We had an impromptu dinner gathering at our place on Sunday, after the Bluegrass festival in Golden Gate Park. It turned out that one of the guys there, a friend of a friend who we'll call Jim, is a commercial pilot. He works for a commuter airline that does most of the United Express flights out here in California; in a typical day, he'll fly between SFO, Monterey, LAX, San Diego, and back. A pilot at a commuter airline is the lowest on the totem pole; it's a first step that then enables you to work your way up to jobs at the larger domestic and/or international carriers.
Jim lamented that while it was easy to get hired by United or American back in the late nineties, when they were hiring like mad, the whole industry had been hit really hard by 9/11 - he said there are thousands of furloughed pilots out there right now looking for work. I suggested that some of the airlines, such as United, had unsustainable cost structures and were headed for disaster even before 9/11, but he dismissed this argument and said it was the terrorist attack that really damaged the industry.
I later mentioned that while we were living in Hong Kong, the Cathay Pacific pilots had gone on strike, and that we had not been at all sympathetic, since pilots at Cathay make as much as $400,000/year. Jim's response was that it was likely only 30 year veteran captains who were making $400K, probably only for their last year or two of work before retirement. I said that while that may be the case, the average salary was nonetheless around $280K, and I just had a very difficult time feeling sorry for someone who was making almost $300,000 a year. Jim responded that people don't understand what a difficult life pilots have, that they have to spend 16 hours or more working before they get a break, lots of time away from their family, etc. I suggested that since there were a couple of thousand unemployed pilots, there were undoubtedly pilots willing to do the same job for less than $280K, to which Jim responded, "Yes, those are the people that will destroy the industry!" The conversation went downhill from there, with one more memorable line from Jim when he asked, "What if someone wanted to do your job for less?"
My response to Jim's question, of course, is that if someone wants to do my job for less, there's nothing I could or would do to stop them, except to argue that I would do a better job and would be worthy of the additional compensation. Since I've been consulting for the past few years, I'm even a step closer to this process than he realizes - each project is a new round of compensation negotiations based around what others would charge for the same work. And guess what? The market rate for consulting services has fallen dramatically over the past 3-4 years. This is how the world works.
What really amazed me about Jim's attitude was his shortsighted naiveté. Jim may not be making even $50,000 a year at this point as a new pilot - he's many decades away from a captain making $400K. Unlike a factory veteran who has worked in the same factory for decades and feels that he has a right to the job, Jim is at the beginning of his career. Yet he still feels an entitlement to his job, not just today, but to the entire union-defined career path.
The overcompensation of older employees and under compensation of younger employees used to be standard practice in American business. It was yet another way of ensuring loyalty to the firm and an easy method of determining salaries. Today, with the exception for union jobs, this system has largely disappeared, and the employees, especially younger employees, are better for it. Instead of toiling at one company for life, hoping to reap the benefits of a high salary in one's final years and a high pension in retirement, a typical employee will work for a number of firms over the course of his or her career. Companies now compensate employees based on their productive contribution to the enterprise, not based on seniority. This means that younger employees receive relatively higher salaries and older employees relatively lower (as compared to the previous situation - older employees are likely still paid more than younger since their knowledge and experience increases productivity). Younger employees are then free to invest their extra income in a diversified portfolio - eliminating or at least limiting the risk of financial harm should their employer go out of business at some point in the future due to mismanagement, fraud, or industry changes.
Jim has decades of his career ahead of him. The changes that we have seen in the American and the global economy over the past few decades indicate that the coming decades are likely to only bring a further quickening of the pace of change - new industries will appear while old industries will radically restructure or die. It is unlikely that the airline industry in 30 years will look anything like it looks today. It's even more unlikely that the existing seniority-based compensation system will survive. Jim is working for below-market wages, trusting that the industry and union pay system that rewarded his seniors so tremendously will be there for him as well. Unfortunately for Jim, this is a losing bet.
Posted by Stephen Bronstein at October 8, 2003 09:39 PM