Legacy costs
Encyclopedia
Legacy costs is a term formed by analogy with the computer industry's legacy systems. Legacy costs are those incurred by an organization (whether corporation
or city
) in prior years under different leadership or when the entity's priorities and resources were different. While it can refer to other commitments (particularly existing infrastructure
) as well, it primarily refers to obligations to pay health care costs and pensions under defined-benefit plans for current employees and retirees, usually incurred during the labor peace era after World War II
. Legacy costs are widely credited with handicapping American auto manufacturers
and central cities
, and older airline
s worldwide, diminishing their competitiveness. Organized labor sees such criticisms as part of a desire to abandon any form of social contract
between worker and employer.
Newer, less-established entities have few or no problems with legacy costs, because they have less pension and health care liabilities (this applies to new suburbs, for example, as well as new companies), and are therefore able to out-compete (in some cases) the older entities.
Corporation
A corporation is created under the laws of a state as a separate legal entity that has privileges and liabilities that are distinct from those of its members. There are many different forms of corporations, most of which are used to conduct business. Early corporations were established by charter...
or city
City
A city is a relatively large and permanent settlement. Although there is no agreement on how a city is distinguished from a town within general English language meanings, many cities have a particular administrative, legal, or historical status based on local law.For example, in the U.S...
) in prior years under different leadership or when the entity's priorities and resources were different. While it can refer to other commitments (particularly existing infrastructure
Infrastructure
Infrastructure is basic physical and organizational structures needed for the operation of a society or enterprise, or the services and facilities necessary for an economy to function...
) as well, it primarily refers to obligations to pay health care costs and pensions under defined-benefit plans for current employees and retirees, usually incurred during the labor peace era after World War II
World War II
World War II, or the Second World War , was a global conflict lasting from 1939 to 1945, involving most of the world's nations—including all of the great powers—eventually forming two opposing military alliances: the Allies and the Axis...
. Legacy costs are widely credited with handicapping American auto manufacturers
Automaker
The automotive industry designs, develops, manufactures, markets, and sells motor vehicles, and is one of the world's most important economic sectors by revenue....
and central cities
Central City
In city planning, a Central City is the largest or most important city or cities of a metropolitan area, of which the other smaller cities and towns of the metropolitan area are suburbs. A central city is usually the first settlement established in an urban region before the outlying districts came...
, and older airline
Airline
An airline provides air transport services for traveling passengers and freight. Airlines lease or own their aircraft with which to supply these services and may form partnerships or alliances with other airlines for mutual benefit...
s worldwide, diminishing their competitiveness. Organized labor sees such criticisms as part of a desire to abandon any form of social contract
Social contract
The social contract is an intellectual device intended to explain the appropriate relationship between individuals and their governments. Social contract arguments assert that individuals unite into political societies by a process of mutual consent, agreeing to abide by common rules and accept...
between worker and employer.
Newer, less-established entities have few or no problems with legacy costs, because they have less pension and health care liabilities (this applies to new suburbs, for example, as well as new companies), and are therefore able to out-compete (in some cases) the older entities.