Friday, December 12, 2008

Recession doesn’t have to mean unemployment

Recession means correction.  It means businesses need to learn how to do more with less – to correct their prices and product lines to meet new market conditions, which generally means lowering costs and making savings.

But recession doesn’t necessarily need massive unemployment.

Just as markets for goods and services will clear if prices are allowed to fall to meet diminished demand, so too can labour markets clear when labour prices are allowed to fall to meet the new more parlous economic conditions.

For the most part however labour markets don’t clear  when labour prices need to drop -- and people lose their jobs instead.   For the most part people lose their jobs because labour prices aren’t allowed to drop, or because it’s considered easier to sack people that it is to negotiate for lower wages and salaries: the result is a recession-driven rise  in prices and a decrease in productivity.

But there is another way, one that more than a few businesses and their employees are now discovering -– as a friend just phoned excitedly to tell me. 

Staff at his company have agreed unanimously to pay cuts instead of sackings –- five percent pay cuts for wage earners; ten percent pay cuts for salary earners –- with the result that their projected redundancies don’t have to happen, and the company and all who work there have now given themselves the best chance they can to have a good Christmas, and to do more with less in the New Year: in other words, to survive, and hopefully to flourish as soon as things turn around.

My friend tells me the spirit within the company has now gone from terminal to team-spirited.  There’s a new feeling, she tells me, that everyone feels they’re working together and doing what they can to help keep the company going and to keep each others jobs safe.

A great news story.

No, not every company can do this.  There are some that really do have to go to the wall lest the continuing malinvestment they represent keep dragging us all down –- three of this type have just poured enough alcohol down the throats of America’s politicians to save their skins at everyone else’s expense –- but honest companies with good product lines who just need to survive through the bad times so they can get through to see the good again should put some trust in their staff, and put it to them that they might consider wage cuts rather than the redundancies that would otherwise be the only alternative.

You might be pleasantly surprised at the response.

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