Looking at this situation from a macro perspective, it appears that companies are setting themselves up for a self-fulfilling prophecy by implementing layoffs. When people lose their jobs, they generally cut spending and only buy absolute necessities. They don’t buy cars, appliances, electronics, or apparel, and stop spending on services that are unnecessary or they can do themselves. When this happens, revenues for companies that produce cars, appliances, electronics, apparel, and offer services fall. These companies respond by laying off more workers, thereby increasing the number of people who reduce spending, and the cycle continues. This cycle actually worsens as it continues because people who remain employed start cutting back on spending because they are worried about eventually losing their jobs.
The problem is, by laying off workers, companies are actually adding to the problems they face. Until an executive (or board) at a major company makes a statement by not laying off workers in response to falling revenues, the situation will continue to get worse. In short, until consumers feel comfortable enough to begin buying again, the economy will continue to decline.
Our government is in the process of giving away our unprecedented amounts of money to companies in order to help them survive. Looking at the companies that have received bailout money (and those who are hoping to get some), it appears that one of the stipulations for receiving government money is to lay off workers. From this perspective, it looks like our officials are rewarding companies for firing workers (i.e., adding to the unemployment rate).
Bailout money should only go to companies that make a commitment to keep their workers employed. If a significant number of companies make this type of commitment, consumer confidence would slowly increase and buying would return, thereby increasing company revenues and preventing the need to lay off workers.
During the Great Depression, SC Johnson (makers of Johnson Wax®, Pledge®, and other household products) did not lay off a single worker. Instead of producing products though, workers washed windows, improved landscaping, and painted factories to keep busy. The courage and commitment shown by SC Johnson management by keeping their workforce intact during this rough economic time resulted in an immeasurable amount of loyalty and gratitude from their employees. Imagine how you would feel today if your company was to show you the same level of commitment.
CEOs today are like captains faced with guiding their ships through a dangerous storm. When a ship captain faces this type of situation, though, he uses the crewmembers to help guide the ship safely and does not throw them overboard in order to save the ship.
Since corporate executives are obviously not going to take on the responsibility of getting us out of the recession, it is up to the government to focus actions and bailout money on activities that will get consumers buying. Without this type of focus, the economic death spiral that we are currently in will continue well into t
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