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Home Publications Blogs Beat the Press Corporate America: Saving the Twinkie but Not the Workers

Corporate America: Saving the Twinkie but Not the Workers

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Wednesday, 06 February 2013 06:21

No, I am not kidding. Steven Davidoff has a DealBook column touting the fact that Hostess Twinkies are likely to survive as a product, even though the company that makes them has gone bankrupt. The Twinkie brand, along with other iconic brands owned by the company, will be sold off in bankruptcy to other companies who expect to be able to profitably market them. Of course there is no guarantee that they will restart the old factories and rehire the Hostess workers, likely leaving them out in the cold.

There are two major issues here. First, in the United States firms can in general fire workers at will. This means that if they can find workers elsewhere in or outside the country who will work for less, then they can dump their current workforce and hire lower cost labor. This happens all the time. Most other wealthy countries require some sort of severance payment to longer term workers, but the United States does not.

Bankruptcy only changes the picture in this respect in cases where you have union contracts, which was the situation with Hostess. Bankruptcy voids these contracts allowing the company to change terms of employment and discharge workers in ways that would have prohibited under the union contract.

The other issue with bankruptcy is that it eliminates the company's pension obligations. While pensions are guaranteed by the government, the guarantee is not 100 percent. This means that a bankrupt company can leave many workers with sharply reduced pensions. In principle the pension is supposed to be a privileged creditor, standing at the front of the line to get the proceeds from the sale of Twinkies and other brands. However, it doesn't always work out this way. It remains to be seen what the situation will be with Hostess.

Comments (8)Add Comment
Twinkies are Golden as CEOs
written by Last Mover, February 06, 2013 7:32
So what's new? Twinkies now get golden parachutes like CEOs, hustled on the backs of busted pensions of layed off workers.
mystery meat
written by frankenduf, February 06, 2013 8:58
my prediction: 5 years from now, a chinese-manufactured twinkie will be found with trace amounts of antifreeze in it- the fda will deflect cries for regulation claiming that nobody ever knew what was in the white goo anyway
Same old same old
written by Jennifer, February 06, 2013 9:43
Whether state or private the contracts related to pensions are considered disposable and least important. According to the media it's ok to cut Social Security and lose your pension,
I don't get the point?, Low-rated comment [Show]
Pensions? Who needs pensions?
written by Lottadough, February 06, 2013 10:52
You should have added that one of the main reasons for the strike that led to the shutdown of Hostess was that the company wasn't properly funding the pension plan. Workers finally realized that they had agreed to reduced wages in exchange for a promise that would never be realized. At that point they decided they had nothing to lose.
Let's not forget the bonuses to the executives who caused Hostess to die
written by H-Bob, February 06, 2013 12:55
The bankruptcy statute could be amended to require any "bonuses" to management vest only at their Social Security retirement age (67+) and are paid only if the company or its successors are still in business. They should bear the risk of a successful reorganization plan.
Twinkees didn't go broke, Hostess did.
written by Roanman, February 06, 2013 4:04
Niether Twinkees nor King Dongs, nor even my personal favorites Ho Hos went broke, Hostess did and each and every one of these products remain viable ..... particularly in obese America.

Why should fat Americans have to suffer the loss of their favorite snacks just because ownership, management and labor unions conspired together to kill off Hostess?
..., Low-rated comment [Show]

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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