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Forbes: "How Germany Builds Twice as Many Cars as the U.S. While Paying Its Workers Twice as Much"

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danbeaulieu posted on Thu, Dec 29 2011 11:40 AM

Saw this article conversed over at the Debate Politics forum and wondered how the opinions would differ if I posted it here.

How Germany Builds Twice as Many Cars as the U.S. While Paying Its Workers Twice as Much

Article by Frederick E. Allen

In 2010, Germany produced more than 5.5 million automobiles; the U.S produced 2.7 million. At the same time, the average auto worker in Germany made $67.14 per hour in salary in benefits; the average one in the U.S. made $33.77 per hour. Yet Germany’s big three car companies—BMW, Daimler (Mercedes-Benz), and Volkswagen—are very profitable.

How can that be? The question is explored in a new article from Remapping Debate, a public policy e-journal. Its author, Kevin C. Brown, writes that “the salient difference is that, in Germany, the automakers operate within an environment that precludes a race to the bottom; in the U.S., they operate within an environment that encourages such a race.”

There are “two overlapping sets of institutions” in Germany that guarantee high wages and good working conditions for autoworkers. The first is IG Metall, the country’s equivalent of the United Automobile Workers. Virtually all Germany’s car workers are members, and though they have the right to strike, they “hardly use it, because there is an elaborate system of conflict resolution that regularly is used to come to some sort of compromise that is acceptable to all parties,” according to Horst Mund, an IG Metall executive. The second institution is the German constitution, which allows for “works councils” in every factory, where management and employees work together on matters like shop floor conditions and work life. Mund says this guarantees cooperation, “where you don’t always wear your management pin or your union pin.”

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Suggested by krazy kaju

There isn't enough information given to discuss their claims. They list 2.7 US automobiles and 5.5 million German automobiles, but fail to mention why they exclude the additional ~5 million US commercial automobiles and ~300,000 German commercial automobiles. The numbers they give are for basic passenger vehicles only (cars, SUVs, not sure about pickup trucks). They also give no indication as to how they are determining who is "German" and who isn't. Are the GM plants in Germany German or American? Are the VW plants in the US German or American?

Also, stating that company A pays higher wages than company B while maintaining profits and then listing luxury car manufacturers to support the statement is somewhat disingenuous. Fords are cheaper than BMWs and mass market goods have thinner margins than luxury goods. That doesn't mean the recipe for worldwide good is to get rid of mass market cars and replace them with luxury cars.

Regardless, their whole premise is silly. The claim is that German government policy is what keeps German (again, whatever that means) auto workers highly paid, but they never look into who is ultimately paying for the German worker's hefty compensation. Now that I think of it, they never actually provide any analysis that support their claims at all. It's just a couple of iffy numbers and a lot of assertion.

Correlation != causation and all that.

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Aren't German cars really damn expensive?

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I don't understand why they say, "How can that be?" Why doesn't it make sense that if Germany is producing more cars, that their workers are getting paid more? A rise in profits can correlate to rise in wages. A drop in wages is not the only way to increase profits. Plus from the article it seems that Germany has strong unions and they produce luxury cars, so all of this information seems to add up logically.

If anyone is interested I just started a youtube channel, that attempts to explain Austrian Economics in a humorous manner.





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Answered (Not Verified) Wheylous replied on Thu, Dec 29 2011 10:30 PM
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Please don't suggest your own answers. If you're brilliant, then I'm sure someone else on here will realize it as well and recommend you instead.

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Kakugo replied on Fri, Dec 30 2011 5:57 AM

This is a very similar situation to Japan... when was the last time you heard German or Japanese automotive workers threatening to go on strike?

The real matter is the fact in both Japan and Germany in-house trade unions (AKA Works Councils) carry far more weight than the collective, national entity. Workers and management are much more willing to resolve their differences in private than going public. Solve the problems quickly and quietly so everyone can get back to work. IG Metall is more about "coordinating" each chapter than embarking in nationwide campaigns that generate a lot of publicity but often achieve far less for the workers themselves.

There's also a different perception: my experience is mostly with Japanese companies but it works for the Germans as well. While in countries like the US, France or Italy auto workers see themselves as a sort of separate body from management, in Japan every single employee, from the humble janitor to the executive cutting deals worth tens of millions, sees him/herself as a vital part of the company. Employees, regardless of pay, are encouraged to think of themselves as part of one big machine: some components may be worth more than others but each and one of them is vital for the well-being of the company. If a single small cog jumps out of place, problems will follow.

Now, don't think both the Germans and the Japanese invented the system out of thin air: they went through a nasty learning curve (like a two week long strike which almost crippled Nissan in the early '60s), like anybody else. In the end management aknowledged a satisfied workforce is more productive and workers aknowledged that by showing themselves reasonable they could obtain more than just by using threats. Everybody won in the end.

Together we go unsung... together we go down with our people
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