Discussion Thread: Layoff or Wage Cut?
As an employer wants to reduce the production cost during the
economic recession, he/she could choose to (1) lay off some workers
without changing wages or (2) keep all workers but cut wages for
all. Which method would you choose? Why?
Additional information:
•
"Masters, provide your slaves with what is right and fair, because you
know that you also have a Master in heaven" (Colossians 4:1, NIV).
•
"Look at the birds of the [a]air, that they do not sow, nor reap nor
gather into barns, and yet your heavenly Father feeds them. Are you not
worth much more than they?" (Matthew 6:26, NIV).
•
"He who oppresses the poor taunts his Maker, But he who is gracious
to the needy honors Him" (Proverbs 14:31, NIV).
•
"…Encouraged by Wall Street investors, many companies over the past
decade have slashed their full-time workforces, reduced benefits and
demanded more output from the remaining workers…Many workers sense
that they’re merely expendable components of an impersonal production
process involving the manipulation of employees for the sole objectives of
the maximization of profit and shareholder value.” — John
Stapleford, Bulls, Bears, and Golden Calves. IVP Academic (p. 104)
For an employer the discussion of reduction of wages or lay off workers is a
difficult conversation to have in most circumstances, especially during a time of
economic recession. In order to make an appropriate decision, one must
understand the implications of each options and think of the long term impact each
individual decision will make on the company. If layoffs occur, the company would
need to make sure production could continue at the rate and amount needed to
keep up with the current costs. If wages are decreased, the company would need to
think about how this would affect the current morale of the workers and if they
would lose associates by them wanting to find another position which could then
lead to a decrease in production and revenue.
According to Yokoyama & Obara, a study was conducted to know the
relationship between wage cuts and layoffs to the end overall performance of the
associates in the company. It was found that wage cuts were more detrimental to
the organization because morale and performance were decreased, which
ultimately led to decreased production and quality. However, it was also stated that
if layoffs occur, the end result is ultimately an increased cost to the company when
they possibly return to work (2017).
Another article from Weber Handwerker& Mason, addressed the effects of
mass layoffs to both the company and workforce (2018). It was stated that for
many leaders, layoffs are often the first resort because they don’t want to have the
difficult conversations with staff about wage reductions. But that the most
beneficial way to deal with economic recession could be going to the associates and
ask for possible ideas or volunteers. This can draw up new ideas that many may
not have thought of. Restructuring of the company, process improvement
initiatives, etc. are all different ideas that could cause an increase in profit and
production Weber Handwerker& Mason, 2018).
As Colossians 4:1 states, “Masters, provide your slaves with what is right and
fair, because you know that you also have a Master in heaven” (NIV). To me this
means, that has a manager or leader of an organization, you should be thinking of
always doing what is right and provide your team with the needed supplies and
support and do what is right and fair to your associates.
Reference
Yokoyama, I., & Obara, T. (2017). Optimal combination of wage cuts and layoffs—the
unexpected side effect of a performance-based payment system. IZA Journal
of Labor Policy, 6(1), 1-15. https://doi.org/10.1186/s40173-017-0092-2
Weber Handwerker, E., & Mason, L. (2018). What happens to the employers
involved in mass layoffs?: What happens to the employers? Southern
Economic Journal, 85(2), 485-507. https://doi.org/10.1002/soej.12294
Response to Eriq:
Eriq-
Thank you for your insightful discussion post. During an economic recession,
both of these topics are hard conversations to have. Knowing and understanding
the implications of both is important to understand. Both short term and long term
impact need to be thoroughly thought of and reviewed. I too had concerns with
providing wage cuts to current associates. I felt that this would decrease morale
and possible decrease production and quality thus decreasing revenue. According
to Yokoyama & Obara, relationships were found between wage cuts and
performance. However it also stated that if the alternative of layoffs occurred, it
could ultimately end of costing the organization more due to having possible
increased wages when workers returned to work (2017).
I proposed the option of giving the current associates options to voice their
opinions as to what they thought could help. Often times, during tough times,
restructuring or process improvement initiatives can occur that could help with cost
as well as production and revenue. Neither wage cuts or layoffs are always the only
answer.
Reference
Yokoyama, I., & Obara, T. (2017). Optimal combination of wage cuts and layoffs—the
unexpected side effect of a performance-based payment system. IZA Journal
of Labor Policy, 6(1), 1-15. https://doi.org/10.1186/s40173-017-0092-2
