Transcript Airline workers chafe at cuts to pay and benefits, struggle to adjust

Microeconomics Extra Credit
Ryan Saab
4-18-05
Airline workers chafe at cuts to pay and benefits,
struggle to adjust long-held expectations.
Source: The America's Intelligence Wire, March 1, 2005
What’s going on?
• “The airline industry battered by record fuel prices, low-cost
competition, the lingering effects of the Sept. 11 attacks and
other problems is squeezing workers long accustomed to
generous union-negotiated pay, robust pensions and enviable
job security.”
• “Most of those cuts have been directed at the labor costs that
now account for nearly a third of airlines' operating costs.”
• “United baggage handlers, ramp workers and others shouldered
an 11.5 percent pay cut in January, temporary until April and
further negotiations. That is on top of an 18 percent cut two
years ago.”
What’s going on?
• “At US Airways Group Inc., flight attendants agreed to pay cuts
of about 9 percent late last year, their third cut in 2 1/2 years.
• The average US Airways flight attendant now makes about
$34,000 a year, compared to a range of $45,000 to $52,000 a
few years ago.”
• “When US Airways held a job fair this month outside
Philadelphia to sign up new ramp workers, it was offering pay
of $9.59 an hour.”
The Economics
• In this case, there was a decrease in demand
for labor
• It is less profitable for the airlines to hire more
workers
• Puts a downward pressure on wages
• Lowers the value of the marginal product of
labor
• Gives a new equilibrium
Shift in Labor Demand
Shift in Demand
30
25
Wage
20
Wages (price of labor)
15
Linear (Wages (price of
labor))
10
5
0
y = -0.25x + 25
0
50
100
Quantity of Labor
150
Shift in Labor Demand
Shift in Demand
30
25
Wage
20
Wages (price of labor)
15
Linear (Wages (price of
labor))
10
5
0
y = -0.25x + 25
0
50
100
Quantity of Labor
150
Shift in Labor Demand
Shift in Demand
30
25
Wage
20
Wages (price of labor)
15
Linear (Wages (price of
labor))
10
5
0
y = -0.25x + 25
0
50
100
Quantity of Labor
150
The Results
• Because there was a decrease in demand for
labor, the wage equilibrium went down from
about $15 to about $9.
• There was also a decrease in employment as a
result of the decrease in the demand.
• There was a decrease in demand for labor in
the airline industry because of lower profits,
high competition, and high fuel costs.
Acknowledgments
• Principles of Microeconomics 3rd edition.
Gregory Mankiw
• InfoTrac Web: General BusinessFile
ASAP.
• The America's Intelligence Wire
• Article is available upon request