Legacy costs

From Wikipedia, the free encyclopedia

Legacy costs is a term formed by analogy with the computer industry's legacy systems. Legacy costs are those incured by an organization in prior years under different leadership or when the entity's priorities and resources were different. In business, while it can refer to other commitments (particularly existing infrastructure) as well, it primarily refers to company obligations to pay heath 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 older airlines 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.

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