Reduce the Rate of Cost for the Input Used to Produce the Output

Use the same type of input and the same activities, but pay less for the unit of input employed in producing the output. A reduction in rate is equivalent to a reduction in the number of inputs for the same ICD. For example, if a person who makes $10 per hour could produce the same amount of output as a person making $20 an hour, the substitution of the $10 person for the $20 person in the process would be equivalent to cutting the number of people required to do the work by 50%.

B. Reduce the quality of the input used by using a cheaper form of the input:

The reduction in quality should bring with it a reduction in the rate paid for the input.

Use input with lower Performance: Less Function:
Less training or experience

No. Industry SIC Year Notes
1 0 2002 Temps clearly take less out of a firm than permanent employees. Their use is considered a variable cost instead of a fixed cost, since temps have no benefits or severance packages. It's not surprising, perhaps, that temps are working their way into higher and higher levels of management.
2 2451 1991 Mobile-home makers save on costs with nonunion, relatively unskilled labor.
3 3519 1993 Much of Cummins' US output has been shifted to nonunion plants in the South and elsewhere from its old high-wage manufacturing base in Southern Indiana.
4 3519 2003 Instead of scurrying to China and other low wage countries as many other U.S. manufacturers have done, the Wauwatosa (Wis.) based company relocated its assembly work to a clutch of factories in America's rural South. The facilities are all nonunion, which means much lower labor expenses. The new plants are also smaller and focus on only one or two product lines, making them more manageable. And they're highly automated, allowing Briggs to cut jobs and bring the union at its headquarters plant to heel.
5 3531 2004 Companies, looking to cut labor costs without direct layoffs, increasingly are adopting a two-tier pay system, which effectively creates two levels of compensation for the same work. Caterpillar Inc. wants to cap wages for new hires at a little more than $14 an hour, about $7 less than United Auto Workers now receive for similar work. It says a new pay structure will allow it to better align with the market – still paying people very fair, very competitive wages, but wages that are more in line with what it takes to remain competitive.
6 3711 2008 Ford Motor Co. is looking to cut as many as 13,000 jobs in an effort to cut costs. One of Ford's goals with this cut is to replace many workers with new employees who will earn a lower wage under terms of its recently negotiated labor agreement with the United Auto Workers union. The new workers will be paid $14, half of what the current workers earn.
7 3711 2008 Toyota's advantage in U.S. labor costs is disappearing as its plants age and Detroit cuts back. Now that some of Toyota's plants are more than 20 years old, more workers are being paid at the top wage of $25/hr. However, a contract signed last fall will allow U.S. automakers to replace many highly paid employees with cheaper workers, closing in on Toyota's cost advantage. The older Toyota factories could have the highest labor costs of any auto factory in the U.S.
8 3715 1995 Wabash has a young work force, which gives it low health-care costs.
9 3861 1993 In early 80s, union leaders agreed to let Xerox hire temp workers for specified tasks, as long as they didn't exceed 10% of the work force and they worked no more than 6 months. In exchange, management granted union members job security for the duration of their contract.
10 4512 1991 United suffered a 29 day strike by its pilots union in 1985 before it was able to get a 2-tiered system that pays new pilots 40% lower salaries than existing pilots.
11 4512 2007 In an effort to manage labor costs, Southwest Airlines has approached 25% of its workforce, mostly long-time employees, with buyout offers. Workers who accept would receive $25,000 in cash and some health and travel benefits. The offer was not extended to pilots, mechanics or administrative office workers. Southwest hopes to hire new workers to replace those who accept the offer and they will likely receive lower wages.
12 5731 2003 When Circuit City fired about 3,900 highly paid commissioned salespeople and hired about 2,100 lower-paid hourly workers, the retailer made an increasingly common cost-saving move: swapping expensive labor with lower-paid workers. The approach, which is generally legal, doesn't eliminate the position but rather the high-paid person in it. The technique is especially attractive to service businesses such as retail.
13 5912 2007 Some companies are offering jobs and training to people with mental and physical disabilities that once rendered them "unemployable." At Walgreen's newest distribution center, 40% of employees are disabled and the center is 20% more efficient than older facilities. Walgreen automated the process to make it more intuitive, using pictures and videos rather than numbers and script. Walgreen benefits from increased productivity and government funds.
14 6200 1989 About 22,000 people have been laid off since October 1987 in the London financial market and only 1/3 of those people will find similar positions elsewhere. This may be because firms are hiring only younger workers, in a bid to reduce compensation.
15 7372 2004 Linux is finally gaining a toehold in Microsoft's backyard, office desktop computing. Organizations can buy Linux and Sun Microsystems' StarSuite of word-processing, spreadsheet, and other programs for less than $100 – or even download free versions. Comparable Microsoft software for corporations cost more than $600. While Linux and the desktop applications designed to run on it don't have as many features as Microsoft's products, they offer the capabilities most people need.
16 8900 1991 Nonprofessional models have the cost advantage of no agents, no training, and probably use modeling as marginal income rather than as a job.

<<Return to Reduce the Rate of Cost