Archived: Killing Jobs is Bad for Business


With so many workers losing their jobs, people are buying less and paying less in taxes.

Corporate America loves layoffs. No matter the cost to the affected workers, many investors see job cuts as an encouraging sign that CEOs are making the tough decisions necessary to make their company “lean and mean.”

It’s striking that CEOs are being rewarded for mass firings at a time when unemployment is at the highest level in more than two decades. Last year, the CEOs of the S&P 500 companies raked in an average of $8.5 million. According to an upcoming report by the Institute for Policy Studies that I co-authored, the top executives who fired the most workers since the economic crisis began received substantially more compensation in 2009 than this “average.”

They don’t deserve these rewards. The extreme job losses that we’ve seen over the past two years, while producing immediate gains in profits and productivity, are likely to be bad for business in the long run.

University of Colorado Professor Wayne Cascio has conducted a series of studies that concluded that stable employers–companies that have less than a 5 percent staff turnover rate per year–tend to outperform most companies with a lot of layoffs. Surveys from the Society for Human Resources Management also back this finding. They found that after downsizing, companies’ profits increase only about a third of the time.

Recent Labor Department data suggest that even the short-term gains from layoffs may already be petering out. For the first time in two years, American productivity declined during the second quarter of 2010. The workers who’ve managed to keep their jobs may have reached their full potential.

The adverse impact of layoffs is more obvious for displaced employees. Several studies have shown that mass firings permanently decrease wages. An average worker losing a stable job at a good employer will experience a 20 percent pay cut lasting 15-20 years, according to Columbia University’s Till von Wachter. Being fired also leads to many unnecessary health risks, largely due to the loss of employer-based health insurance. The National Bureau of Economic Research has reported a 15 to 20 percent increase in death rates for displaced workers during the 20 years after they lose their jobs.

The long-term cost of mass layoffs doesn’t just stop there. With so many workers losing their jobs, people are buying less and paying less in taxes. Schools and social safety net programs are being gutted because state and local governments can’t raise the tax revenue needed to fully fund these programs any more. That means mass layoffs squander long-term investments that have a direct impact on our country’s future.

Although in the short term big cuts in workforces could lead to record profits for corporations, in the long run they’re eliminating consumers while also making our country less competitive. This Labor Day, let’s hope that these CEOs actually start appreciating their workers, instead of treating them as a drag on profits.

Kevin Shih is a 2010 Carol Jean and Edward F. Newman Fellow at the Institute for Policy Studies, a community of public scholars and organizers linking peace, justice, and the environment in the U.S. and globally.

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  1. This “free market” you speak of should benefit society if it is allowed to exist. More and more, this is not the case… Even today, the wealthiest among us would rather put their money into exotic financial instruments and even treasury bonds rather than investing in their own corporations and employees. That’s why wages have been stagnant for so long. Over the years, the wealthy have stopped being a driver of economic prosperity and became a consumer instead. Consumer confidence is an indicator that reflects this…. If I have no faith that money will cycle through the economy at a reasonable velocity, I won’t spend my own money.

    You are wrong. The individual is not free to do what he wants. It is nearly impossible for me, a highly-skilled man that would have had no problem getting by two decades ago, to earn enough money to support my family. My employer would rather hoard cash, spending the little money she does spend naming hosptials after herself, while cutting my pay in the name of 50% insurance contribution increases.

    If you aren’t going to participate in the economy in such a way that benefits your fellow citizens, perhaps you deserve to be taxed to oblivion.

  2. You leftists really crack me up.

    The left is using this crisis to destroy the firewalls in the Constitution, to further crush the free market.

    These are the plans that they devised decades ago.

    The free market is the most transformative of economic systems. It fosters innovation and invention.

    It produces new industries, products and services and improves upon existing ones.

    Millions of individuals freely engaged in an infinite variety of actions each day, it is impossible to even conceive all of the benefits that occur in our economy at any given time.

    The free market creates more wealth and more opportuniteis for more people than any other economic model. This is exactly why the Left — be they socialists, or Marxists, or left-leaning Democrats — attack it relentlessly.

    That’s why they lie, describing the free market as the cause of the current financial crisis. But it was in fact they, through onerous and arbitrary regulation and out-of-control governmental appendages like Fannie Mae, who twisted and distorted the free market.

    The free market promotes self worth, self-sufficiency, shared values, and honest dealings. That doesn’t mean to say there aren’t crooks: they exist in every endeavor (especially government). But when you consider the trillions of transactions that make up the free market, the number of crooks is relatively tiny.

    The free market enhances the individual, the family and the community. And it discriminates against no race, religion or gender.

    The truck driver does not know the skin color of the individual who helped create the diesel fuel that powers his vehicle.

    The cook does not know the religion of the dairy farmers who delivers milk to his restaurant.

    The airline passenger does not know the gender of the factory workers who manufactured a critical component of the aircraft.

    Nor do they care. The free market is an intricate system of voluntary economic, social and cultural interaction that are motivated by the desires and needs of the individual and the community.

    The key to understanding the free market is private property, which is why the Left does not believe in it.

    Private property is the material manifestation of the individual’s labor: the material value created from a person’s physical and intellectual efforts.

    Oppressive taxation and regulation of your private property can become a form of servitude, particularly if such confiscation occurs because of arbitrary and illegitimate decisions on the part of a government bureaucracy. That is: decisions that are not Constitutional.

    That is why the Conservative believes the federal government should only raise revenue that the Constitution authorizes and no other.

    Otherwise, what are the limits on government power? What are the limits on taxation and regulation of the individual’s labor? How do we contain and limit government? How do we draw the lines — and on what basis?

    The Marxist class struggle formulation pits the working class against the wealthy (sound familiar?). It serves as the Left’s principal rhetorical argument for the confiscation of private property.

    But it is anathema to the free market, for the individual has the power to make for himself anything he or she wants! There is no static class structure layered atop the free market! The free market is mutable, dynamic and vibrant.

    And for this reason, we Conservatives believe the free market is a vital bulwark against totalitarianism. And it would appear the Left agrees for it is relentless in its assault on the free market.

    The Left’s rejection of Constitutional limits on government power is always justified on material grounds. In the name of “economic justice”, “equality” and “fairness.”

    The Left creates an illusion of class struggle through a variety of inventions like the “Progressive” Income Tax. But the bottom 40% of wage earners pay no income tax!

    “Economic equality” is unachievable, even in the most brutal and oppressive socialist states.

    But it serves the Left’s purpose to create a class system: artificially created economic categories. In this way, the Left stirs up class envy. The free market, therefore, is said to be incapable of serving the public interest because it produces “unjust results.” This requires further government intervention.

    The Left tries to intensify class struggle by routinely redefining categories and levels of wealth: who qualifies as the detested rich? The righteous middle class? The disenfranchised poor?

    Thus community organizer and Obama mentor Saul Alinsky explained, “Organization for action will now and in the decade ahead center upon America’s white middle class. That is where the power is.”

    Tax cuts for people who don’t pay taxes aren’t tax cuts. That’s welfare. Tax cuts for businesses that can’t make money: that’s socialism; redistribution of wealth.

    This isn’t about creating jobs in the private sector. The left hates the private sector. They hate profits. They hate anything that doesn’t require government subsidies, that can operate without government involvement. Those entities have to be destroyed.

    The left is anti-American and must be wiped from the political landscape in November. And in every election henceforth.

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