1LucentTechnologiesDealswithUnemploymentandInflation

Background: LucentTechnologies,establishedin1869,thegrandfatherof

high technologyfirms

Thecompany,originallyWesternElectricManufacturingcompany,waspurchasedbytheAmericanTelephoneandTelegraphCompany(AT&T)in1881andrenamedasBellLaboratories.

BellbecameindependentofAT&Tin1996andtookitscurrentnameLucenttechnologies

LucentTechnologiesDealswithUnemploymentandInflation

2Product: Equipment for adding sound for motion pictures, equipment for long

distance television transmission, the transistor, the UNIX computeroperating 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, andpartly due to business cycle.

LucentTechnologiesDealswithUnemploymentandInflation

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 toforecast inflation rate

Higher projected inflation rate would favor Lucent as it will chargehigher prices for its product and pay only the contacted wage rates.

In fact what has happed is that wage rates increased less than theincrease in prices and thereby the company earned huge profit due toprice rise.

Expected inflation plays critical role in firms operations.

LucentTechnologiesDealswithUnemploymentandInflation

3Q.Howexpectedinflationplaysanimportantroleinwagepolicesofthecompany?

LucentTechnologiesDealswithUnemploymentandInflation

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