A tale of two systems: many readers don't believe it
Dec. 24, 2011 — As an American ex-pat in Munich, your article about the difference in wages paid by German companies in Germany and in the U.S. caught my attention.
There is another factor not mentioned in your article. Germany has a higher corporation tax — but [one] which allows for massive deductions for building domestic and foreign plants.
The degree of automation is much higher in Germany than in U.S. plants due to tax structures. Energy efficient Siemens line drive systems, and Kuka robots ensure the lowest labour and energy costs per produced unit in Europe. That is, while the hourly wage is much higher in Germany than the U.S., the automation rate is also much higher, facilitated by corporate laws which favour constant plant upgrading which cut both labour and energy coss per produced unit. If you take “labour costs per produced unit” into consideration, then the difference is not so glaring. German U.S. plants exploit cheaper labour but have a much lower capital plant investment while German domestic plants have cut labour costs by automation.
South Carolina has an “industry recruiting office” here in Munich. “Open shop laws” mean lower labour costs, but also lower plant automation costs than say in “closed shop” states such as Michigan. Geography also plays a role. It is much cheaper to ship parts through the port of Charlestown to plants in the state than by ship up the St. Lawrence, through the canal and Lake Erie to Detroit. B.M.W., Volkswagen, and Daimler also ship back SUVs made in the U.S. to Germany for sale. Lower transport costs via rail and the port of Charleston also play a role in selecting the southern states.
Of course, Fiat will take a different coure, having taken Chrysler over. If it produces in the U.S. for the U.S. and perhaps for export to Europe, it will be on the Chryler lines it took over and which are being upgraded to European standards. Fiat had its eyes wide open on all the mistakes made by Daimler in its partership with Chrysler. A Chrysler station wagon, or a Dodge Charger already have a lot of European technology built right in, such as Abarth exhaust systems which let them sound good as well as look good. Fiat is also following the strategy adapted by Henry Ford: pay the labour well and you can sell cars to your own workers.
— Kent Doering, Munich, Germany
Dec. 24, 2011 — Interesting article. I want to add some facts that most often are overlooked and that could be input for some more research and comparison and maybe a follow-up article.
The low wages require the U.S. employees to work many more hours than the Europeans and it is undermining productivity. Research of Alfred Kleinknecht (TU Delft) shows that productivity since 1960 in Europe has grown by 395 percent and in the U.S. by 220 percent, twice as low.
In Europe, the average amount of labor hours a year is around 1,300 to 1,400 hours while, in the U.S., it is not strange to see more than 2,000 labor hours a year (1.5 times more).
The European have converted their productivity growth in more free-time. Given the current exchange rates, a U.S. employee [has] to work 2.4 times more then a European to be able to buy the same product on the world market.
Actually, it is even worse: the best kept secret is that European companies pay out their return not only to shareholders, but first pay their employees (education, healthcare, insurance for when they become unable to work, and pension). If you take that also into account then the shareholder return would be 27 percent higher (19 percent for insurances and 8 percent for pension). If you compare then the average 8 percent shareholder return in the U.S. with the average 35 percent (8 percent plus 27 percent) in Europe (Netherlands as an example), then its shocking to see that the return of European companies is actualy four times higher then the U.S.
I believe an important reason for the lower productivity in the U.S. is the lower education, the system of fire-hire and, as counter-effect, the low loyalty (knowledge drain). While in the U.S. compliance is the key word, in Europe it is commitment. This explains maybe partly the differences.
I am not a specialist neither do I have anything against the U.S. On the contrary, I love the country but I noticed the culture differences and thought I would give feedback from a European perspective. I hope it is contributing in a positive way.
— Freddie van Rijswijk, Erica, Netherlands
Dec. 23, 2011 — I think you need to compare apples to apples. The German cars you speak of sell for a much higher retail than the average American car. Of course they make a higher profit — it does not take a rocket scientist to figure that one out. The wage is only a small part of the cost of production: retirement costs arrived at by the threat of union strikes, utilities, taxes, land costs, and many other things are included in the final production cost. The biggest threat to the American job is the high cost of maintaining an employee in retirement. Fix that issue and we are ready to make a profit again.
— James Hartzell, Mifflintown, Pennsylvania
Dec. 23, 2011 — This is a very informative article and I as a concerned citizen and union person applaud you.
— Graham B Henry Jr, Baltimore, Maryland
Dec. 22, 2011 — The problem I have with this article is when you talk about the profits of the German companies. You gave a total profit and didn’t look at the profit per car sold. If the profit per car sold is that much higher in Germany, then your point still stands. If it isn’t, well then, it is just because more cars were sold that were made in Germany. [That would] disprove most of your argument on higher profits.
— Aaron Jackson, Trophy Club, Texas
Dec. 22, 2011 — This is a very frustrating article. Makes the point and describes the difference in union/wage policy between German and the U.S. but doesn’t describe how the Germans, with high wages, make a profit. If wages are higher, then something else must be lower (or prices higher)…but the article [gives] no clue.
— William Paulin, Prescott, Arizona