Quality Magazine

From the Publisher: Adding Up the Losses

April 18, 2006
It just doesn't add up. There is no way that the layoffs at Ford Motor Co., General Motors Corp. or DaimlerChrysler are not going to negatively affect the economy. U.S. Secretary of Labor Elaine Chao recently said these losses would have no effect on our economy. Others agree with her.

These three automakers have announced job cuts of more than 70,000 employees to take place during the next six years. Chao says that the 2.5 million jobs that were created during 2005 will more than make up for those losses. And on the surface, she would seem to be correct. After all, the proposed automotive losses average 972 per month for six years and the United States created an average of 208,333 jobs per month during 2005 alone.

Chao's numbers treat all jobs the same. Seasonal jobs count the same as permanent employment. High-paying, professional positions are counted alongside entry-level jobs. For Chao and others to ignore or gloss over the differences is deceptive at best. There is a difference among these job numbers for which there needs to be further accounting.

According to the Center for Automotive Research, the average salary for an hourly, GM line worker is $31.35 per hour. This translates to more than $65,000 per year, based on a 40-hour work week. With overtime opportunities that exist for hourly employees, most have an earning potential exceeding that average. Some long-time GM hourly workers report six figure salaries because of overtime. With 10,000 of the planned job cuts coming from white-collar positions, the earning potential escalates.

So what are the jobs paying that Secretary Chao says will replace those lost in the automotive sector? A sales associate at Wal-Mart averages $8.23 per hour or $13,861 per year. According to Salary.com, the national average for all salaries during 2005 was $40,409.

The loss of automotive jobs means an average of at least $25,000 per employee disappears from local economies. Multiplied by the planned 70,000 job cuts, that's at least $1.75 billion of buying power lost from local economies during the next six years. Secretary Chao isn't creating enough comparable paying jobs to compensate for that real loss, plus the losses that come from supporting businesses that no longer derive income from now-laid off auto workers. Of course some of those 70,000 job cuts include retirements or hiring freezes, but the fact those jobs won't be replaced or added still constitutes a loss to the economy.

What's the solution to stemming the flow of job cuts? Some experts believe health and retirement packages need to be renegotiated. Others suggest that plant productivity and efficiency need to be improved. It's been suggested that the U.S. government bail out the automakers' pension funds. Maybe we should study manufacturing practices of competitive countries and then improve on their processes.

None of these proposals are cheap. None will be easy. But if nothing is done, the United States will continue to lose real buying power from its economy.

And that's how the numbers really add up.