Wednesday, December 10, 2008

On the Big 3

David Leonhardt on point today. Shows how the $73/hour in labor costs figure has been misconstrued in the media. A good part of that $73/hour comes from the costs the Big 3 incur because of payments to their large number of retirees. But, he sums up:

It’s a sad story, in many ways. But it can’t really be undone at this point. If we had wanted to preserve the Big Three, we would have bought more of their cars.


Anonymous said...

The Big Three could have prevented this by utlizing a "defined contribution" pension plan that only specifies the amount the company has to contribute each period. The Big Three have been using a defined benefit plan which is highly unpredictable as to the amounts the company has to contribute each period. They take many actuarials to determine health statuses each year and use many estimates of service legnth. Again...decisions made in the accounting department are crucial to long-term business expenses.

JTapp said...

I assume part of what you're referring to is the "jobs bank" they've established. Paying someone you've laid off 95% of their salary for an indefinite amount of time is never a good idea.