Sean King

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Knoxville, Tennessee, United States

Saturday, November 29, 2008

Megan McArdle Explains the Real Cause of GM's Problems:

$70 per hour: right or wrong?

Felix Salmon argues that this figure for GM's labor costs is deceptive. Sort of, but it's actually quite apt at showing the core problem with GM.

Felix says that "the average GM assembly-line worker makes about $28 per hour in wages, and I can assure you that GM is not paying $42 an hour in health insurance and pension plan contributions. Rather, the $70 per hour figure (or $73 an hour, or whatever) is a ridiculous number obtained by adding up GM's total labor, health, and pension costs, and then dividing by the total number of hours worked. In other words, it includes all the healthcare and retirement costs of retired workers."

This is not quite right. The reason that it is reasonable to include retirees in GM's labor costs is that the benefits paid to the retirees are still under negotiation by the union. In other words, the price for employing the people who are still working is giving a bunch of stuff to people who used to work for you.

Read the whole thing.

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