Feeling the strain of increasing fuel prices
The constant rise in gas prices at the pump can make people feel stressed and alone, however everyone is in the same predicament. Even large corporations are feeling the strain of increasing fuel prices Continental Airlines Inc. was force to take drastic measures in order to compensate for the rising price of fuel. The airline reported that they plan to lay off 3,000 of their employees and eliminate nearly 8% of their fleet. Continental did state that they plan to continue to pay the 3,000 employees remaining salary throughout 2008. Continental is predicting that the cost of fuel will be over 2.3 billion dollars more than in previous years. These are the details discusses in the article Continental to cut 3,000 jobs, slash capacity, flights. Now lets discuss what types of models and economic ideals that may have been used to determine how many people to lay off and how many flights to ground.
Continental could have created a model which showed that it would be cheaper to pay the 3,000 employees that are being laid off their remaining salary for the rest of the year then to have them up in the air working. Continental along with numerous other airlines have created models to show the overall expenses for each flight and the number of flights to determine how many flights they can have in the air before it becomes uneconomical or when the marginal cost becomes greater than the marginal benefit.
6 comments:
Why do you suppose companies prefer to respond to troubled economic times by laying off workers rather than simply keeping all the workers but lowering their wages instead? Would you rather be laid off or working full-time but at a lower wage?
In response to Dr. Delemeester, I would rather work full time for less wages. I mean that seems to me to be the obvious choice. If I am unemployed I am providing nothing to my family. If I am working, even at low wages, I am still supplying something for my family or myself. Especially now when the US has a growing unemployment rate, the last thing you want to be is laid off because there are less and less job opportunities for you out there.
I agree with Jordan. I think that having a job, no matter of the pay, is a great benefit to the worker and his or her family. Not only is it a source of income, but it also has an affect mentally and emotionally on the worker and family. When someone see that you are "unemployed," people make a stereotype about that person. Being employed for any job is better than not having one.
Ok, so Jordan and Steve think having any job, no matter what the wage, is better than not having a job. But why does industry tend to resort to layoffs rather than simply cut wages?
I think one reason is possibly contract negotiations for all of the 3000 employees. Laying off just ends their price issues right then. If they lower the wages you have to change 3000 contracts and it would just be a bigger hassle for the corporation. On a side note I agree with the previous two, I would rather have my job at lower wages then get laid off.
I believe that when people are worried about their job security they would do anything to find something to replace their old job or stay with their job and do whatever needed to keep the job. What most people don't realize is when you are making a certain amount of money and then for some reason you have to take a pay cut, you have to change your life style. With the economy these days people need a cetain amount of money to pay their bills and they pay rate is increasing every year. So even if workers keep their same pay rate after a year they are actually taking a pay cut. So I would say workers would rather take a pay cut than get layed off. Being layed off means no money while a pay cut means they are still putting food on the table. At some points there are circumstances where marginal cost becomes greater than marginal benefit.
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