OP: nice idea, and logical, but it can't happen because of unions. They aren't the only problem, but they stand in the way of any logical changes to be made.
I work at a very successful private retailer that employs over 1000 people. Management can be somewhat unfair sometimes, but they pay pretty well for entry-level, hourly positions, and fantastically for labor-positions. We weathered the downturn for the first few months, but eventually began to feel it. Instead of layoffs, the bosses decided on cutting out almost all overtime, freezing payroll, and delaying raises to double the normal time-frame. Almost no one complained, because it was better than the alternative. We have no unions. Eighteen months later, we're back to normal, none the worse for the wear.
With that said, I agree it's unlikely to get the general populace to agree to such terms.