The Walt Disney Company has an enormous economic impact on the Orlando area, as tourism is its most important industry, and Disney is the company that attracts the most tourists there. Thus, the practices of this local enterprise have a great impact on the socio-economic life of Orlando area. This paper aims at determining how the company’s changes in wage structure impacted the Orlando area economy.
In 1998 Walt Disney Company implemented a wage structure that created a two-tier system for its workers. All those hired prior to December 13, 1998, further referred to as Tier-1, were paid according to a wage scale that provided steady pay increases. However, the workers hired on or after December 13, 1998, further referred to as Tier-2, received lesser pay increases starting 2001 (p. 4, par. 4). Thus, these workers would be permanently paid at a lower wage rate, and with time, the total wage bill would drop.
But how much less money made the Tier-2 employees due to the change in the wage system? Their average hourly wage-rate was $8.35, but it would have been $9.51, which means on average 12.2% less (p. 7, par. 2).
A $19-million cut in Disney’s total annual payroll in 2006 had a great impact on Orlando’s economy, the consumer spending, and thus employment and incomes reducing regionally (p. 7, par. 5). But the actual size of the impact would depend upon how much of the total sum leaves the area as spending “leakages”. It was determined that the impact was $23,425,881.21 worth of additional local goods and services produced yearly (p. 8, par. 3). The loss in output also means a loss in additional jobs and labor earnings. Orange and Osceola Counties would have had about 178 additional jobs with a payroll of $5,236,122.57 in 2006 had there been no changes in wage for the Disney employees (p. 9, par. 1).
An important question is whether Disney’s increased profit presented a gain for Orlando. The answer depends on what the Disney Corporation did with the labor-cost savings. First, Disney may have passed the savings to its shareholders and, in this case, the vast majority of the labor-cost savings were spent elsewhere than in Central Florida. Alternatively, the company may have increased managers’ wages. However, managers save much more and also tend to travel more, these representing economic leakages. Third, the savings may have been passed on to customers by lowering the ticket prices. Yet, this is highly unlikely, as it is well-known that Disney has raised its ticket prices as much as possible (p. 10, par. 4). Lastly, the savings may have been used for company investments, but there was no sign of significant local investments. It appears therefore that the $19 million saved annually by 2006 because of the changes in wage for is just an increase in operating profit (p. 11, par. 5). Given this evidence, it is most likely that the saved money would not present a gain, but conversely, a net loss to Orlando and its surrounding economy.
Thus, this paper has shown how the changes in wage structure have affected the Orlando area economy. Because of the two-tier wage system at Walt Disney Company since 1998, the progressive lowering of wages has greatly affected the Orlando economy: pay levels were 12.2% lower for the more recently-hired workers, Orange and Osceola counties lost $23.4 million on goods and services production in 2006, and178 jobs were also lost to Orange and Osceola counties due to the wage reduction. In this way, the changes in Disney employees’ wages affected the entire economy in the Orlando area and if the company does not cancel the two-tier pay structure, the damage to Orlando area economy will continue to grow.