Job Cutting, Slow Hiring – Is It A Solution or An Excuse?

Aggressively cutting workers, which is one of a company's largest expenses, allows a business to return very quickly to profitability. So it makes sense that job cutting was so prevalent for the past few three years.

But now that the darkest throes of the recession have passed, the great American "jobs machine," that used to be the envy of the world, is sputtering. Today when one compares the U.S. unemployment situation with that of other big industrial countries, the U.S. is now the highest in the world. Just 10 years ago, in 2000, the United States had the second-lowest unemployment rate in the world. Only the Netherlands was lower.

   

The 2000-2009 numbers reflect annual data. The numbers for 2010 are the latest monthly numbers available for each country.
Source: Bureau of Labor Statistics  Image Source: NPR

There were some glimmers of hope in Friday’s unemployment report — namely that private businesses added 67,000 jobs. But it's still a weak performance. The unemployment rate rose another tenth of a percentage point to 9.6 percent. The U.S. needs more than twice that many new jobs each month to start bringing down the unemployment rate. As a result, it's likely to remain very high for a long time.

Many companies blame the massive cuts in jobs and delays in hiring on survival.  That might be true, especially if a position that I’ve advocated for some time is valid – that many companies retained mediocre performing and poor skilled employees prior to the recession because they didn’t have the motivation to train them or the guts to withstand the political wrath if they let them go. It was simply easier to pass on the costs of waste and incompetence to the consumer.  The recession provided more than ample cover to do what should have been done a decade or two earlier – if a process, machine, or employee doesn’t add value to the organization, why keep paying for it?

It's questionable, however, whether this strategy is a winner in the long term.  There’s significant evidence that while firms get quick profits shortly after big job cuts, they often don't perform very well in later years after the economy has recovered. Layoffs make sense when they're a proactive effort to deal with a new economic environment. But if a company is continuing to cut jobs in order to meet profit targets, it could be a sign of serious problems with its business model.

On the other hand, while it might be un-American to encourage U.S. employers to focus on profitability through outsourcing and technology, it certainly seems preferable to re-hiring employees who lack the necessary skills, who have a sense of entitlement, and display a bad attitude simply because the unemployment rate is too high.

A short term solution of restoring jobs to the economy seems unlikely. For now, employers seem more content on buying new machines, instead of hiring new workers, to boost production.  I can’t say that I blame them.