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The Bad Economy is an Excuse for Layoffs, But They Should Have Happened Earlier

I’ll let you in on a secret: Most companies have used the bad economy as an excuse for laying off people who the company wanted to get rid of anyway. Now I’m not saying that these companies haven’t had financial issues — most companies have experienced a loss of revenue as a result of a decrease in consumer spending. But the truth is that businesses have made enormous productivity gains over the last ten years. Technology — and particularly information technology — has allowed most businesses to do more with less. The number of employees required to run the business and handle day-to-day operations has declined for most businesses. But even though fewer people are needed, most businesses hadn’t taken steps to reduce their labor force until the recession gave them an excuse. There are a lot of reasons that companies were holding on to unnecessary employees:

  • It’s nice to have extra employees around if you anticipate growth.
  • Many managers see the number of employees reporting to them as an ego thing.  The more employees you have, the more important your job.
  • It’s nice to have labor in reserve to get you through peaks in demand and temporary shortages  — sick leave, maternity leave, vacation, holidays.
  • The annual budgeting process ensures that if you cut your budget, then you’ll have a hard time increasing it back again later. Cutting an employee is cutting your budget.
  • HR rules make it tough to fire an employee even if the employee isn’t doing his/her job.
  • Some managers are kind-hearted, and don’t want to cost people their jobs.

Put all these reasons/excuses together, and repeat this situation in department after department in company after company, and you can explain why technology productivity gains hadn’t translated into a significant savings on the bottom line. The productivity gains were there — there just wasn’t enough motivation to actually realize them.

So along comes the recession. Now all of a sudden everyone is in lifeboat mode — the ship is sinking and we have to throw all of the unnecessary stuff over the side. Executive management says “cut your budgets” and all those managers who were squirreling away spare employees suddenly have to get rid of them. The managers start with the slackers of course — now you don’t have to go through all that HR bureaucracy to get rid of a bad employee. Then gradually the managers work their way up to the adequate employees who were actually superfluous to the day-to-day process. In some cases the managers have to cut good employees who are contributing to actual productivity. But let’s face it: Productivity has risen to such a point that we can get by with a lot fewer employees that we had before. And here’s the important part of higher productivity: we don’t ever need to hire them back!

The Jobs Aren’t Coming Back
That last statement is the key to understanding the slow economic recovery right now. Most companies were operating with more employees than they actually needed. And now that they’ve become accustomed to getting along with a smaller number, it isn’t very likely that those jobs will come back. Instead, we need to look in different directions for new jobs. New jobs will come from new types of businesses, from growth of existing businesses into entirely new areas, and from an increasing number of freelance employees who will be working as supplemental employees.

So if you’ve wondered why it is that the stock market is recovering but the job market isn’t, this is why. Business profitability is up because the businesses are producing the same products and services with fewer people — they’ve gotten rid of the jobs they didn’t need. The old jobs are gone, and will never return.  And the job market will only recover when totally new jobs are created to satisfy totally new needs.

Happy New Year! And welcome to the new economic reality.

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