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McQuiston: Impact of the IBM layoffs

01/29/09 7:55AM By Timothy McQuiston
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(HOST) Vermont Business Magazine editor and commentator Timothy McQuiston suggests that when companies like IBM cut workers in an effort to cut expenses, they may just be hurting  the company - and all of us - in the long run.


(MCQUISTON) In the current economic crisis, I'm afraid that the rush to cut jobs in an effort to cut expenses could actually have the unintended consequence of all workers losing their jobs.

We're no longer talking about the failure of just one company. We're facing the meltdown of an entire economy; and the time-honored mantra of the business world "to maximize profits for shareholders" just doesn't work anymore.

Who do these firms think is going to buy their product if everyone is cutting workers? Ours is a consumer-driven economy. If your company lays off a worker, my company loses a customer, and so on.

And, ironically, these days the workers a company lays off may also be among its share-holders.

Of course, a company facing bankruptcy or liquidation has little choice in how it manages its work force. But there are still many profitable companies who are invoking the tired principle of "shareholder value" to justify laying off workers. They say they must realign their internal resources in response to changes in supply and demand. That's the case at IBM. Consumers are no longer buying products requiring their semiconductors at the rate they did just a couple of years ago.

IBM will also have to figure out how to make use of the enormous Essex Junction plant that until recently employed more than 8,000 workers. This week's job cuts will reduce that number to around 5,000. That's still a hefty work force; but the layoffs are a major blow to the individuals involved as well as to the Vermont economy.

Here's a better solution. A company that finds it must cut expenses, for whatever reason, would do better for itself in the long run - and the economy in general - by keeping its workers and cutting the pay of everyone across the board. A 10 percent wage cut would be significant for most companies - and most workers would rather take a cut in pay than roll the dice on layoffs for themselves and their friends.

This tactic is anathema to capitalism and shouldn't be considered a long-term solution. It should be temporary. But intelligent people should be able to consider this option without fear of it becoming a permanent curse.

There would still be some practical problems. For instance, in many union contracts it's far easier to eliminate jobs than to trim pay. Governor Douglas is facing such a dilemma. He's proposed cutting 660 state jobs; but I think he was intentionally putting the ball squarely in the state employee union's court. I expect he would far rather trim pay than send all those registered voters to the unemployment lines - where he would then have to pay them unemployment benefits.

Finally, in some cases wage reduction might still not be enough. Health insurance and related costs and benefits are a millstone around the necks of many employers - private, public and nonprofit. But that's a discussion for another day, which is probably not too far off, either.
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