A week before Christmas, the mosaics and stained glass in the sanctuary of Congregation Rodeph Shalom framed a somber scene. About two hundred members of The Newspaper Guild of Greater Philadelphia, representing white-collar workers at The Philadelphia Inquirer and the Philadelphia Daily News, had gathered to consider a tentative contract that wasn’t exactly a holiday gift.

The three-year pact with the former Knight Ridder papers’ new local owners, Philadelphia Media Holdings LLC, contained numerous concessions. It expanded a two-tier wage system, curtailed sick pay, poked holes in seniority, and provided inadequate money for spiraling health-insurance costs, let alone raises. After one last payout, it froze pensions without offering any future contribution to employee 401(k) plans. The company did agree to help pursue a merger with a multi-employer pension plan, an effort to preserve the pension system so important to the union’s aging membership.

Guild leaders warned that if members rejected the pact, they faced a potentially unwinnable strike, massive layoffs, and perhaps the destruction of the papers themselves. Persuaded, workers passed the contract by 498 to 69, including absentee ballots. Those present vented their frustration by approving a toothless resolution of “no confidence” in the papers’ owners.

But there was worse to come. In early January, the company announced seventy-one layoffs in the 412-person Inquirer newsroom and another thirty-four in advertising—numbers that the local guild president, Henry J. Holcomb, said “shocked” him. Brian P. Tierney, chief executive officer of Philadelphia Media Holdings and publisher of its two newspapers and Web site, blamed the cost-cutting on past Knight Ridder management, an unexpectedly steep drop in advertising revenue—and his desire to invest $20 million in marketing, computer technology, Web site redesign, and other initiatives. “It was a really poorly run company in a really challenging business,” said...

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