Thursday, February 11, 2010

Lay Off the Layoffs

Time Magazine article "Lay Off the Layoffs" (February 5th, 2010) concludes that Southwest's decision not enact mass layoffs post September 11th was a cause of their success, comparing them against their rivals that did lay off employees. Not only is Time weakly using a single example, but it's missing a more obvious answer: firms that lay off employees are less healthy.

On Sept. 12, 2001, there were no commercial flights in the United States. It was uncertain when airlines would be permitted to start flying again—or how many customers would be on them. Airlines faced not only the tragedy of 9/11 but the fact that economy was entering a recession. So almost immediately, all the U.S. airlines, save one, did what so many U.S. corporations are particularly skilled at doing: they began announcing tens of thousands of layoffs. Today the one airline that didn't cut staff, Southwest, still has never had an involuntary layoff in its almost 40-year history. It's now the largest domestic U.S. airline and has a market capitalization bigger than all its domestic competitors combined. As its former head of human resources once told me: "If people are your most important assets, why would you get rid of them?"

It's an attitude that's all too rare in executive suites these days.

Corrections suggests that organizational/firm-specific capital or search costs can certainly be a reason for labor-hoarding. However, concluding that firms should not lay workers off because firms that don't lay off workers are successful is like concluding that firms that don't declare bankruptcy are the most successful firms--therefore they shouldn't declare bankruptcy. The rest of the article provides nothing but economic sound and fury, signifying nothing.

1 comment:

  1. Absolutely correct. The airlines laying off staff are doing so because they are failing. Retaining those staff would merely accelerate their time to bankruptcy. The economic illiteracy of Time in making this absurd argument is breath-taking. Perhaps that illiteracy was the reason they did not focus in on the much more interesting question of how it was that the Southwest business model, management team and workforce are succeeding while the other airline models, management and workforces are failing.