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This problem does not seem unique to railroads. Any business that depends on human labor to deliver a service would have this problem. Airlines, restaurants, th

This problem does not seem unique to railroads. Any business that depends on human labor to deliver a service would have this problem. Airlines, restaurants, theatre companies. The way to deal with this is to have excess labor available (slack in the system). Are railroad profit margins so small that paying for excess labor will bankrupt them? Maybe labor in the railroad industry is so highly regulated that labor flexibility very expensive to maintain. Railroad pensions are the only private pensions that I know of that are specifically called out in IRS tax forms. That has always seemed odd to me, and is probably some indication of how tightly regulated labor in the railroad business is.

altairprime 4y ago
No; railroad profit margins at unhealthy labor levels are so high that trying to pay for healthy levels of labor (i.e. staffing enough to offer sick leave) will lead to hostile takeovers by investors who want higher profit margins rather than healthy labor. > A decade ago, the activist investor Bill Ackman won a proxy battle at Canadian Pacific and proceeded to replace its management with a team led by Hunter Harrison, the railway executive who’d pioneered P.S.R. After imposing the gospel of “more with less” at Canadian Pacific, Harrison left to spread the good news to the freight giant CSX. At each firm, P.S.R. succeeded at generating higher returns. Pretty soon, major investors in other railroads started calling on their firms to imitate Harrison’s methods. Testifying to the government’s Surface Transportation Board about freight rail’s performance last spring, industry analyst Rick Paterson said, “Lurking in the background is the constant threat of shareholder activism if any of the railroads’ operating ratios become outliers on the high side.” It could be considered a key defect of American railroads that they are operated as for-profit corporations with public stock listings and shareholders. In such a scenario, so long as profits can be raised, they must be — or else hostile takeovers will be led to do so regardless. America’s government is poorly equipped to combat this with the usual hands-off approaches. They would need to either pass laws guaranteeing sick days, nationalize rail services to protect against hostile takeovers, regulate that rail networks must be operated by (for example) “B Corps”, or other similar steps taken that interfere with corporate sovereignty. Such interference is typically avoided by modern American labor politics, and so here we are.
- t-3 4y ago
  Or... they could not interfere in disputes between labor and management, and let those "activist shareholders" eat the losses when they fail to deliver on their contracts.
  - altairprime 4y ago
    That is indeed the approach American politics prefers to take, and that’s what has allowed this decade-long situation to transpire in the first place. They may well choose to continue the course and allow the unhealthy labor practices of the past ten years to continue, in the hopes that the market will eventually correct them. Whether they should or not is the debate at hand. (Note: You did not state whether you endorse the possibility you describe, so duly noted given the style of reply, as it seems that omission is accidental.)
danielvf 4y ago
From stats I can look up, the average US railroad worker earns $130,000 year in total comp in 2021. Railroad retirement begins full strength at age 60, and looks to be $4,838/mo for an ex railroad employee and spouse. In contrast, Social Security on $130,000 earnings would be $1,919/mo if you retired at age 62. The railroads pay for the retirement expense via tax. So yes, by US labor standards, railroad employees are quite expensive.
- forgetfreeman 4y ago
  Yeah, and the rail companies don't pay them a dime more than the minimum it costs to get a human being to subject themselves to the kinds of working conditions and risk on offer so let us not insinuate that rail crews are a bunch of over-paid malingerers.
- cool_dude85 4y ago
  "Pensions are expensive" is a classic lie cooked up by finance (who want high fees in 401k individual accounts) and cheap companies who want to cut every benefit to the bone. I'll preface this by stating that I have not looked into the railroad pension, but instead I will draw a parallel to my own. I can get 80% of my top recent pay when I retire after 32 years, which is quite generous as pensions go. The long-term cost of this is around 16-18% of payroll - 8-9% from my employer, 8-9% from me. Current cost to be in the social security program is about 12% of payroll. Increasing current retirement spending by 1.5x is enough to get you to an extremely generous pension. This is a decent amount of money but far from back-breaking.
  - lotsofpulp 4y ago
    Defined benefit (DB) pensions are excessively expensive due to the advent of low cost broad market index funds. With a DB pension, you have to add agency risk to the equation. There is no need for that now when you can get a Vanguard/Fidelity/Schwab 401k and pay the same 0.03% expense ratio to get the same investment performance that a pension fund manager would. And you never have to worry about the pension fund manager stealing from it, or the politician directing investments to their nephew’s real estate company. I would rather have whatever normal cost the employer is contributing for DB pension given directly to me so I can drop it in VOO and cut out all the middlemen and reduce agency risk. > The long-term cost of this is around 16-18% of payroll - 8-9% from my employer, 8-9% from me. Assuming you work for the government in the US, this is false. Government entities in the US are allowed to use whatever nonsense assumptions they want to value liabilities, and obviously they undervalue them now and lay the extra cost on future taxpayers. Hence the underfunded DB pension and retiree healthcare crisis plaguing many taxpayers. Finally, DB pensions and deferred benefits in general make it hard to compare compensation offers from different employers, which is also bad for workers trying to negotiate the highest price. Very few people are equipped to be able to properly price the value of a DB pension from one entity to another.
thesuitonym 4y ago
If you chase that idea, you end up deregulating the railroads, and history has shown us that when a company is treating its employees terribly, the answer is never less regulation.
Tangurena2 4y ago
> Are railroad profit margins so small that paying for excess labor will bankrupt them? No. Railroads have the largest profit margins in American business. > For the nation as a whole, profit margins generally sit at about 9% (8.89% to be precise), however, in transport, specifically railroads, this stands at 50.93%, the highest in the US. https://ajot.com/news/railroads-are-usas-most-profitable-industry-with-a-50-profit-margin https://ajot.com/news/railroads-are-usas-most-profitable-ind... > US freight railroads are in a bit of a predicament, and it’s not just because they are going down to the wire on labor contract negotiations with their 115,000 workers. > Large railroads, including Union Pacific Corp. and Warren Buffett's BNSF Railway Co., have juiced their profits so high by increasing efficiency and paring their workforces over the last several years that they have boxed themselves into a corner with no catalyst to keep attracting investors. Adjusted operating margins for the five largest US railroads were 41% last year, compared with 29% 10 years ago and 15% less than a couple of decades ago. Those margins are off the charts when compared with other transportation companies, including trucking, parcel, air freight, maritime shipping, airlines, you name it. > In pushing those margins over the past five years to a level that analysts most likely would have thought were unobtainable, the railroads have angered their customers with high prices and poor service and have alienated their workers, who complain they’re being overworked after the railroads cut their ranks as much as possible. > But far from looking to improve those relationships with customers and workers, the railroads still seem fixated on operating margins. Even as negotiations with the labor unions have dragged on for more than two years and have frozen rail workers’ salaries at 2019 levels, the railroads are asking union members to pay more out of pocket for health care. > And no one can argue the railroads can’t afford their workers. In one example, Union Pacific, the largest publicly traded US railroad, paid investors more than $41 billion in dividends and share buybacks over five years through 2021. In the first six months of this year, the Omaha, Nebraska-based company heaped an additional $5 billion on shareholders. > Instead of looking at the labor contract as an opportunity to win over their employees and work together to improve service — again, the key to any strategy to take truck traffic — the railroads seem to be more concerned about protecting their profit margin gains. https://www.washingtonpost.com/business/energy/railroads-get-off-track-in-obsessing-about-profit-margins/2022/08/03/9fe7d5ae-1324-11ed-8482-06c1c84ce8f2_story.html https://www.washingtonpost.com/business/energy/railroads-get... https://www.bloomberg.com/opinion/articles/2022-08-03/railroads-like-union-pacific-and-bsnf-get-off-track-in-focusing-on-margins https://www.bloomberg.com/opinion/articles/2022-08-03/railro... The requirement for always increasing profits has resulted in mismanagers squeezing the railroad system until there is no further slack in the system. Because railroad workers form an "equal but separate" employment system to what the rest of the public sees, the public ends up staying terribly misinformed about just how different that railroad employment system is. Since the executive classes get bonuses based on the wrong sort of incentives, the only way they can get bonuses is to abuse their workers to the point that even the public starts to notice. > Railroad pensions are the only private pensions that I know of that are specifically called out in IRS tax forms. That has always seemed odd to me, and is probably some indication of how tightly regulated labor in the railroad business is. Railroad workers have been kept out of the Social Security system from the very beginning. They can only get retirement benefits from the Railroad Retirement Board. Until recently (most of the changes were in 2006), many state & local government workers were also kept out of Social Security and were forced to rely on underfunded public pensions. No such changes have been made for railroad workers. https://www.ssa.gov/benefits/retirement/planner/railroad.html https://www.ssa.gov/benefits/retirement/planner/railroad.htm... https://www.rrb.gov/ https://www.rrb.gov/

altairprime 4y ago

No; railroad profit margins at unhealthy labor levels are so high that trying to pay for healthy levels of labor (i.e. staffing enough to offer sick leave) will lead to hostile takeovers by investors who want higher profit margins rather than healthy labor. > A decade ago, the activist investor Bill Ackman won a proxy battle at Canadian Pacific and proceeded to replace its management with a team led by Hunter Harrison, the railway executive who’d pioneered P.S.R. After imposing the gospel of “more with less” at Canadian Pacific, Harrison left to spread the good news to the freight giant CSX. At each firm, P.S.R. succeeded at generating higher returns. Pretty soon, major investors in other railroads started calling on their firms to imitate Harrison’s methods. Testifying to the government’s Surface Transportation Board about freight rail’s performance last spring, industry analyst Rick Paterson said, “Lurking in the background is the constant threat of shareholder activism if any of the railroads’ operating ratios become outliers on the high side.” It could be considered a key defect of American railroads that they are operated as for-profit corporations with public stock listings and shareholders. In such a scenario, so long as profits can be raised, they must be — or else hostile takeovers will be led to do so regardless. America’s government is poorly equipped to combat this with the usual hands-off approaches. They would need to either pass laws guaranteeing sick days, nationalize rail services to protect against hostile takeovers, regulate that rail networks must be operated by (for example) “B Corps”, or other similar steps taken that interfere with corporate sovereignty. Such interference is typically avoided by modern American labor politics, and so here we are.

t-3 4y ago
Or... they could not interfere in disputes between labor and management, and let those "activist shareholders" eat the losses when they fail to deliver on their contracts.
- altairprime 4y ago
  That is indeed the approach American politics prefers to take, and that’s what has allowed this decade-long situation to transpire in the first place. They may well choose to continue the course and allow the unhealthy labor practices of the past ten years to continue, in the hopes that the market will eventually correct them. Whether they should or not is the debate at hand. (Note: You did not state whether you endorse the possibility you describe, so duly noted given the style of reply, as it seems that omission is accidental.)

danielvf 4y ago

From stats I can look up, the average US railroad worker earns $130,000 year in total comp in 2021. Railroad retirement begins full strength at age 60, and looks to be $4,838/mo for an ex railroad employee and spouse. In contrast, Social Security on $130,000 earnings would be $1,919/mo if you retired at age 62. The railroads pay for the retirement expense via tax. So yes, by US labor standards, railroad employees are quite expensive.

forgetfreeman 4y ago
Yeah, and the rail companies don't pay them a dime more than the minimum it costs to get a human being to subject themselves to the kinds of working conditions and risk on offer so let us not insinuate that rail crews are a bunch of over-paid malingerers.
cool_dude85 4y ago
"Pensions are expensive" is a classic lie cooked up by finance (who want high fees in 401k individual accounts) and cheap companies who want to cut every benefit to the bone. I'll preface this by stating that I have not looked into the railroad pension, but instead I will draw a parallel to my own. I can get 80% of my top recent pay when I retire after 32 years, which is quite generous as pensions go. The long-term cost of this is around 16-18% of payroll - 8-9% from my employer, 8-9% from me. Current cost to be in the social security program is about 12% of payroll. Increasing current retirement spending by 1.5x is enough to get you to an extremely generous pension. This is a decent amount of money but far from back-breaking.
- lotsofpulp 4y ago
  Defined benefit (DB) pensions are excessively expensive due to the advent of low cost broad market index funds. With a DB pension, you have to add agency risk to the equation. There is no need for that now when you can get a Vanguard/Fidelity/Schwab 401k and pay the same 0.03% expense ratio to get the same investment performance that a pension fund manager would. And you never have to worry about the pension fund manager stealing from it, or the politician directing investments to their nephew’s real estate company. I would rather have whatever normal cost the employer is contributing for DB pension given directly to me so I can drop it in VOO and cut out all the middlemen and reduce agency risk. > The long-term cost of this is around 16-18% of payroll - 8-9% from my employer, 8-9% from me. Assuming you work for the government in the US, this is false. Government entities in the US are allowed to use whatever nonsense assumptions they want to value liabilities, and obviously they undervalue them now and lay the extra cost on future taxpayers. Hence the underfunded DB pension and retiree healthcare crisis plaguing many taxpayers. Finally, DB pensions and deferred benefits in general make it hard to compare compensation offers from different employers, which is also bad for workers trying to negotiate the highest price. Very few people are equipped to be able to properly price the value of a DB pension from one entity to another.

thesuitonym 4y ago

If you chase that idea, you end up deregulating the railroads, and history has shown us that when a company is treating its employees terribly, the answer is never less regulation.

Tangurena2 4y ago

> Are railroad profit margins so small that paying for excess labor will bankrupt them? No. Railroads have the largest profit margins in American business. > For the nation as a whole, profit margins generally sit at about 9% (8.89% to be precise), however, in transport, specifically railroads, this stands at 50.93%, the highest in the US. https://ajot.com/news/railroads-are-usas-most-profitable-industry-with-a-50-profit-margin https://ajot.com/news/railroads-are-usas-most-profitable-ind... > US freight railroads are in a bit of a predicament, and it’s not just because they are going down to the wire on labor contract negotiations with their 115,000 workers. > Large railroads, including Union Pacific Corp. and Warren Buffett's BNSF Railway Co., have juiced their profits so high by increasing efficiency and paring their workforces over the last several years that they have boxed themselves into a corner with no catalyst to keep attracting investors. Adjusted operating margins for the five largest US railroads were 41% last year, compared with 29% 10 years ago and 15% less than a couple of decades ago. Those margins are off the charts when compared with other transportation companies, including trucking, parcel, air freight, maritime shipping, airlines, you name it. > In pushing those margins over the past five years to a level that analysts most likely would have thought were unobtainable, the railroads have angered their customers with high prices and poor service and have alienated their workers, who complain they’re being overworked after the railroads cut their ranks as much as possible. > But far from looking to improve those relationships with customers and workers, the railroads still seem fixated on operating margins. Even as negotiations with the labor unions have dragged on for more than two years and have frozen rail workers’ salaries at 2019 levels, the railroads are asking union members to pay more out of pocket for health care. > And no one can argue the railroads can’t afford their workers. In one example, Union Pacific, the largest publicly traded US railroad, paid investors more than $41 billion in dividends and share buybacks over five years through 2021. In the first six months of this year, the Omaha, Nebraska-based company heaped an additional $5 billion on shareholders. > Instead of looking at the labor contract as an opportunity to win over their employees and work together to improve service — again, the key to any strategy to take truck traffic — the railroads seem to be more concerned about protecting their profit margin gains. https://www.washingtonpost.com/business/energy/railroads-get-off-track-in-obsessing-about-profit-margins/2022/08/03/9fe7d5ae-1324-11ed-8482-06c1c84ce8f2_story.html https://www.washingtonpost.com/business/energy/railroads-get... https://www.bloomberg.com/opinion/articles/2022-08-03/railroads-like-union-pacific-and-bsnf-get-off-track-in-focusing-on-margins https://www.bloomberg.com/opinion/articles/2022-08-03/railro... The requirement for always increasing profits has resulted in mismanagers squeezing the railroad system until there is no further slack in the system. Because railroad workers form an "equal but separate" employment system to what the rest of the public sees, the public ends up staying terribly misinformed about just how different that railroad employment system is. Since the executive classes get bonuses based on the wrong sort of incentives, the only way they can get bonuses is to abuse their workers to the point that even the public starts to notice. > Railroad pensions are the only private pensions that I know of that are specifically called out in IRS tax forms. That has always seemed odd to me, and is probably some indication of how tightly regulated labor in the railroad business is. Railroad workers have been kept out of the Social Security system from the very beginning. They can only get retirement benefits from the Railroad Retirement Board. Until recently (most of the changes were in 2006), many state & local government workers were also kept out of Social Security and were forced to rely on underfunded public pensions. No such changes have been made for railroad workers. https://www.ssa.gov/benefits/retirement/planner/railroad.html https://www.ssa.gov/benefits/retirement/planner/railroad.htm... https://www.rrb.gov/ https://www.rrb.gov/