Schmidt said. “That can lead to large effects on productivity, quality and culture.”
The US big 3 automakers have just two of the top ten 10 dependable brands ranked by J.D. Power and just one of the 10 best cars picked by Consumer Reports, note Greg Ip.
Beyond autos, Boeing has been plagued by production and quality issues. Airbus delivered three times the number of aircraft than Boeing.
Union work rules and absenteeism are problems in the US. The UAW wants a shorter work week and jobs protection.
US companies use the fewest robots in general. Unions don’t like robots or the loss of jobs that come with robots.
Topping it off, EVs are easier to manufacture. The internal combustion engine has about 2,000 moving parts but an electric engine has about 20.
So not only will EVs reduce the manufacturing need, they will reduce the need for union auto mechanics.
Total UAW Unit Labor Costs vs Tesla
- Big Three: Analysts estimate $66 an hour
- Tesla: Roughly $45 at Tesla
- UAW Demands: Meeting Fain’s initial demands would boost costs to $136 according to Wells Fargo analysts.
Elon Musk Taunts the UAW, “Tesla Pays Workers More and We Have Fun”
Production costs are far cheaper at Tesla and nonunion plants.
For discussion, please see Elon Musk Taunts the UAW, “Tesla Pays Workers More and We Have Fun”
The unions want protection from foreign competition, from Tesla, from EVs in general, and higher wages to boot while producing lower quality cars.
A huge UAW pay increase will only exacerbate the problem.
Energy Crunch: Demand for Diesel and Jet Fuel Soars But Refining Capacity Sinks
Also note the energy crunch. The Demand for Diesel and Jet Fuel Soars But Refining Capacity Sinks
EVs are coming but Biden’s push for them years ahead of demand and infrastructure. That exacerbates the union problem.
The irony is EVs will not do a damn thing for the environment.
The National Highway Traffic Safety Administration has concluded Biden’s mileage standards have “Net benefits for passenger cars remain negative across alternatives” vs doing nothing at all. See The Shocking Truth About Biden’s Proposed Energy Fuel Standards for discussion.
The real problem is that for 50 years, the C-suites and the stockholders have been systematically increasing their percentage of total corporate gains while steadily decreasing the real wages of all salary workers and plundering the middle class in the USA. That trend has reached extremes and is now close to the breaking point.
I would like to see the productivity of actual manufacturing and non-manufacturing (accounting functions, IT, etc) if it exists. I saw the the CEO of GM, who argued she met her performance metrics and merited an increase. How can the CEO merit a (substantial) increase while the industry loses productivity? Would this be analogous to an off-the-charts performance of a baseball player who wins MVP while the team does very poorly?
the post ww2 amerikan economy when we had like 5% of world population and half the GDP was an aberration. a village idiot could drop out of HS in 50s and 60s and live a easy life with just one job for family doing something mindless like factory line. the world is now going back to old order. where a village idiot, will be living a hard and low life. the serfs are gonna keep getting pounded down in usa for decades to come. unless something drastic occurs. the two world wars were a very unique situation that left usa untouched.
Merit has never had anything to do with pay. economics is a very soft science. go read an anthropology book on human primates and work. an easy one, sounds dumb but very deep, “bullshit jobs, a theory”, by graeber. FFS boys and girls, this is silly to believe in things like merit and the easter bunny. graeber was anthropologist at london school of econ. a very soft science. link to amazon.com
They merit whatever raises their big bosses at the top have got over the last 20 or 30 or 40 years. Or else, the big bosses’ salaries should have the exact same raises as what the average worker got.
You have 10 million illegals that walked in over the last three years.
Fire them all and hire the illegals for 7 bucks an hour.
Repeat across the U.S.
Problem solved.
9X9, they don’t have to fire them. Just prolong the strike, by not giving in, and they can simply let them all go. Most will need different training and skill sets anyway. This means they cost a heck of a lot less, as they are educated, but without knowledge so to speak, and starting at the bottom…
No!
Unless this is a wink and nod “Thank You” to all those that will be losing their jobs when the EV gets ramped up in all its silly glory. They did, and will do, nothing to merit this sort of increase.
It would definitely bankrupt most companies, but in this particular case, as many workers will be getting let go, they can suck it up for a year or so.
The majority of Members Voted for their own demise, as automation will take over what EV doesn’t take away. This entire EV chase is going to end very, very badly for all the Automobile Companies (Employees big time) that were sucked into jumping onboard. Infrastructure not ready, too expensive still, recession coming, and the Country and it’s Citizens are already broke before any of this even happens…
There are two issues here: quality and bankruptcy.
Automation dramatically increases quality reliability. Robots are not emotional or unreliable and their timekeeping is excellent.
Bankruptcy does not reduce jobs. Other companies will supply any demand. Do you think if the big 3 close, people will stop wanting cars?
Same in all businesses. Been there, done that.
After researching how the Productivity Index is calculated, I don’t think this is a very good number to worry about. It reminds me of that comment made by someone that a model was bad, and the person using the model said that they had to have some sort of model.
The calculation is here: link to bls.gov and the data sources are here: link to bls.gov.
There are some interesting thoughts in here:
1. There is a tremendous amount of guesses and modeling just to get the inputs to the Productivity calculation.
2. There are a lot of guesses based on survey data, derivations from other sources, etc. I am sure there are large error bars around all of these guesses, models, surveys, and derivations.
3. The index for labor productivity is deflated (see the Calculation page): “Annual manufacturing output indexes for both labor productivity and multifactor productivity measures are constructed by deflating the current-dollar industry value of production published by the U.S. Bureau of the Census along with data published by BEA. Industry shipment data are converted to a current dollar production basis by adjusting for the inventory and resale values.”
So if all things are equal, but inflation seems to go up (as I am pretty sure it’s one of these guesstimate calculations too), Productivity goes down even if everybody is working the same hours, making the same amount of product.
4. From the Sources webpage: “Current dollar labor compensation measures are prepared using employee compensation data from the BEA. Compensation data includes wage and salary accruals (including executive compensation), commissions, tips, bonuses, and payments in kind representing income to the recipients—and supplements to these direct payments. Supplements consist of employer contributions to funds for social insurance, private pension and health and welfare plans, compensation for injuries, etc. For labor productivity, self-employed compensation per hour is assumed to be equal to employee compensation per hour.”
As compensation is a “cost”, any increase in compensation counts against Productivity. From this we see that increases in executive pay (enormous salaries, stock options, bonuses, etc.) reduce Productivity.
It would be very interesting to run a calculation to say that if executive pay only increased as much as worker pay did since 1980 (those huge 2 and 3% raises I got every year, until I learned to switch companies more frequently), what would this Productivity graph look like?
Productivity is down because of chip shortages. Covid killed over 1M impaired
elderly and car mfg productivity.
UAW workers had little to do all day, but their ceo treated their workers fairly. They were idle for no fault of their own. Ford workers produced vintalators.
Ford and GM assembly plants are so advanced that a high school girl can
work there. UAW are no big threat, b/c they perform simple tasks.
But a gal from Yale can generate more excitement and lawsuits!
So, workers do not deserve any rise, but the CEOs deserve double digits rises because …. ???? Of course, this is not surprising coming from the WSJ.
Wages have been flat to losing to inflation. In the meantime, the cost of cars has skyrocketed, and so has CEO pay.
Where does it say that shareholders have to receive all the extra profits?
Mish, I see you often post on the fact that real wages haven’t risen since the 1970s, and real wages have dropped for something like 25 months in a row now. So which is it? When workers strike for better pay, you are against it. When their pay is stagnant or dropping, you write about it. Increased wages are like power – no one ever gives it up willingly. CEO pay has SOARED over the last few decades. Are C-Suites any more productive they were decades ago? I know that in the companies I worked for before retirement, I wouldn’t hire anyone in the C-suites to pick up dog poop. There were no brains at all in those offices. I saw the same VP blow $150M twice, but he still got enormous raises, huge stock options, and when they finally got ride of him years after I retired, he got an enormous golden parachute. There’s no way that worker productivity can increase enough to overcome the money wasted in the C-Suites. Plus, the C-Suites are the ones who control whether technology improvements are purchased – workers can ask, but they don’t control the purse strings.
Why should workers not get something too? The CEOs, the various presidents and vice-presidents, and district managers are all getting the graft.
I often asked my companies why they didn’t institute a policy where workers got 10% of what they saved the company. You would see productivity soar if they did that. However, every company said no. I think the reason is that the C-Suites couldn’t justify their existence. They don’t buy raw materials, they don’t store and manage supplies, they don’t make anything, they don’t sell anything. So what is left? They are just schmoozers or bad decision makers. The workers are the critical components of the company.
So don’t complain about the workers. You need to be focused on the corner offices, as they can waste orders of magnitude more money than the workers can create.
Most people are paid based on their replacement cost. Not on their contributions to the company. Replacing an executive is far more costly than replacing an assembly line worker.
It’s no different than why a QB is paid a lot more than a running back. QBs are a lot harder to replace.
The only reason executive pay is where it is is because of the way it is set – definitely not free market. Executive committees determine their own pay rates and they were never related to “replacement cost”. Go back 140 years and see what execs were paid.
The big earners were those who created the value. (Rockefeller, Carnegie, Ford etc) The kids, friends, and hangers-on rarely earned their keep but demanded the same pay. Who wants to end the gravy train when you’re in charge of it?
Lots more to the evolution of pay but that’s one area.
Let the migrants take the autoworker jobs.
Get the ex-union workers hooked on fentanyl so they’ll commit slow suicide.
Problem solved.
Auto worker wages adjusted for inflation have dropped how much ???
New employees make how much less than older term employees ???
What was that saying from the Soviet Union days ???
Ahhhh…they pretend to pay us and we pretend to work.
If productivity is so bad, why did the CEOs give themselves a 40% raise… that is where the union got their 40% from.
And how far ahead are CEOs to workers over the last 40 years?
If you set worker pay at 1/40th of CEO pay, then you get $500,000 a year… the point being CEOs need to take a pay cut.
Tesla gives stock options as pay and is not comparable in one year. If their stock resets in value, how are the workers going to feel.
Average wage is $30/hr. At 2000 hrs (40 hrs x 50 weeks) that’s 60k. 40x that is 2.4 million.
If you factor in all the other hidden pay (pension contributions, healthcare, paying half the UI benefits and other taxes) they probably get more like 100K (40K worth of benefits) in which case 100×40=4 million. Obviously that far lower than 29 million (GM CEO) but a lot higher than 500K you are quoting.
BTW, if they were limited to 4 million, they’d just get 25 million in stock grants to get the same pay. It’s called the difference between being an owner and a worker.
Why don’t they just take the CEO job instead of their assembly line job?
Falling productivity is the Big 3’s winning argument for a smaller pay increase. Maybe an attendance bonus would help curb absenteeism.
Most definitely not. That’s rewarding bad behavior (absenteeism).
Instead the big 3 should push for firing workers who habitually miss too many days as part of their counter offer. They won’t get that of course but then they can trade that off for the equally ridiculous ‘right to strike if plants are closed’ nonsense.
I suspect the end result is going to be EVs will be manufactured in China with Big 3 branding. China currently makes 60% of all EVs and have lots of factory capacity and knowhow. They lead the world in car manufacturing and are now the biggest exporter. Not good for the US, but the best thing for an automaker trying to survive.
Then why is China opening plants in Mexico?
link to youtube.com
I was in Monterrey a few years ago looking for profits, our Uber drive gave us a tour of the huge 5 mile long section of auto plants being built on the outskirts of Monterrey. I hope to go back at some point and do some more research.
As I noted before, China has a huge demographic issue, the days of cheap young labor doing the heavy lifting are gone.
Pretty sure most of these factories will be automated. Most new plants are automated as much as possible. It’s only the UAW that clings to the old model of using lots of humans on the assembly lines.
My guess is they are being made in Mexico in order to qualify under NAFTA as being ‘made in America/Canada’. Plus there is still shipping costs involved on container ships so it makes sense to build here and not need shipping across the ocean whenever possible.
This is a good video on the decline of China and rise of Mexico.
link to youtube.com
China has been on the verge of collapse for close to 20 years. Lots of Youtube videos have been telling us why over the years.
“Then why is China opening plants in Mexico?”
To avoid US tariffs on Made in China
Well that’s part of it. The other things listed in the video were close proximity to the US which reduced transit time and supply chain disruptions, a young(er) worker population, and lower cost of operations.
I dont know if it would be wise to count on China at this time
Is a house 3-4x their annual income in their area?
These are real breadwinner jobs, creating an actual, physical product, not fast food or tech. They should at least support a lower middle class existence.
The answer to that is definitely yes.
Much of the union base is in depressed cities like Detroit, Flint etc. Homes there can be had 100K or less.
It occurred to me the other day that the big 3 could easily buy up huge blocks of abandoned homes in cities like Detroit etc and build company subdivisions. They could build smaller homes / condos (2000 sq ft or less) and rent to union employees. This is a win/win for both because employees get a cheaper place to live in a safer area (everyone else would be employed) so they would not need massive raises in order to afford to live (by company owning everything price is fixed because it’s not sold on the market and thus subject to being priced out).
You would need to drive a tank to get home.
Detroit is a lawless cesspool.
“Does the UAW United Auto Workers Union Merit a Huge Raise?”
Yes and my reasoning has nothing to do with productivity or anything else other than the fact that every worker, UAW or not, lives in an economic system where the currency is debased every year.
What about “Do the auto makers merit price increases?”
Why do cars cost so much more now? Why is it ok to raise prices of autos but not wages? Aren’t both part of the ecosystem that we all live in?
I think the wrong questions is being asked, the right one is “When will we, as a society, change the debasement currency paradigm.”
There is a difference between COLA raises (raises at inflation rates) and huge raises beyond that (those are normally associated with productivity increases). The union deserves the former but not the latter.
Cars cost SO much more now because they are laded with tech (7-10 airbags, multiple cameras, onboard computers recording everything, driver assisted tech for steering, braking, fuel economy plus massive touch screening Apple/Google connectivity etc). There is no more base model car / truck sold with no tech.
Has the UAW received either? I think that’s the core problem.
Hedonic adjustments cover those “improvements”. Sadly, the statistinks bureau slight of hand vanishes them.
I was good with electronic ignition and fuel injection. Turn back the clock 30 years. What would that car (e.g. Taurus, Intrepid) cost?
WWII Sherman tanks had Ford V8 engines with double overhead cams, fuel injection, hemispherical combustion chambers. Japanese introduced these to the American car market in the 1970’s. Detroit had been making V8 engines with the same power as a 4 cylinder Japanese car. And the rest is history. Detroit is late to the party with nikosil, turbo, dual injection, double race ball bearings, ergonomic controls, electric water pump, starter/generator assist, and hydraulic clutch. To their credit Detroit was first with turn signals, tail fins, cup holders and curved glass.
OK, fuel injection and turbo have been around since the 1960’s. They were invented here, not by the Japanese. I suspect most of those other things were too.
Also V8’s put out an awful lot of power (are you familiar with the term muscle car?), WAY more than 4 cylinder Japanese cars of the same era.
You are miles off base on who invented what.
So GM should be an employee owned company and will grow or fail with the UAW running the show. I’ll sell them my GM stock at last months price.
No idea because that car isn’t made today so you can’t buy one.
Even if they wanted to, auto makers can’t make one legally because of all the safety requirements on modern vehicles.
But all the modern safety and other gadgetry adds thousands to the cost. It’s also VERY profitable too which is why the first thing the auto makers did during the chip shortage was stop making base model vehicles. So profits soared along with the average car cost (average cost has increased by 10K in 2 years and most of that is because you can only buy fully loaded models now so that gives you an idea of what it costs).
I believe that companies ought to RE-TRAIN their workers
so often I see IT(biggest one) workers get let go because new crop out of college are trained and ready to make same mistakes crop before them made(and now getting laid off)
—
mandatory RE-TRAINING universities on site before 1 H1B or other foreign worker allowed
Give them 200 dollars an hour and let the economics work itself out.
I would fire them all and hire a few of the 10 million illegals that walked in over the past 3 years. I can get them for 7 bucks an hour over here.