Capitalism, Unions, and Offshoring (Part IV): Strike!

After Egalitarius’ management launched its cost-cutting program in response to worker unionization, the Widget Workers’s Union (WWU) called for a strike. The union contended that Egalitarius’ cuts constituted unfair retaliation against the workforce’s unionization. It is also complained that the inferior materials Egalitarius now used were hazardous to the workers.

As a consequence, the union demanded that Egalitarius provide workers with more overtime hours, and that the company revert back to using higher quality materials.

With its back now against the wall, Egalitarius’ management has no choice but to call the union’s bluff.

Unfortunately. the union was not bluffing.

After a week of fruitless haggling, the union went on strike.

Management estimated the strike would last for about six months. The company expected to lose half its revenue (and market share) to competitor, Meritocratus, over that period. Egalitarius anticipated that it could only regain 5 percentage points of market share in 2013, when 40% of Egalitarius’ customers permanently switched to Meritocratus.

After all, many of Egalitarius’ customers missed their own revenue targets, and lost business as a result of the Egalitarius strike.

They did not want to make the same mistake twice.

The market reacted negatively to news of the strike. The stock dropped to zero, and Egalitarius’ management declared bankruptcy.

Below is a spreadsheet showing a comparison of both companies after unionization of Egalitarius’ workforce, Egalitarius’ aggressive cost-cutting measures, and the union’s strike.

Source: ©2011 Reflections of a Rational Republican

In the next installment of this series, we shift our focus from Egalitarius’ woes to Meritocratus’ relentless pursuit of shareholder value.

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About Sean Patrick Hazlett

Conservative clean energy crusader, national security hawk, financial analyst, engineer, and former military officer.
This entry was posted in Business, Finance and Economics, Investing, Mathematics, Policy, Politics, Predictions, Taxes, Unions and tagged , , , , , . Bookmark the permalink.

3 Responses to Capitalism, Unions, and Offshoring (Part IV): Strike!

  1. Pingback: Capitalism, Unions, and Offshoring (Part III): Cost-Cutting | Reflections of a Rational Republican

  2. Pingback: Capitalism, Unions, and Offshoring (Part VII): Lessons Learned | Reflections of a Rational Republican

  3. Pingback: Private Equity: A Force for Good, or Evil? | Reflections of a Rational Republican

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