Categories

A sample text widget

Etiam pulvinar consectetur dolor sed malesuada. Ut convallis euismod dolor nec pretium. Nunc ut tristique massa.

Nam sodales mi vitae dolor ullamcorper et vulputate enim accumsan. Morbi orci magna, tincidunt vitae molestie nec, molestie at mi. Nulla nulla lorem, suscipit in posuere in, interdum non magna.

Cost-cutting

An entirely hypothetical situation I am thinking about raises the following parable.

A firm employs someone who earns $100,000 per year and he/she produces each year in revenues $400,000 – the value of their marginal product. There are no other significant variable costs. In the face of cost pressures the firm sacks him/her to save the $100,000.   The assumption is that the firm will replace him/her with someone cheaper or more productive in terms of generating revenue or that the firm can lump his/her duties on the back of other people employed without reducing overall productivity.

I cannot fault the reasoning here.  Its along the line that improvements are always possible.   The key word here is possible. If the employee being sacked is productive, hard-working and performing well relative to others in his/her occupation it would seem to be a risky move. Indeed for the economics to work out  there must be some inefficiency within the organisation.  Sacking the worker seems particularly risky if there are many other similar workers in the firm doing analogous work who are not making surpluses at all. It is certainly a highly risky move if you make the sacking without considering issues of productivity, work-effort and if the estimates of possible cost-impacts are total codswallop.  In this latter event the firm will end making flawed decisions that conflict with its own objectives. If they knew the information they were using was nonsense they would also be behaving in an unjust, dishonest way.

Analogous issues arose many year’s ago when Jeff Kennett announced big cuts to Melbourne’s train services and to maintenance spending on trains because of losses the service was incurring.  I was working at the University of Melbourne at the time and making the return journey each day from Melbourne Central to Ivanhoe by train.  My intention was to avoid buying a second car for the family.  The trains at that time were chronically late, links with trams and buses were poor and there was no Myki ticketing system.  Finally I gave up use of trains in exasperation and bought a second car.  It always occurred to me that Kennett might have thought of improving the maintenance services for the trains rather than cutting it.

I also recall the adventures of “Chainsaw Dunlop” who was a cost-cutter of renown in private enterprise.  He slashed staff for large corporations which improved the corporate bottom-line for a year or so but eventually lead to dismal economic performance and bankruptcy for the Sunbeam Corporation. Dunlop was a psychopath who also engaged in accounting fraud.  He was employed by Kerry Packer for a while and “educated” James Packer. What an education!

In the entirely hypothetical situation I am thinking of none of those making sacking decisions would have the business nous of Kerry or James Packer.  If it was true that they were sacking productive workers on the basis of false claims regarding performance then – even if many of them were involved – they would be committing an act of gross immorality for “many hands” reasons.  They would not merely be “cogs in a wheel” playing a minor part in an evil act but, through their collaboration, participating in an act of gross injustice and stupidity.

Comments are closed.