Reviewing The Economic Situation

Larry Price
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Wednesday - November 26, 2008
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Things are likely to get tougher on the labor front, so it’s a good time to count your blessings and be thankful if you have a job, a viable health care plan and a compassionate employer.

One of the things I remember from my first class in economics was the importance of a really simple formula that generally means Revenue (R), plus or minus Costs (C), equals Profit (P) (r

= p). In reality, it is very complex and cold. The simple formula doesn’t care what time of year it is or how the global economy is doing or the price of a barrel of oil. It has dominated management thinking in most capitalist countries for 100 years.

Example: StarKist Seafood, the parent company of StarKist Samoa, is cutting jobs at its cannery in Pago Pago. It is the largest private employer in American Samoa. In addition to getting rid of 20 salaried positions, StarKist is eliminating hourly employee pension benefits, seven paid holidays and paid vacation for hourly employees. The reason given for the cuts is that they are needed to offset rising costs, primarily with the minimum wage increases. Since American Samoa is a U.S. Territory, its hourly minimum wage must increase by 50 cents in July. The minimum rose another 50 cents in May and will increase again next May until it reaches the United States’ minimum wage rate of $7.25 an hour by July 24, 2009.

It’s interesting to note that Hawaii was a U.S. Territory 50 years ago, and our work force was treated the same way for similar reasons. Management has rights just like labor does. They have specific rights to direct the work force, establish production levels, and frame appropriate company rules and policies, including those that have to do with discipline and discharge.

One policy says employees can be discharged or disciplined for just cause. Specific grounds in discipline and discharge clauses most often cover intoxication, dishonesty or theft, incompetence or failure to meet work standards, insubordination, unauthorized absence, misconduct, failure to obey safety rules, violations of leave provisions or general violation of company rules. Now we can add another one: an increase in the minimum wage rate imposed by the United States of America.

This kind of management has been going on for a long time and was so arbitrary and capricious that, in 1937, the U.S. Congress passed the Fair Labor Standards Act (FLSA) to regulate wages, hours and working conditions of private-sector employers involved in interstate commerce. The landmark legislation also established a minimum wage and prohibited persons under age 16 or 18 from working in specific occupations or industries. A lot of the labor-related laws were passed after the Great Depression, and were intended to stimulate expanded employment and take wages out of competition for government work. Said another way, employers could save by hiring more employees rather than having existing employees work excessive overtime.

As the global economy slides into a deeper recession, grievance procedures are going to become a high-priority issue for management. These grievance procedures should be welcomed by management, because, rather than walking off the job, the aggrieved employee has a forum to use when an alleged violation occurs.

Where are we going? Will we go back to the good old days when everything was bad? The average wage in 1908 was 22 cents an hour. The average worker made between $200 and $400 per year. But that was a century ago when the tallest structure in the world was the Eiffel Tower and the population of Las Vegas was only 30!

Times are changing rapidly and it may be time to alter that simple economic formula about cutting costs, which we can see means little more than coming up with an excuse to lay off workers to maintain the bottom line.

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