Is it efficient long run labour contracts? Or Is it fair long run labour contracts? Two key questions to be answered on the basis of strategic consideration for firms´ decisions. To answer the first question, it requires to match marginal benefit with marginal cost. It means, each firm should consider what are the gains and what are the losses for each additional year of labour contract on the negotiation table . Among the gains there are :better information level to make strategic decisions, better stability standard and lower internal uncertainty, to be focused on strategic decisions concerning the chain value ,market segmentation and innovation strategy ,because variable cost are moderated by the rule of flexibility clauses , moreover Human resources can concentrate on getting their goals on productivity, production ,cost reduction and innovation practices. .Among the cost, it is the burden of higher negotiation cost , the administrative costs of enforcing the signalled longer contract and higher fixed labour cost because of health care programs, training programs feasible to schedule in a longer period. In other words, stability and better information for strategic decisions has its price. Each firm should evaluate this price on the basis of their own strategic planning goals . But, as long as firms get solved the labour cost issue for longer period of time, the better the firm can concentrate on other cost threats, such as the operational ones related to the machines functioning, or the organizational procedures related to the management better productivity results, human resources rotation cost and the like. So it is efficient up to the extent that it allows better decisions framework for strategic management.
Whether this mechanism is fair, It all depends upon the chances of allowing the firms with this format negotiation, to have better tools to adjust itself to both competition and uncertainties, than otherwise would be the case. For human resources, it is fair as long as they get better protected against ups and downs on business activities, such they can concentrate on long run firms goals . It follows that having negotiations for two years, is neither efficient nor fair.-
Let takes as applied examples the air lines sector .With the oil prices well above the expected, most air lines are no longer in the position of assuring their workers what is going to happen for sure in the next two years with theirs jobs, unless they all make a joint effort to keeps cost down ,such as to compensate short run cost out of the line increases due to persistent oil prices increases .If that joint effort ,is under the negotiation rule for a longer period of time, the result will be better than what it would be the case without it . Firms needs long run compromise to reduce cost, to increase productivity and to improve innovation practices.-
Another example. Firms under the threats of competition .In this case, each firm must deal with the uncertainty of new firms sharing the markets and the subsequent prices competition reduction. What would it be the firms situation which do not anticipate such scenario? There are two alternatives : Either ;first to repudiate its labour contract, or to ask workers to accept to renegotiate current contract, but none of this option is better than the former one , of having negotiations for longer period of time.-
In the longer period negotiation case, firms can distribute negotiation cost in a wider range of time. A 10% increase in wages , to be applied in four years is better than to applied it in just two years. Besides ,it solve the issue of labour cost ,such as to make possible to concentrate on other cost as long as its strategic plan moves along.-
So, long run negotiations have a lot of advantages over the shorter period of negotiation of two years .Flexibility clauses, allows to negotiate in advance ups and downs , it also improves information level for making decisions, avoiding the risk of overreaction and its cost.In the Escondida Mining situation,I would recommend to increase the period relevant to solve the current negotiation situation from two to four years.-