Friday, December 12, 2008

Pension Math for the Compleat Idiot

Let's say you have an outstanding pension obligation to your former, retired workers, of $100 million/year, incurred over the past 50 years. This is a debt, just like any other debt, and must be paid.

You have 50,000 currently employed averaging workers about 2000 hrs/year for a total of 10 million worker hours/year.

$100 million/ 10 million hours = $10/hour.

Now let's say you cut your workforce in half.

You have 25,000 currently employed averaging workers about 2000 hrs/year for a total of 10 million worker hours/year.

$100 million/ 5 million hours = $20/hour.

Now let's say you cut your workforce in half again.

You have 12,500 currently employed averaging workers about 2000 hrs/year for a total of 2.5 million worker hours/year.

$100 million/ 2.5 million hours = $40/hour.

See how it works?

The workers aren't getting any more money. You're just paying off a debt you already incurred, and putting the blame on fewer workers.

No comments: