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Taking a bullet for the Boss: employers in a tight spot financially are turning to their workers to help them out. The employers say they don't have enough money to pay current wages, so workers are asked to take a pay cut to keep the business going.

Air Canada has been on the financial ropes for years. To a large extent the airline's troubles can be traced to a management decision to swallow its competitor, Canadian Airlines. Rescue attempts have hinged on huge wage give-backs from Air Canada's employees. Difficult decision for the employees--take a hefty pay cut and keep your job or refuse the pay cut and maybe not have a job at all. Air Canada desperately needed new financing, but bankers said it had to trim its operating costs before they would loan it any money. In June 2003, thousands of union workers reluctantly agreed to concessions that allowed the company to reduce its costs by $1.1 billion.

The airline also cut hundreds of millions of dollars in supplier costs, interest payments, and aircraft rent. In a national advertisement in The Globe and Mail in

March 2004, the union apologized to travelers for poor airport service. The union pointed out that, while workers agreed to pay cuts, the company's executives were scheduled to receive bonuses of more than $40 million, the equivalent of 1,000 customer sales and services jobs. And, employees and suppliers are concerned that even with re-financing Air Canada will want even more concessions.

When workers at ABB Inc., a transformer manufacturer in Guelph, Ontario, were told they'd have to accept lower wages and fewer benefits, they said no. So, in July 2004 the company said it had no choice but to close its plant the following January. One plant worker said the contract offer was so bad (varying wage cuts, plus reduced pensions, benefits, and cost of living clauses) that he felt it was "created to close the plant. They knew we'd reject it." The move would have left 370 employees out of work, but by September the company reversed its decision: the Canadian Auto Workers union said the company and union worked out productivity improvements and made necessary changes to keep the plant operating and saved 300 jobs.

Other employers opt for massive job cuts to turn ailing businesses around as Bombardier Inc. did in March 2004 with the firing of 6,600 people. The giant passenger rail car and jet manufacturer laid off almost a fifth of its rail division employees, and closed seven plants in Europe. The company's European rail operations--in the U.K., Sweden, Switzerland, Germany, and Portugal--were hardest hit, accounting for all but 1,000 of the layoffs. Thousands of angry workers blamed poor management for the closings. Meanwhile, the company said it planned to improve productivity and its chief executive, Paul Tellier, said, "I'm very sensitive to the fact that individuals and their families will be affected. But our responsibility to our stakeholders is to make sure that the Bombardier Transportation group remains viable on a long-term basis."

It's not just in the world of private enterprise that workers are taking a financial hit: governments across Canada are asking their employees to do more for less. For the first time in a decade, public sector wage settlements fell in May 2004: Human Resources and Skills Development Canada reported that wages in new labour contracts were on average 2.9% lower than the agreements they replaced. The contracts affected about 80,000 workers. More than half of these people (43,000) were health-care workers in British Columbia who were legislated back to work in April 2004; they were forced to accept a 15 percent cut in wages and benefits and reduced job security. The government said the cuts were necessary to bring B.C.'s health sector spending in line with other provinces. The legislation was retroactive to 1 April, meaning many workers not only had their wages rolled back but had to "pay back" their employers for wages already received. One critic said the government had gone too far and was "beating up the workers" in its attempt to cut costs. Protesters, who threatened a general strike involving as many as 100,000 workers, wondered why there were no corresponding cuts to those being paid far higher wages.

At the same time, on the other side of the country, striking Newfoundland public employees fought and lost a battle to save jobs and entitlements. In an effort to cut spending in the face of an $840 million deficit, the government ordered about 20,000 striking public-sector workers back to work. The government, health-care, and school board workers had been on strike for nearly a month. They had to accept a two-year wage freeze, and reduced sick leave (from 24 days a year to 12).

Ken Georgetti is President of the Canadian Labour Congress, which represents three million workers. He says while ordinary workers are trying to hang on to a half-decent wage, the share of income going to senior executives has skyrocketed. In an article in The Globe and Mail, in May 2004, Mr. Georgetti wrote: "... The one percent of Canadians making more than $170,000 a year now earn 14 percent of all before-tax income, compared to the nine percent they earned in 1990. This means that the rest of Canadians, the other 99 percent of us, now share a five percent smaller share of all income we did at the beginning of the last decade." He adds that while the last decade has been one of economic growth, and falling unemployment, "a huge share of the income gains have gone to corporations and the rich. For many people, Canada today is rapidly becoming a low-wage country. One in four workers makes less than $10 an hour."


1. In some cases, governments bail out private companies, but some say that only delays the inevitable. In November 2003, for example, 122 employees of Palliser Furniture, were laid off a month after the Manitoba government promised millions to save the company's 700 employees. Critics said the layoffs confirmed the government's ineptness on economic matters, adding that not only did Manitobans have to pay the multi-million dollar bailout through their tax dollars, but then had to spend the Christmas holiday season looking for jobs. The Manitoba government also put up $14.5 million to bail out Motor Coach Industries after which hundreds of employees were laid off. Discuss whether or not you think governments should fund sinking companies.

2. Research the top employers in your region and explain what makes them better than other companies.

3. Ken Georgetti, President of the Canadian Labour Congress, representing three million workers thinks, 'Those at the top make the derisions, but those at the bottom bear the burden ... Those who are already rich have been doing very well for themselves, while at the same lime telling working people that they must settle for less. "Do you agree or disagree with Mr. Georgelti? Explain your position.

4. In his 1999 book Strategic Bankruptcy (ISBN 0520073592), Kevin Delaney says that companies often use bankruptcy as a weapon to achieve specific corporate objectives. He rites Johns-Manville, for example, a major asbestos manufacturer, that declared itself insolvent in 1982 to avoid paying claims resulting from exposure to its products. A year later, Continental Airlines, one of the top ten carriers in the United States, claimed a deficit when the union resisted plans to cut labour costs. One reviewer described his book as "A fine honed assessment of how companies have come to turn the classic event of corporate failure into a strategy for success ..." Another wrote that the author shows that bankruptcy is "a game with winners and losers, and ... the losers are little guys who have been outsmarted by the use, or misuse, of legal strategies in the interest ... of Wall Street ..." Research Canada's bankruptcy laws and find out the extent of bankruptcy fraud in this country.


While some employers are busy slashing wages and knocking down employee benefits to trim costs, others are thinking of how to build employee loyalty. Loyal workers can save their employers a bundle in recruitment and training costs, the higher productivity they provide through experience, and the positive effect they have on customers and future employees.

The business practice of downsizing to boost profits, which started in the 1980s, has created a tough environment to foster any sense of job security among employees.

In a survey by U.S. outplacement company Manchester Partners International, a majority of college graduates said they expect to be laid off at least once during their careers. Of the graduates who participated in the survey, 25 percent thought they'd be laid off once, 22 percent said twice, 12 percent three times, and six percent four or more times.

But, there still are a lot of good employers around: every year Maclean's Magazine comes up with 100 of those considered tops in Canada. From about 51,000 candidates, the survey chooses the country's Top 100 on the basis of everything from employee perks to community involvement.

The companies that make the list offer their workers a variety of perks including tuition subsidies, scholarships for employees' kids, paid leave to work for charities, fitness and sports facilities, subsidized company cafeterias, generous pensions and maternity leaves, profit sharing, on-site daycare, flexible work programs, opportunities around the world, and big bonuses.


Under pressure from its Liberal allies as well as the Conservative opposition, the Labour government in the United Kingdom appointed a committee to review the state of public finances after the Great Depression hit in 1929. The May Report of July 1931 urged public-sector wage cuts and large cuts in public spending (notably in payments to the unemployed) to avoid incurring a budget deficit.

This proposal didn't sit well within the Labour Party and the trade unions, which along with several government ministers refused to support the measures. The Chancellor of the Exchequer, the equivalent of our Minister of Finance, insisted that the Report's recommendations must be adopted to avoid going into debt.

The approach of the British Labour Party to the economic crisis was in stark contrast to that adopted in Sweden by the Swedish Social Democratic Party. Its approach to the crisis was to start up government-funded works programs to ease unemployment and boost the economy.


In September 2004, The United Steelworkers said workers would not agree to cut wages or pension and other benefits at Stelco Inc., in Hamilton, Ont., which was operating under bankruptcy protection: the lawyer for the union workers said the current surge in steel prices led to a $42 million profit for the steel maker, so workers should not be required to make concessions.


In 2002, Dofasco Steel in Hamilton, Ontario cut company costs entirely through employee suggestions, which the company's CEO attributes to employee loyalty, the result of the Dofasco's renowned generosity to its workers.


Political Connections and Government Bailouts-- mara.faccio.FMM_Bailouts.pdf

New European Union guidelines for government bailouts (Associated Press)-- eu_bailout_aid_2.html
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Title Annotation:Work-Company Bailouts
Publication:Canada and the World Backgrounder
Geographic Code:4EXSI
Date:Oct 1, 2004
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