February 15, 2001

What a hornet's nest my last column on strikes in the airline industry raised.

This did not surprise me. I got the usual letters about freedom from those not realizing the issue was the classic one of your freedom (to strike at a hub with little alternative flights) denies me mine (to earn a living in the convention, hospitality, and related business during the strike). I tried to indicate the inter-connection but clearly failed with some.

What surprised me, however, was how many letters I received from airline maintenance personnel. Some were informative. But many clearly thought that when I indicated that slower growth in pilot supply relative to demand justified a higher salary than other workers meant that this relative gain should come at the expense of other workers in the airline industry. That was not even in my thoughts. Relative scarcity means higher wage gains than other workers in the economy, not necessarily in one industry.

If, indeed, airline mechanics are not being as readily qualified for the same reasons as the military reduction in air activity is reducing the ready availability of pilots, then they should receive higher pay as well. Such scarcity of labor would simply mean that airfares should be higher to reflect the scarcity that exists.

Of course, higher fares would lower the growth of air traffic and reduce the need for those scarce pilot and mechanic services. Not all the scarcity would be reflected in higher wages. That is how an economic system works to overcome shortages.

I also got several letters suggesting that higher wages could be accomplished by reducing the "high" profits of the airlines and the large bonuses that management has received.

First, the profits of the airlines are a small fraction of the wages paid to workers.

Second, some of those profits are large in good years to offset the large losses in bad years. The airline industry's profitability is notoriously cyclical. When the bad years of the beginning of the last decade are averaged with the gains before the rise in fuel costs of recent months sharply reduced them, the average returns are not high for this industry.

By the way, economists can make informed guesses about "high". The profits must be large enough to encourage investors to provide financing for the equipment that must be purchased and upgraded. A look at airline stock values show that investors are no more enamored with profitability in the airline industry today than they were several years ago. That certainly is one measure against profits being too high.

Third, just as pilots should be paid for their scarcity, management must be paid for theirs. Sometimes those payments seem to be inappropriate. However, I have argued that the headquarters operations should grow about in line with the growth of all operations in a mature industry, such as the basic airline industry. A company has one president. Assuming that leader does not load the deck with assistants, then higher pay is justified as more responsibility and decision making is required in a larger organization.

Increasingly, boards of directors have decided that an increasing proportion of management compensation should be "at risk." If certain goals are exceeded, then bonuses are paid. In good years, the bonuses can be large. This ought to compensate for the absence of any bonus in bad years.

Indeed, those letter writers who complained that management was receiving bonuses while their pay was not rising must understand that the union is not willing to receive "at risk" pay. Comparing the "at risk" bonuses of one with the security of the other wage compensation scheme is not appropriate.

Frankly, the pilots only complained (aside from the freedom issue) about my assessment of cheap military training. That was a bad choice of words. Military training is not cheap, but the presence of many trained military made attracting qualified pilots relatively cheap to the industry. That advantage is now over as it may be for maintenance personnel as well.

By contrast, I would say that the maintenance personnel from whom I received comments are unhappy, especially at one major carrier. Something is amiss there that management better address or suffer some consequences.

Normally, I would not use a column to comment on the remarks I received from another column. However, I received so much response that I felt some explaining was needed.

I still maintain that when the costs borne by the public greatly exceed the economic damage that the negotiating parties can inflict upon each other, then alternatives to strikes must be pursued. Why workers oppose compulsory arbitration surprised me. If their claims are justified, why do they assume they will lose in arbitration?


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