doorbell and run away.” 40
Cohen’s belief is shared by many—and it is especially understandable at a time of increased mass layoffs and high unemployment. Layoffs carried out by highly paid executives can be especially difficult for some to accept. University of Arkansas finance professor Craig Rennie found that CEOs who laid off employees between 1993 and 1999 got 13 percent more in total pay than the CEOs of firms that did not have layoffs. 41
Layoffs are immensely disruptive to lives, families, and communities. They seem cruel and unfair. And they are all of these things. However, notto lay off people means a company or industry may not survive—in either the near or the long term. And, sooner or later, there will be fewer jobs.
We see this playing out today in the collapse and downsizing of the Detroit automakers. Their inability to lay off people is one of the reasons why GM and Chrysler ended up in bankruptcy in 2009—and why a government bailout was necessary to keep them alive.
One widely acknowledged reason that the U.S. auto industry lost its competitive edge was the burden of billions of dollars of “legacy costs”—including union-pleasing programs that force companies to hang on to unneeded employees. The
Wall Street Journal
told of the Jobs Bank, a win-dowless room where employees who otherwise would have been laid off are paid six-figure salaries to sit idle. The program cost the auto industry as much as $2 billion annually.
Traumatic though they may be, layoffs can often be the only way a company can survive in a competitive market. A corporation may have to cut its workforce after revenues decline in bad times. Or else it may need to reallocate resources—shut down one division so it can start a new one that requires a new workforce with different skills. Either way, the cuts protect the vast majority of jobs.
Of course, not all layoffs succeed in saving companies. Even when they do, that may be cold comfort if you’re unemployed. So what if a layoff helps the guy sitting next to you keep his job? But if CEOs could not respond to economic conditions, you would be less likely to get another job because fewer new ones would be created elsewhere.
The ability of U.S. companies to respond to a changing market and lay off people is one reason our economy is more flexible, better able to respond to change—and, as a result, a far more robust job creator than the sluggish nations of Western Europe. A study by the International Monetary Fund in 2000 found that “strong systems of job protection,” which make it more difficult to lay off people, tend to decrease a nation’s ability to create new jobs. The United States, with its flexible workforce, was far and away the biggest job creator. Nations with worker-protection laws, such as Germany and France, ranked on the bottom half of the list. Sweden was dead last. IMF researchers observed that America’s level of job creation was especially remarkable, considering the high level of low-skilled immigration to this country.
[The] United States has truly experienced an employment miracle, creating many more jobs than needed to keep pace with population growth and bringing a dramatic decline in unemployment. Over the last 20 years the country’s ratio of employment to working-age population rose by more than 7 percentage points, despite sizable immigration. 42
Until the 2007–2009 economic slowdown, U.S. unemployment had been lower than in most developed countries.
Allowing companies to lay off people during a recession can help a company bounce back and enable a downturn to end sooner. History provides numerous examples of corporations that have made major comebacks and hired new people after laying off thousands. One recent example: Boeing, which closed plants and laid off thousands in order to divert resources into the design and production of its 787 Dreamliner. Despite production delays, the plane has been a major financial success,
Cohen’s belief is shared by many—and it is especially understandable at a time of increased mass layoffs and high unemployment. Layoffs carried out by highly paid executives can be especially difficult for some to accept. University of Arkansas finance professor Craig Rennie found that CEOs who laid off employees between 1993 and 1999 got 13 percent more in total pay than the CEOs of firms that did not have layoffs. 41
Layoffs are immensely disruptive to lives, families, and communities. They seem cruel and unfair. And they are all of these things. However, notto lay off people means a company or industry may not survive—in either the near or the long term. And, sooner or later, there will be fewer jobs.
We see this playing out today in the collapse and downsizing of the Detroit automakers. Their inability to lay off people is one of the reasons why GM and Chrysler ended up in bankruptcy in 2009—and why a government bailout was necessary to keep them alive.
One widely acknowledged reason that the U.S. auto industry lost its competitive edge was the burden of billions of dollars of “legacy costs”—including union-pleasing programs that force companies to hang on to unneeded employees. The
Wall Street Journal
told of the Jobs Bank, a win-dowless room where employees who otherwise would have been laid off are paid six-figure salaries to sit idle. The program cost the auto industry as much as $2 billion annually.
Traumatic though they may be, layoffs can often be the only way a company can survive in a competitive market. A corporation may have to cut its workforce after revenues decline in bad times. Or else it may need to reallocate resources—shut down one division so it can start a new one that requires a new workforce with different skills. Either way, the cuts protect the vast majority of jobs.
Of course, not all layoffs succeed in saving companies. Even when they do, that may be cold comfort if you’re unemployed. So what if a layoff helps the guy sitting next to you keep his job? But if CEOs could not respond to economic conditions, you would be less likely to get another job because fewer new ones would be created elsewhere.
The ability of U.S. companies to respond to a changing market and lay off people is one reason our economy is more flexible, better able to respond to change—and, as a result, a far more robust job creator than the sluggish nations of Western Europe. A study by the International Monetary Fund in 2000 found that “strong systems of job protection,” which make it more difficult to lay off people, tend to decrease a nation’s ability to create new jobs. The United States, with its flexible workforce, was far and away the biggest job creator. Nations with worker-protection laws, such as Germany and France, ranked on the bottom half of the list. Sweden was dead last. IMF researchers observed that America’s level of job creation was especially remarkable, considering the high level of low-skilled immigration to this country.
[The] United States has truly experienced an employment miracle, creating many more jobs than needed to keep pace with population growth and bringing a dramatic decline in unemployment. Over the last 20 years the country’s ratio of employment to working-age population rose by more than 7 percentage points, despite sizable immigration. 42
Until the 2007–2009 economic slowdown, U.S. unemployment had been lower than in most developed countries.
Allowing companies to lay off people during a recession can help a company bounce back and enable a downturn to end sooner. History provides numerous examples of corporations that have made major comebacks and hired new people after laying off thousands. One recent example: Boeing, which closed plants and laid off thousands in order to divert resources into the design and production of its 787 Dreamliner. Despite production delays, the plane has been a major financial success,
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