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Microeconomics Extra Credit

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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 ... – PowerPoint PPT presentation

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Title: Microeconomics Extra Credit


1
Microeconomics Extra Credit
  • Ryan Saab
  • 4-18-05

2
Airline workers chafe at cuts to pay and
benefits, struggle to adjust long-held
expectations.
  • Source The America's Intelligence Wire, March 1,
    2005

3
Whats 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.

4
Whats 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.

5
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

6
Shift in Labor Demand
7
Shift in Labor Demand
8
Shift in Labor Demand
9
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.

10
Acknowledgments
  • Principles of Microeconomics 3rd edition. Gregory
    Mankiw
  • InfoTrac Web General BusinessFile ASAP.
  • The America's Intelligence Wire
  • Article is available upon request
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