The Big 7 Oh

Dave Leonhardt says it includes legacy costs:

...the Big Three really does spend about $73 [per hour] on compensation. So the number isn’t made up. But it is the combination of three very different categories.

The first category is simply cash payments.... It includes wages, overtime and vacation pay, and comes to about $40 an hour. ....

The second category is fringe benefits, like health insurance and pensions. ... the benefits amount to $15 an hour or so.

Add the two together, and you get the true hourly compensation of Detroit’s unionized work force: roughly $55 an hour. ....

The third category is the cost of benefits for retirees. These are essentially fixed costs that have no relation to how many vehicles the companies make. But they are a real cost, so the companies add them into the mix — dividing those costs by the total hours of the current work force, to get a figure of $15 or so — and end up at roughly $70 an hour.

Not so fast, says Heritage's James Sherk:

These figures are based upon calculations by the Detroit automakers themselves as published in SEC filings, their annual reports, and other materials. According to briefing materials prepared by General Motors, "The total of both cash compensation and benefits provided to GM hourly workers in 2006 amounted to approximately $73.26 per active hour worked."

....General Motors reports that it pays base wages of roughly $30 an hour.

....Other provisions raise cash earnings above this base pay. For example, workers at Ford earn 10 percent premium payments for taking midnight shifts and double time for overtime hours worked on Sundays.

Autoworkers put in substantial overtime hours at higher rates, raising earnings above their base pay. GM reported that its average hourly employee worked 315 overtime hours in 2006. Including all monetary payments--base wages, shift premiums, overtime pay, as well as vacation and holiday pay--GM reported an average hourly pay of $39.68 an hour in 2006.

To recap, Leonhardt thinks $40/hour is explained by cash wages plus fringe benefits. Sherk says it's cash only, and fringe benefits are extra:

The remaining $33.58 an hour of hourly labor costs that GM reports--46 percent of total compensation--was paid as benefits. These benefits include...:

Hospital, surgical, and prescription drug benefits;
Dental and vision benefits;
Group life insurance;
Disability benefits;
Supplemental Unemployment Benefits (SUB);
Pension payments to workers pensions accounts to be paid out at retirement;
Unemployment compensation; and
Payroll taxes (employer's share).

These benefits cost the Detroit automakers significant amounts of money. Critics contend that these benefit figures include the cost of providing retirement and health benefits to currently retired workers, not just benefits for current workers. Since there are more retired than active employees this makes it appear that GM employees earn far more than they actually do.

This contention contradicts the plain meaning of what the automakers have reported in SEC filings and in their public statements and would be contrary to generally accepted accounting principles.

Sherk follows with a tutorial on accrual accounting practices that make it clear that benefits for current retirees would not show up in these current year expenses (but would be on the balance sheet as liabilities).

Further, that GM, with almost 300,000 retirees receiving almost $5 billion in retirement benefits in 2006 (nearly $17,000 per retiree), couldn't possibly have only $15 (per current worker hour) as Leonhardt is claiming.

(Thanks to NC State's Craig Newmark)