Economics of Layoffs

The company I worked for also had another problem with workers. The Bay Street stock analysts (Canadian Wall Street wannabees) would crunch the numbers to tell themselves and the various values of companies. A huge majority of stocks are bought not by private investors but by various funds, which use these hand-waving numbers instead of real analysis to determine what is a good set of stocks to buy, so these numbers are very important to a management paid in stock options.

One of the calculations involved headcount vs. revenue, debt, etc. This figured into expected future liabilities - if you have X employees, you have Y fixed costs, no matter what happens; therefore headcount is a liability. Dump some employees, replace them with contractors (who are not headcount). Now your numbers look better, even though those contractors are still indispensable, the plant won’t run without them. You increase risk and costs, but the stock goes up.

*(Pointy-haired boss to Dilbert “You’re my favorite headcount.”) *

Look at it from another perspective. If layoffs are always bad in the long term, then that means that there can never ever possibly be a situation where laying off people will increase profits. Clearly that’s absurd. For instance if I owned a monopoly over all fast food in America, and were legally not able to expand into other countries, yet I employed over 100 people per store.

Now that we’ve determined that it’s possible that laying people off will aid the bottom line, we’re only arguing the specific cases.