Negotiations Between Delco Manufacturing and the Union Representing Its Employees

question 39

Essay

Negotiations between Delco Manufacturing and the union representing its employees are at an impasse. The union is seeking a 4.5% wage increase. Delco's offer is 2%. The employees have passed a vote authorizing job action. Suppose the union succeeds in winning the 4.5% increase after a two-month strike. For an employee 10 years from retirement, will there be any economic gain? Compare the current economic values of (1) 10 years' end-of-month wages at the employer's offer (102% of last year's wages) vs. (2) wages including a 4.5% increase to the same horizon but after a two-month strike. Assume money is worth 6% compounded monthly.

---

Definitions:

Present Value

The present value of a future amount of money or sequence of cash flows, based on a certain rate of return.

Notes Payable

Short or long-term financial obligations evidenced by promissory notes, requiring the borrower to repay the principal amount along with any accrued interest.

Market Interest Rate

The prevailing rate of interest available in the marketplace for securities of similar risk and maturity.

Annual Payments

Payments that are due once per year, commonly used in the context of loans, leases, or other financial agreements.