Labor Pains Are Not Easily Shared (WIN for Teamsters & country's largest trucking Co. YRC)

[Omaha Steve]

http://www.washingtonpost.com/wp-dyn/content/article/2008/12/30/AR2008123002836.html

By Steven Pearlstein
Wednesday, December 31, 2008; Page D01

The Teamsters are not generally known for being easy to push around, so it is of some interest that the union's leaders have struck an agreement to allow the country's largest trucking company to cut the pay of its union members by 10 percent to help the firm survive the economic storm.

As you might expect, the deal does not come without a price: In return, union employees will get warrants that will allow them collectively to buy 15 percent of the stock of YRC Worldwide. The company has also assured the union that similar pay cuts will be given to nonunion employees, including top executives.

The hard-nosed calculation made by Teamster officials is that, with YRC's financial viability at stake, it is wiser and fairer to spread the pain among all active workers rather than force the company to lay off even more workers, or refuse to take a cut and possibly force the company into a bankruptcy reorganization in which workers and retirees would likely take even bigger hits.

This idea is not a new one. Economists have long believed that the only reason there is persistent unemployment is because labor is unlike most other "goods" -- its price does not go down when the supply gets out ahead of demand in the early days of an economic recession. Without a reduction in the price of labor that can induce additional demand, it's much harder for the market to "clear" and put supply and demand back in balance, albeit at a lower wage level.

During the 1980s, Martin Weitzman, then an economist at Massachusetts Institute of Technology, suggested that recessions could be shorter and shallower if firms would do what YRC and the Teamsters have proposed: reduce pay and working hours for everyone just a little bit rather than place the burden of the adjustment process on a handful of workers. One way to accomplish such a "share economy," Weitzman argued, would be to change the structure of compensation so that a higher percentage of it was in the form of a bonus based on company revenues and profits, with a lower base pay. That would allow firms to reduce payroll costs during a recession without having to resort to big layoffs. It would also help ensure that workers shared in the boom times as well.

There was a time when I was quite enamored with this idea, and I still think it could be usefully applied in certain circumstances. The one that comes most readily to mind is the law.

FULL story at link.