How many should get the chop?

Dreadful jobs news recently and judging by the mood at the World Economic Forum in Davos this is only the beginning of a huge wave of redundancies and job losses across the world. Of course, politicians have different priorities to company bosses. Our leaders want to preserve jobs, whereas firms want to ensure that that their business survives, even if that means losing staff. Firms need to make cuts in a way that strengthens their competitive position in the medium term rather than seriously damaging it. This interesting debate is covered in the Economist.

Already, some firms are starting to find that their first round of cuts after the onset of the crisis is not enough. Such is the frenzy of cutting that one recruitment firm that tracks employment trends in America found that over 50% of firms have cut jobs. It also pointed out that things would be even worse without the various innovative schemes adopted by companies to reduce labour costs without shedding jobs. These include salary cuts, reduced hours and compulsory “holidays”. Depressingly, it seems that even clever ways to share the pain can demotivate everyone, especially if they are seen as merely postponing the inevitable job cuts, making everyone fearful.

According to the article, some bosses admit that the crisis is giving them a chance to restructure their firms in ways that they should have done before. As a rule of thumb, a careful cut of the 10% of lowest performers can make a firm leaner. But going beyond the 10%, as many firms are now starting to do is a real threat to a firm’s competitiveness. During the relatively modest downturn in 2001, for example, many professional-services firms cut too deeply and found they were poorly positioned when strong growth resumed sooner than expected. ‘Down sizing’ went too far (one famous author on the subject later memorably publicly apologised for the hurt this had caused).

Although firms routinely claim that “our workers are our most valuable asset” this is often an empty phrase. But for firms who really take it seriously, now could be a great time to hire fresh talent. After all, with the prices of most things plunging: from shares to property to staff, it’s a “buyers’ market” for the far sighted.

The article finished with a warning to European governments: it suggest that if they focus on working with firms to smooth the movement of labour to where the future work will be, for example by providing skills training and financial incentives to workers in transition, then the economic downturn could be less painful than now seems likely. If, on the other hand, governments try to prevent firms from making the changes to their workforces that they want, the result is likely to be prolonged gloom.