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Impact of ability to pay
Although organizations report using ability to pay as a salary determinant in collective bargaining, such use is subject to strongly held opinions:
- Union leaders. Most union leaders consider ability to pay irrelevant unless high profits are apparent.
- Employers. Most employers consider ability to pay no business of the union.
The force of ability to pay is probably best seen at the extremes.
| Favorable prospects | Unfavorable prospects |
|---|---|
| Strong evidence of favorable prospects causes employers to more readily increase salary levels. | Strong evidence of unfavorable prospects reduces pressure for a salary increase, especially if it's feared that such a salary adjustment might result in the loss of jobs. |
In the end, union reactions to situations in which a company faces financial hardship are pragmatic. Although unions are strongly opposed to subsidizing inefficient organizations, the many cases of making concessions during collective bargaining in slow economic times shows the strong influence of company inability to pay. On the other hand, the lag in salary increases during good times calls into question the power of ability to pay as a salary determinant.
Memory Jogger
In collective bargaining, evidence of inability to pay causes: