The news this morning is that more people lost their jobs in February than in any month since 1949. Which makes 4.4 million since December 2007. Staggering numbers. We’re on our way to ten percent unemployment.
But why? Aren’t these the very people that companies need to buy their products and use their services? Without a job they’re not likely to be consuming much of anything.
Companies that are choosing lay-offs over salary reductions - and it is a choice - are only looking at one side of the problem. Cutting costs. They’re hoping someone else figures out how to encourage people to spend.
I was in a meeting yesterday in which we heard that a highly paid employee had been told he was being let go last week. He asked if he could take a thirty percent pay cut instead. The company instantly agreed.
I’m sure he and his family are spending less than they were. But they are still spending. And more than if he had lost his job entirely. Which doesn’t take into account the fact that he’s not depleting his investment funds to pay for his lifestyle, or putting his house on the market. That’s a model that will create a natural bottom to all this built on real value.
If every company faced with the need to cut overhead had looked at the problem holistically, the answer would have been pretty clear. Companywide salary cuts give you: better cost saving results faster; more ability to keep your customers happy; a belief among your staff that you’re trying to protect them; a shared willingness to innovate and take responsibility for finding answers and flexibility if things get worse or improve. It also keeps the economy moving forward, albeit at a slower pace.
As a species, we do best when we’re moving forward. And generally we’re pretty good at being able to keep one eye on where we’re going while navigating the broken pavement along the way.
Running a business is the same thing. But if you’re only worrying about avoiding the broken pavement, who knows where you’ll end up?
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