Layoffs are not evil (Evil Corporations Part 2)

The phrase “Job creators” is thrown around as if a small businesses sit around waiting to hire the next person who walks in the door.  As if we just got out of the way the skies would part and the job fairy would give us our dream job. The world doesn’t work like that.   A corporation hires someone when they have to, not when they can afford to.

It makes for a more forceful argument to use hard numbers so bare with me as I set out a theoretical business.  Lets say you are running a small corporation that makes barrels.  You have 10 employees that each produce 10 barrels a month.  You sell your barrels for $100/barrel.  The employees cost $500 a month; $400 in salery and $100 benefits. It cost $20 in materials per barrel.  That equals $10,000 in income if everything sells.  $5k for salery, $2k in materials and $3k in profits.

Lets say demand increases for the barrels to 120 barrels a month over the current 100.  How do you meet that demand?

Your first action should be try to produce more barrels without increasing costs.  You push your workers to make 12 barrels a week instead of 10.  If you can do that you have just increase profits by $1600 (20 barrels X ($100 – $20 materials))

What it you can do the above but you need pay the employees more.  Either hourly or salary.  Even if need to pay them as much as you would new employees you still save the costs of benifits training etc.  $800 more in profits.
If you hired the 2 people to get back to the 10 barreled per peson per month; your profit increase would be the lowest of these choices. $600 increase.
What happens when demand drops?  Say from 100 to 80 a month.
The exact opposite of the above is true.  Same people and wadges profits down $1600.  Same people but salary cuts, profits down $800. Lay off 2 people profits down only $600.
This would hold true no matter if those profits were taxed or not.  The sound business practice is to run a business with as few employees as possible.  Hiring someone is a great cost and means the corporation is doing so well that they can’t do anything else but hire.  It is also good business practice to fire people quickly when things aren’t looking good.
Any salery or benefit that can be cut is also natural.  There is no evil in this.  There is only increased profits.  Currently corporate profits are at record levels. If they can achieve these profits without hiring more people, why would they?  The corporation lives to increase that profit not to provide jobs.
I always welcome comments.  You can leave them here on my blog or @TshirtToby on twitter.


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