Wednesday, May 06, 2009

Keep your job in a downturn

Tyler Cowen offers advice for keeping your job during a downturn.

You might first think of the approach that many people use at annual review time: Ask your boss for a meeting in which you quantify all your fabulous accomplishments over the past year. But that isn't likely to have much effect right now, in part because very few people's bottom-line results have been particularly fabulous lately.

Praising your boss's new suit/PowerPoint presentation/visionary ideas is fine, but it probably isn't going to stop the ax either. In a downturn you need to speak the language that matters most: dollars and cents.

Employers looking to cut personnel costs can either lay people off or lower their wages. Though there are exceptions, employers are generally more willing to do the former.

Truman Bewley, a professor of economics at Yale University, has shown that's because they fear low worker morale and even sabotage. Basically, they don't want unhappy people around who may cause trouble.

So if your job really is in danger (and you'd rather have less money than no money) you need to address that fear head-on. Let the big guy know you're willing to work, contentedly and productively, at a lower wage than you currently receive.

I'd rather have the firm not lower everyone's wages, but rather layoff those workers under performing or shirking. In my opinion the firm is much better off cutting the weakest links. Lowering wages wouldn't be optimal for a working environment of the firm, employees wouldn't work as hard.
Involuntarily lowering workers' wages (CEO and other high-level executives are exceptions) is probably a risky move. As the post says, it might decrease the workers' morale, and thus lowering productivity. But, more importantly, even the productivity is somewhat at the same level, the value of the firm will plunge as investors will assume that productivity is lower. I think it is clear what will happen to the firm if investors' confidence die off.

Exceptions of this case might be the lower pay for CEOs and high-level executives. The most famous example is Lee Iacocca, who took a $1 salary. But his action was voluntary and it showed the public that he believed that Chrysler could be profitable.
From the perspective of an individual worker, I would prefer to take a lower wage over being laid off. If the cause of the firm cutting costs through either lowering wages or laying people off is due to an economic downturn and not due to my own failures as an employee, I would prefer take a decrease in my income over having none at all. As long as I'm still working at the firm, wages would most likely increase once the economy improves (assuming that the firm survives the ordeal). At the same time, I could take advantage of this time to search for a replacement jobs while still possessing a source of income.
'Desperate times call for desperate measures.' In hard times, sometimes the first thing you have to trim back is pride, and that is exactly what is being discussed here. I disagree that lowering a workers wages (with the caveat the he or she volunteered it instead of being fired) absolutely leads to them worker not working as hard because the other option is unemployment, and going from making decent money to making no money is a pretty good incentive. However, there are exceptions and rules that would have to be followed in order to preserve worker morale and increase efficiency even in an unideal scenario: 1. everyone's wages would have to be lowered uniformly so no one would feel unwanted, which would hurt morale and lower overall efficiency
2. offer performance-based incentives to workers even after lowering their wages to ensure that will continue to work as hard or harder than previously. In this way you could both decrease operating costs and improve efficiency.
Since times are tough right now this has been going on with some of my friends who have graduated recently. A couple of my friends have had their wages lowered but have still been working hard trying to make themselves valuable to the company so they have a job. I have a few friends who were just laid off. I believe right now people feel fortunate to have jobs and are willing to take a lower wage because of the tough times. But if when you cut the wage and you see a decrease in productivity I don't believe you would have choice besides laying them off. So maybe it would be better for firms to cut out certain employees and keep wages were they are at for the other workers who may take the firings as a sign that they need to work harder.
Post a Comment

Subscribe to Post Comments [Atom]

<< Home

This page is powered by Blogger. Isn't yours?

Subscribe to Posts [Atom]