Germany was able to produce about 5.5 million cars while the US built 2.7 million or about half. The average compensation for a German autoworkers was 48.97 Euros per hour ($67.14 US),while in the US the average compensation was $33.77 per hour. German car manufactures coped very well with their high home market labor costs because they were still able to make a profit.
How did these German companies able to pay their workers so much, relative to the US, while producing twice as many cars and making a substantial profit? One reason is that in Germany every worker in this industry is more productive than the US. In class we learned that the higher one's production level is the higher one's wage. Technology and capital can increase each individual worker's productivity. The US relative to Germany is a low-wage country for this industry. Meaning that each car produced in the US is more labor intensive than the ones built in Germany. German cars are built using machinery and demand less labor.
Germany was able to compete with the US even with higher labor costs. It was able to use its advantage in technology to increase its factory production in order to compete with world markets.
I think this topic is a very interesting one to look at because without know the stats we would assume that the wages of the to sectors would be close. After learning the productivity however it makes sense that the wages be higher for German workers because their productivity is so much more. The only thing that I am still surprised about is how low the US productivity is. I would assume that our technology is very competitive with Germany, but obviously from this example we can see that it is not.
ReplyDeleteI agree that these higher wages can be reasoned by Germany's higher worker productivity in comparison to the USA. A higher level of technology present in German car making also makes sense as a contributing factor. It is no secret that many foreign auto companies are much better at making higher quality cars at a lower cost then their US counterparts. While this is not specific to Germany, one can look at Japans reshaped auto industry under the quality guidance of Deming as yet another example of this.
ReplyDeleteGermany's autoworker wages are twice higher than the average U.S. autoworker wage because their total productivity is twice as high compared to U.S. total productivity, plain and simple. I totally agree with you there. Productivity need to rise at a rate that is at least proportional to the rise in wages, or else inefficiences will start to occur and a country will lose its comparative advantage at producing a particular product. Since wages equal the price multiplied by the marginal productivity of labor, I think it is safe to assume that German automakers have more "breathing room" to charge more for their cars. In regards to your comment about higher production levels correlating to higher wages, this is true in theory and in situations with merit pay involved (most workplaces). However, you have to remember that in reality, workers have ways they can obtain higher wages while not being obligated to work harder or speed up production. What's one of the most noticeable examples of this today? Unions. Still, being that union workers are generally more skilled than non-union workers, Germany's higher unionization percentage may explain why the Germans can produce cars more efficiently than Americans can. The country with the relatively more skilled workforce will use more capital compared to labor and its wages will be relatively higher. I think you should have included the number of autoworkers in each country. By doing that, I would have had a clearer picture of just how much more productive German workers are quantitatively. Moreover, I definitely am in agreement with Scott in that I'm surprised at how low U.S. autoworker productivity is.
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