Essay Why Layoffs are Causing the Economic Downturn

817 Words 4 Pages
In 2008, the economy of the United States of America took a turn for the worst. As companies watched their profits fall, top executives decided that they needed to take preventative measures to protect their shareholders and to try to stabilize profits. There are two solutions for making money in business, either increase revenue or decrease expenses. Increasing revenue was not a viable option because of the state of the economy, so the companies chose the only other existing solution to protect their profit margins: they cut expenses. Unsure of where expenses could be cut, companies approached their accountants to start scanning the books for potential expenses to cut. Could they cut cost of goods sold? No, because cost of goods sold …show more content…
The airline industry went into a tailspin, and the airlines decided to pad rapidly declining profits by mass layoffs. One company, Southwest Airlines, decided that layoffs were not the right solution. They had succeeded in business for 40 years without involuntary layoffs, and they decided this was not the time to start. As a result of this decision, Southwest Airlines is now enjoying a market capitalization greater than the combined efforts of all other domestic airliners. Most companies are able to properly quantify the direct costs of implementing layoffs, but fail to recognize the indirect costs. Costs such as severance pay, outplacement services, and increases in unemployment insurances are costs that companies are often able to predict. Once you begin rolling out layouts in a company, anxiety about job security skyrockets. This anxiety takes a major toll on morale and on productivity. Layoffs often are capable of weakening the entire organization, and can unintentionally begin a downwards spiral in the company. The company decided to cut expenses by laying people off, this in turn demoralizes the workforce and productivity decreases. Due to the loss of productivity, the firm then loses ground in the marketplace. This reduction in the market share causes a loss of revenue, and the company implements another round of layoffs. This is one of the many errors that caused the second largest electronics retailer, Circuit City, to go out of business.

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