LucentTechnologiesDealswith

UnemploymentandInflation

LucentTechnologiesDealswith
UnemploymentandInflation
Background:
LucentTechnologies,establishedin1869,thegrandfatherof
high technologyfirms
Thecompany,originallyWesternElectricManufacturing
company,waspurchasedbytheAmericanTelephoneand
TelegraphCompany(AT&T)in1881andrenamedasBell
Laboratories.
BellbecameindependentofAT&Tin1996andtookitscurrent
nameLucenttechnologies

LucentTechnologiesDealswith
UnemploymentandInflation
Product:
Equipment for adding sound for motion pictures, equipment for long
distance television transmission, the transistor, the UNIX computer
operating system, WiFi,

Performance:
By the end of 2000 it has 175,000 workers,
2001: critical year for Lucent Technologies, started laying off
workers and by the end of 2005 , it has only 31,500 employees.
The difficulty was partly due to over building of
telecommunications structure, particularly fiber optics, and
partly due to business cycle.

LucentTechnologiesDealswith
UnemploymentandInflation
Inflation and Its Role
Inflation plays a critical role in wage policies of the company
2004, Lucent technologies negotiated with workers to raise wages by a
little over 16 percent over a period of 7 years
To decide on the wage rate both the company and union need to
forecast inflation rate
Higher projected inflation rate would favor Lucent as it will charge
higher prices for its product and pay only the contacted wage rates.
In fact what has happed is that wage rates increased less than the
increase in prices and thereby the company earned huge profit due to
price rise.
Expected inflation plays critical role in firms operations.

LucentTechnologiesDealswith
UnemploymentandInflation

Q.Howexpectedinflationplaysanimportant
roleinwagepolicesofthecompany?

Thanks!!!