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Hostess Bankruptcy: One Big Win for Labor Unions, One Big Loss for Laborers

As almost 18,000 workers hear of their immediate unemployment on Friday, labor union leaders will be celebrating a "win" of sorts.

Hostess Brands, the owners of such classic brands as Hostess, Butternut, Wonder, and more recent additions like Nature's Pride, and maker of snack cakes and bread products like Twinkies and Ding Dongs, has announced that it will seek a Chapter 7 bankruptcy, which will liquidate the company and all of its assets.

As a result, almost all of its 18,000 workers will be out of a job as soon as Tuesday.

According to information released during negotiations, Hostess had ceased contributions to workers' pension funds within the last year, but considering that Hostess just emerged from bankruptcy earlier this year, its second within a decade, and the fact that it is once again facing a final bankruptcy, cash flow would seem to be the issue.

And, as usual, unions and cash flow don't seem to work well together.

Hostess had signed a new contract with the Teamster's Union, and they had returned to work, but the Bakery, Confectionery, Tobacco Workers, and Grain Millers International Union workers had refused the new deal, which led to the baker's announcement of liquidation.

Hostess Brands has announced that it will declare Chapter 7 bankruptcy

As the United States' largest native bakery corporation closes its doors, and sends almost 18,000 employees home, union workers holding pink slips will take little comfort in the "win" for organized labor.

The many different brand properties owned by Hostess Brands, some of the most recognized in the nation, will surely be lucrative to other bakeries around the country. Bimbo, the largest bakery conglomerate in the world, will likely seek to add certain properties to its lineup, which includes Entenmann's, Brownberry/Oroweat, Sara Lee, and Thomas, while other national players such as Pepperidge Farm may seek to increase their market presence with a lower-cost brand which can also be repurposed into providing private label products.

Despite the misfortune this situation will create for the workers being sent home, in the long run this liquidation will be ultimately beneficial to the market, as it removes burdensome union contracts and other long-standing obligations from the industry, and will allow for increased local competition and more diversity among other industry leaders.

Your local grocer may run short on Twinkies and Ho-Hos for a little while, but with that much demand for a product, rest assured that your snacks and bread will return to the shelves. Demand is the single biggest factor in the production of any market good, and Hostess's brands carry significant demand.

Originally appeared at JamesLStreet.com

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