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paserbyp
On Wednesday, September 12, 2001, no planes were flying in the United States. On the day after two planes flew into the World Trade Center and one crashed in Pennsylvania, it was not clear when air travel would be permitted to resume nor was there any certainty as to what the operational and logistical conditions would be when flights resumed—what new security arrangements would be required and how they would work. As the United States was already beginning to experience the effects of a recession, it was certainly unclear as to what the level of ongoing demand for air travel would be. In the days following September 11, US airlines such as American, Delta, and United did what they had done so many times before—laid off employees, about eighty thousand in total. All the big airlines announced layoffs almost immediately after September 11. That is, all except one.Southwest Airlines sent an email to its employees and in that message noted that in its entire history it had never had a layoff or furlough. Although it could not promise that it would never have to lay people off, the airline made clear that it was committed to its people. Get back to work and provide great service to the customers when that became possible again, and the company would do its best to ensure the wellbeing of both its people and its patrons.
Southwest, even as it offered its customers no-questions-asked refunds if they wanted them, maintained its flight schedule and made a scheduled $179 million contribution to its employee profit-sharing plan in the aftermath of September 11. By the end of 2001, Southwest had not only made money for the year, it had been profitable even in the fourth quarter and had gained market share on its domestic US airline competitors. Going into 2002, the company had a market capitalisation greater than the entire rest of the US airline industry combined.
The idea that all companies, particularly those operating in cyclical industries, must resort to layoffs as a routine part of how they do business is simply not true. For a long time Xilinx, a semiconductor manufacturer, avoided the cycles of layoffs and rehiring so common to that industry. In the tech recession of 2001 and 2002, when Intel and Advanced Micro Devices cut nine thousand jobs, Xilinx laid off none of its 2,600 people. Toyota assiduously tries to avoid layoffs, even during times when the motor vehicle market is not doing well. Toyota has sought to retain employees on the payroll not just in Japan but in the company’s US factories as well.
Arc welding manufacturer Lincoln Electric, headquartered in Cleveland, Ohio, has survived two world wars and numerous economic cycles without sacrificing its employees or their jobs. The company is famous for its profit-sharing incentive plan that produces variable compensation costs and helps Lincoln avoid layoffs. Because pay declines when profits go down during recessions, Lincoln Electric can eschew layoffs as its wage costs decrease. One of Lincoln’s former CEOs described downsizing as “dumbsizing.” And a more recent CEO, a longtime veteran of the company, noted, “I think my philosophy and that of my predecessors is that we can perform in an economically challenging environment, and we can spread that pain in a way that long-term will better represent our shareholders’ interests without crucifying our employee base.”
SAS Institute, the largest privately owned software company in the world with 2016 sales of more than $3.2 billion, used the technology downturn in the early 2000s to hire hundreds of people and thereby gain both talent and market position. When the next economic recession hit in 2007 to 2008, Jim Goodnight, the CEO, noted that employees were frequently asking him if there were going to be layoffs. He sent out an email encouraging people to watch expenses but assuring them that there would be no economy-related layoffs. As he told me, although sales did not grow as fast during the recession as they had in the past—no surprise there—profitability was reasonably good. With people assured of their jobs and their security, they could focus on their work and be more productive, and, because they were grateful to be working for a compassionate employer, they reciprocated with diligence and creativity—and with enhanced attention to keeping expenses in check.
Layoffs reflect company values. Large grocery chain Whole Foods Market went through the economic crisis of the late 2000s laying off fewer than one hundred people. Chip Conley, the founder and leader of Joie de Vivre Hospitality, one of the largest boutique hotel chains in the United States, tried to minimise layoffs even as the company’s revenues fell more than 30 percent in the recession of the late 2000s. And having gone through that wrenching experience, when the economy recovered, Conley sold his stake in the hotel chain in part, he commented, so he would not have to go through the experience of laying off so many people again.
Some industrialised countries have adopted public policies that encourage employers to retain their workers. In many European countries, companies that lay off permanent staff are required to make large severance payments, thereby causing companies to have to balance the presumed savings from letting people go against these severance costs. Other policies require advance notice of layoffs and, in some instances, consultation with unions or workers’ counsels. Although such policies are presumed to create inflexible labor markets that result in persistently higher unemployment and less growth in employment, the evidence on such effects is mixed. Moreover, virtually no studies of labor market effects balance the costs of higher economic security against the benefits in health and well-being.
Germany, recognising that when people lose their jobs they collect unemployment benefits and other social-support payments, has experimented with offering companies some fraction of these anticipated payments to induce them to retain workers, even on a part-time basis. The German policies have often been credited with reducing the extent of economic dislocation that would otherwise occur during recessions. The point is that public policy is an important factor affecting company decisions about layoffs. Moreover, the cost of layoffs needs to be considered in deciding about the benefits and costs of policies that seek to reduce economic insecurity and layoffs.
