Should You Go on Strike?

The Situation

It is time to negotiate a new contract with some of Lightning Wholesale's unionized employees. Based on the current economic environment, cost of living increases, and the financial health of the organization, management feels that the best it can offer is a 3% wage increase. From its own analysis, the union believes that the company is holding out and that a 5.5% wage increase is more than possible. Unfortunately, negotiations have broken down, and the union has turned to its employee group seeking strike action. The union is certain of achieving its wage increase through the strike action, though it advises the employees that they may need to go on strike for three months to achieve the goal. The employees are trying to figure out their best course of actionshould they vote to go on strike or not?

The Data

The typical employee in the unionized group currently earns $48,000 per year, which is paid out at the end of every month equally. Senior employees have five years until retirement and Junior employees have 20 years until retirement.

During the three months that employees would be on strike, employees receive no wages from Lightning Wholesale. The time value of money is unknown, but employees have made two estimates; 4.5%, and 3.5% compounded annually.

Your Tasks

The employees are uncertain of the time value of money, so they need to run a few scenarios.

Perform steps 1 through 3 below using EACH of the time value of money estimates as a different scenario.

1. Calculate the present value of the company offer for each of the employee groups.

2. Calculate the present value of the union increase for each of the employee groups.

3. Determine if Senior and Junior employees should vote to go on strike, using their best financial interest. Outline key decision-making variables that the employees need to consider before casting a vote to go on strike.

I found the PV ordinary of the following:

Management offer (wage increase of 3%) of Junior Employees at N=20 years x 12 monthly payments=240 for annual compound rates of 3.5% & 4.5%, which equaled

Management offer (wage increase 3%) of Senior Employees at at N=5 years x 12 monthly payments=60 for annual compound rates of 3.5% & 4.5%

Union demand (wage increase of 5.5%) of Junior Employees at N=20 x 12 months=240 for annual compound rate of 3.5% & 4.5%

Union demand (wage increase of 5.5%) of Senior Employees at N=20 x 5=60 for annual compound rates of 3.5% & 4.5%