A Government Mandated Layoff Freeze?

by Darwin on February 5, 2009

In yet another in a long line of silly ideas that may great sound bites, a prominent economist is calling for the Obama to plea with Fortune 500 companies to cease their layoff plans for months in an attempt to allow for the stimulus plan to take effect and to help in the recovery of the economy.  This plan is both ill-conceived and would put American companies at further disadvantage to other, more nimble competitors.  This is as bad or worse than the proposed caps on executive compensation.

What has is come to in America that now companies cannot adjust their workforce to economic realities? 

Is this Europe?

  • First of all, a voluntary call from Obama is not going to result in a unanimous moratorium on layoffs.  As conditions worsen the losses at companies continue to mount, is that the time to continue to take on excess payroll and benefits as plants sit idle and inventory builds?  How could one possibly expect a publicly held company to stand by and hemorrhage money to retain employees that are not needed?  Publicly held corporations have a fiduciary duty to optimize returns for shareholders and that does not include carrying employees in what would amount to a national welfare program.
  • I think this famed economist forgot that America is no longer the sole economic power in the world.  This is a global economy.  As American companies hemmorage cash while more nimble overseas competitors size their workforce according to the current economic climate, American companies are quickly moved further and further into a long term economic disadvantage.  Heck, it would entice overseas companies to acquire American companies on the cheap and then summarily lay off the same workers we’re trying to protect since they would not be subjected to the same philosophy.
  • Chimerine claims to have discussed this idea with a number of CEOs and he believes there would be widespread support for the idea.  These are likely CEOs that have already laid off and would love to see their competition burdened with excessive headcount…Or Worse…This could send companies into a mass-firing spree as momentum builds, so they could “beat the clock” and get their layoffs out of the way before the idea was fully enacted.
  • He claims this should be a “few month initiative” to allow for the stimulus plan to take effect.  What if the economy takes years to recover?  The main tenants in the stimulus plan like building roads, infrastructure, green energy projects, etc. will not see the light of day and translate into true stimulus for years!  Correlating the timing of this plan with stimulus recovery is nonsensical.

The list goes on; this is just a plainly ill-conceived idea that has no place in a capitalistic society. 

What are your thoughts?  Should companies abide by this request for the greater good?

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{ 1 comment }

1 Al February 24, 2009 at 12:55 pm

I could not disagree more with your assertions, Darwin.

Currently, the economy is in a downward spiral with no end in sight, and it will not recover untill people are secure in their jobs again. I would not leave businesses to flounder as the consumer base dwindles to nothing.

I would go farther than the fortune 500, and more than a request, but a Presidential ordered nationwide layoff freeze. The freeze would include the creation of no interest loans and grant programs for employers to use to meet payroll.

When Americans are once again secure in their jobs, they will begin to increase demand for products and services. Banks are more apt to write loans to people and businesses with secure incomes, so lending institutions would see an increase in business. All of this would create an upward pressure on employment figures, eventually allowing for the layoff freeze to be phased out.

Once the US takes the lead with a fully funded layoff freeze, other nations would follow suit, thus eliminating the argument that the policy would create a negative global business climate.

I don’t believe this plan would take just a few months, but could take a year, since consumers have been so shocked by the crisis, and so many jobs have been lost.

No stimulus plan alone will be able to counter the downward spiral, tax cuts will not work, because the amount of money available is not the problem. This is a problem of consumer confidence, until and unless we feel safe in our jobs, we will save, not spend.

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