Economy question

[MyManGoofy!]

I will admit that I really struggled my way through both macro and micro economics in college. I have definitely forgotten more than I ever learned about that subject in the years since!!

So, can someone explain to me why it is in anyone's best interest to lay off so many people when the economy is so poor?

You may have to explain it to me like I am a 3 year old because to me that seems to be the quickest way to slow the economy down even further.

 

[Cindyluwho]

Well, if the company has less orders to fill then they need less employees to work. How would the company pay the workers if they're orders are down? Why would you keep an employee when you have no work for them to do? The alternative is to not layoff workers when business gets slow and then the business will go bankrupt which hurts even more people.

 

[MyManGoofy!]

But who is purchasing said orders/goods when such high numbers have either already been laid off or are afraid they soon will be?

 

[Quiksilvr]

Many companies do not rely on their worker base as customers.

If Boeing builds 100 airplanes in a normal year, but this year they only have orders for 40, they have way too many people on staff. Paying those extra people without more money coming in will threaten their ability to remain solvent. So, they lay those people off so that they can remain as close to profitable as possible. Those people weren't buying Boeing planes anyway, so Boeing doesn't really need to worry about them.

Layoffs are a difficult thing. Many companies will hold off as long as they can, but in so doing they end up having to lay more people off than they would have six months earlier because more of their reserves have been eaten up.

Additionally, this can occur if the company is making and selling items, and they are being purchased, but the customers aren't paying. Having a lot of accounts receivable can be good, but when your customers go delinquent it makes it difficult to make payroll and pay the bills. Layoffs can occur there as well.

 

[eliza61]

But who is purchasing said orders/goods when such high numbers have either already been laid off or are afraid they soon will be?

And that's the vicious cycle of it. My company announced that it would lay off 4000 workers yesterday. Luckily my division will not have layoffs but my division will be affected because now every one else is walking around on pins and needles. So not only is productivity going way down, there is no way I am going to spend an extra dime for the forseeable future.

We lost 533,000 jobs in 1 month. That is isane. 2 small business in my town have closed down because every one here is not buying a thing. I know one of the owners personally, she owned a travel agency. Her agency supported the little league and various other community functions. She closed her doors after 20 years. No one is even remotely thinking about travelling.
2 large car dealers in my area are cutting their hours (they are now closed on Tues & Thursdays at noon) because of low car sales.

 

[JARNJ3]

Ironically, workers in other countries around the world, don't seem to be laid off as much as the US workers have......

 

[Carly_Roach]

If Boeing builds 100 airplanes in a normal year, but this year they only have orders for 40, they have way too many people on staff. Paying those extra people without more money coming in will threaten their ability to remain solvent. So, they lay those people off so that they can remain as close to profitable as possible. Those people weren't buying Boeing planes anyway, so Boeing doesn't really need to worry about them.

Which is short-sighted. After all, who flies on those planes? Employees. Fewer flights because of job losses means fewer orders for airplanes.

It's all connected.

 

[ReneeA]

We live in Detroit - for years and years every person in this area has been affected by the auto manufacturers. Not always directly, but in some way, everyone is.

For instance, my DH is a project manager for a tile company. They have been in business for 80 years, and have always been contractors in new home construction. About 4 years ago, the Big 3 started slowing down and laying off workers. Then the parts companies started laying people off, insurance companies did, and construction companies, etc.

Nobody has been building new homes around here. The company DH works for started branching off into commercial work about 3 years ago in order to keep their head above water, but they've been operating in the red for at least that long. They have went from a workforce of about 30 down to 4, and those last 4 remaining are not working full time anymore. There just isn't ANY work.

If things don't turn around here for them soon, that successful 80 year old company that has supported 4 generations will close it's doors in March.

 

[MyManGoofy!]

Ironically, workers in other countries around the world, don't seem to be laid off as much as the US workers have......

Do you think that is because here there is so much more importance placed on shareholders over employees?

 

[rascalmom]

It's simple - if employers don't have the money to pay their employees, they have to lay them off. Most businesses (at least any I have ever been involved with) don't take this lightly - they look at ways to trim other costs before they look at cutting back on staff.

It is a vicious cycle, sadly.

 

[Galahad]

Do you think that is because here there is so much more importance placed on shareholders over employees?

That's not a U.S. thing. Shaholders around the world demand that. And there are significant lay offs happening in Britain and Europe.

I do agree with Barry Diller, an hollywood exec that was quote today saying something like - if your company is making any profit at all and not losing money, laying people off to squeeze a bit more profit out of the company in these times is irresponsible and self defeating.

 

[Mrs.Reese]

We are also entering the very viscious cycle of deflation according to many economists. Less demand, prices keep dropping, invetories build and more workers get laid off.

 

[MarkBarbieri]

Do you think that is because here there is so much more importance placed on shareholders over employees?

Company leaders should always put shareholders interests ahead of those of their employees, customers, and other stakeholders. They are required to buy law.

Fortunately, those interests usually align. You treat employees well because they perform better. You take care of your customers because they buy more from you. You take care of the community because it enhances your corporate reputation and makes people want to do business with you. In the end though, as a corporate officer, your fiduciary duty is to the people that own the company. You don't have the right to give away the shareholder's money. It belongs to them.

No one company is big enough to save the economy on their own. If a company retains staff beyond what it needs, they lose money (or make less than they otherwise would). Eventually, they go out of business and all of their employees lose out.

Employee turnover is expensive. It is costly to acquire, train, and retain employees. For that reason, companies don't like to cut staff more than necessary.

Europe's model is very different from the US. In Europe, it is much harder to cut staff. That helps employees in downturns, but it hurts them at other times. Because they have much lower labor flexibility, companies are less willing to hire employees. There is a lot more risk to hiring an employee if you can't terminate him later. That's one reason why Europe's unemployment rates are usually much higher than they are in the US.

Labor, like everything else, is subject to the laws of supply and demand. During an ecomonic downturn, the demand for labor shrinks. Until labor prices (mostly wages) decline, that usually means that there is an oversupply (people unable to find work). If you change the rules to prevent companies from cutting workers, you'll get two problems - companies will be afraid to hire new workers and companies will pay their existing workers less. On the plus side, having more workers looking for work will mean that companies can pay lower wages, which means that they'll be more profitable, which means that they'll grown and hire more workers, which means that wages will get pushed up. It's a circle of life thing.