Ford was in the news today, selling 300 million new shares partly in order to pay medical expenses for union retirees (source). This will dilute existing shareholders who might well ask “How come the company needs to pay so much for retiree medical expenses?”
I think the answer is that a typical unionized auto worker would join a Detroit automaker at age 18. He would be eligible to retire 30 years later, at age 48, with a full pension including medical benefits for a wife and kids. For nearly 20 years, until this guy is eligible for Medicare, Ford will be paying his medical bills, his wife’s medical bills, and possibly his kids’ medical bills.
What about GM and Chrysler? The companies have already receive billions from taxpayers that they’ve used to meet retiree health care obligations. Under the terms of the latest Chrysler bailout, the union fund gets stock in Chrysler and then the government puts billions of taxpayer dollars into the post-Chapter 11 Chrysler. Essentially the U.S. taxpayer is paying these costs, though in a way that looks like investment rather than direct transfer. (Forbes magazine published a related article on the Chrysler bankruptcy today.)
Consider a 48-year-old woman who gets divorced and is forced to reenter the workforce. She goes to work at Walmart, the nation’s number one private employer, at a salary substantially less than an auto worker earned on the assembly line, while playing cards in a “job bank”, or collecting a pension. She won’t be able to retire until age 70. Every year that she works she will pay taxes to support a 48-year-old retired United Auto Worker who is enjoying his vacation house on a lake, water skiing behind his boat, etc.
This would not have surprised Mancur Olson, but it seems rather tough on America’s older workers.
Not sure if this is still true, but at one point I thought the auto companies medical benefits were so nice (no copay, etc) that people would stay on them for life instead of switching to medicare at 65. If so, it’s a lot more than 20 years.
I think the moral of this story is that wal-mart workers should unionize
Reviewing Wikipedia, it seems many of the big 3 are closing 10-25% of their manufacturing capacity in Canada, where health care costs are substantially lower. Health care plans typically cover dental work, glasses, prescription medication, physiotherapy and the like. “Core” medical services is funded by the government.
I wonder why shareholders aren’t demanding a shift in manufacturing to Canada, or at least a reversal of plans to close plants.