Negotiations between Delco Manufacturing and the union representing its employees are at an impasse. The union is seeking a 4.5% wage increase. Delco’s offer is 2%. The employees have passed a vote authorizing job action. Suppose the union succeeds in winning the 4.5% increase after a two-month strike. For an employee 10 years from retirement, will there be any economic gain? Compare the current economic values of
(1) 10 years’ end-of-month wages at the employer’s offer (102% of last year’s wages) vs. (2) Wages including a 4.5% increase to the same time horizon but after a two-month strike. Assume money is worth 6% compounded monthly.