Corporate Layoffs: Result of and Cause for a Bad Economy

While the economy seems to be picking itself up with a somewhat recovering market, unemployment is still very high.  Until employment picks up there is only so much that can be done to save the suffering economy. With all of the economic downturn in the past couple years many people have lost jobs, but I can’t help but wonder where is the line drawn between laying off workforce for true economic reasons and taking the opportunity to lay off workers due to the economic panic. 

I have a number of acquaintances that work for various companies that have lost their jobs.  Some were employed for organizations that truly tanked.  However, some worked for companies that are still making high earnings.  There is no doubt that some corporations start cutting workers as soon as the economy shows any sign of being grim, regardless of how the company itself is performing.  The working staff of any given organization is typically the most costly commodity of that company, but obviously the most essential as well.  It seems to me that firing workers as soon as the economy starts going south is a prescription for disaster. 

Obviously there is the big picture here.  As the economy weakens corporations start eliminating workforce.  With almost all companies jumping on the firing band wagon unemployment of course rises, thus negatively affecting almost every facet of the market.  This seems to be a catch 22 in the world of free enterprise.  The individual company may prepare itself for a financial downturn, but the combined contribution of all organizations laying off workers results in tough economic times for everyone. 

I have worked in places before where as soon as a tough financial year is predicted there is a “reorganization” of the workforce, AKA numerous layoffs.  Ironically, within a few months, half of those folks are brought back but in different positions.  It seems strange to me that so many organizations consider the efficiency of their structure only when the economy gets tough.  Most probably presume that if the company is performing well then don’t fix what is not broken.  Yet, as soon as clouds loom on the economic horizon the first thing to go is workers. 

I suppose that the economy is, like so many in this class often say, only what our joint imagination makes it.  In this case though the joint panic of all involved always results in difficult economic times.  The looming economic crisis is often exploited by the imagination of corporations themselves.  Perhaps cutting the workforce does salvage the company as a whole in some cases, and perhaps only when things get tough to some organizations do serious self-reflection and see the inefficiencies of their labor force.  Some no doubt just take advantage of the panic to slash where they can.  In any case, it all results in further economic downturn so the entire ship sinks for everyone!

Here is an interesting article about big corporation layoffs from this past January:

http://articles.latimes.com/2009/jan/27/business/fi-layoffs27

Comments

[Kyle Riddle]

I dislike thinking of the workforce as a "costly commodity" but labor is the most expensive aspect. This has been an interesting downturn in that many of the stories made public about layoffs do take place after a great deal of overall wage cuts, furloughs, and other options before staff cuts. Companies may have to make cuts, but letting go of skilled workers has costs of its own, specifically when a business has invested time and money in the training and experience of its workforce.
It boggles the mind trying to come up with a solution to high unemployment. Often the statistic itself is misleading, as many in the labor force have become discouraged and ceased to actively look for a job while many workers with jobs are actually underemployed (doing less than they are qualified to do, and/or for less pay). Both of these factors point to a higher real unemployment rate than the 10 something percent quoted.
Regionally I suspect that the unemployment rate is lower. The metropolitan DC area has a large amount of workers working for the government in some way or another, and this lends itself to better prospects for the employment situation. In other regions (ex. Detroit) unemployment is actually much higher than the national average. Additionally certain groups of people are hurting worse than others, such as workers under 30, or workers in certain industries.
The economy does seem to act in spirals, so if everything is going up, everything keeps going up, and if everything is going down, well everything heads down. The government is a bit like a bystander watching someone choke, and they have to decide soon whether to watch and see if this guy coughs up or do we need to go slap him on the back. As much as I dislike deficit spending and an outrageous national debt it may be that without government stimulus there are not many ways to get an economy going again in the shorter term. Some may be patient enough to let the economy sort itself out (3 years, 5, 10?), but to paraphrase Keynes, "in the long run, we are all dead[!]"

[Lindsey Bestebreurtje]

It is a lot like how fearing there will be a run on banks leads to a run on banks. Though I suppose this one is more like the Panic of 1857 as the business heads who presumably have the information are the ones hurting the economy.