Yes, Layoffs Are Bad (If only we could prevent it)

National Review ^ | 12/13/2011 | Josh Barro

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In his “Theodore Roosevelt” speech in Osawatomie, Kan., President Obama heaped praise on a Minnesota company, Marvin Windows and Doors, for its worker-friendly policies. Marvin weathered a recession that battered the construction industry without laying off any of its workers. As he noted (emphasis added):

I think about a company based in Warroad, Minnesota. It’s called Marvin Windows and Doors. During the recession, Marvin’s competitors closed dozens of plants, let hundreds of workers go. But Marvin’s did not lay off a single one of their 4,000 or so employees — not one. In fact, they’ve only laid off workers once in over a hundred years. Mr. Marvin’s grandfather even kept his eight employees during the Great Depression.

Now, at Marvin’s when times get tough, the workers agree to give up some perks and some pay, and so do the owners.

The president is right: When times are tough and the amount that companies can spend on labor declines, it is usually better for the economy as a whole if that pain is spread across all workers in the form of compensation cutbacks than placed on a few in the form of layoffs. Obama has put his money where his mouth is on this, too. One money-saving measure in his Fiscal Year 2011 budget was a freeze on federal workers’ wages — something many states and localities are unable to do because they are bound by collective bargaining.

But let’s take a closer look at the Marvin model that Obama is praising. The president noted that Marvin’s workers “agree[d] to give up some perks and some pay,” but there wasn’t really an agreement — the workers’ options were to take the pay cut or quit. As one incensed FireDogLake contributor notes, Obama is praising a non-union company for unilaterally cutting its workers’ pay.

And the cutbacks to compensation were substantial. As the New York Times wrote in September:

Salaries were cut by 5 percent. Hourly workers were pulled back to 32 hours a week. While 32-hour weeks weren’t uncommon during slow winters, this time the hours were reduced indefinitely. Raises were suspended, too.

In addition, Marvin stopped paying tuition reimbursement and financing a program that brought professors to Warroad to teach classes. Employees could no longer cash in vacation days they didn’t use. Pizza parties and award ceremonies were nixed.

Employees were encouraged to take unpaid leave, and many did. Through attrition, Marvin pared its work force back to about 4,300 from a peak of over 5,000.

While all of that is painful, the avoidance of layoffs is a major offsetting advantage. But this model works only where compensation is not collectively bargained. Marvin’s non-union workers don’t engage in collective bargaining, and neither do federal employees (for wages and benefits), so it was possible to force concessions on them.

Many state and local workers can use the collective-bargaining process to block wage and benefit concessions. Layoffs, which fall on a junior subset of workers, are more appealing than wage concessions to longstanding employees who know their jobs are safe — meaning that unions are not as afraid of layoffs as you might expect.

You can compare the austerity at Marvin to the often smaller givebacks that unionized public employees around the country have balked at. In 2010, when Gov. Chris Christie’s fight with the New Jersey Education Association was at its peak, his request was that teachers should take a one-year freeze on base pay — annual increases had been running at 4 percent for the previous several years — and contribute 1.5 percent of salary to pay for health benefits, up from zero in most districts. Concessions of this magnitude would have eliminated the need for any teacher layoffs due to cuts to state education aid.

Christie got agreement on those concessions almost nowhere — unlike the Marvin workers, New Jersey teachers were able to say no, and they did. Layoffs ensued. Christie did eventually get higher teacher contributions toward health insurance, but only because the legislature passed a law to remove that matter from collective bargaining.

Liberals often point out that public employment has been declining in 2010 and 2011, partly offsetting job growth in the private sector. They bemoan budget cuts that lead to shrinking headcounts. But then they — including President Obama — defend a public-sector collective-bargaining regime that takes non-layoff savings options off the table. If liberals really want state and local governments to be able to maintain their headcounts, they should push to end collective bargaining for public employees, not to strengthen it.

— Josh Barro is the Walter B. Wriston Fellow at the Manhattan Institute. His research is focused on state and local fiscal policy.

[Myrddin]

There are European countries where you can't effectively layoff or fire people. As an employer, you are required to continue paying them even if you don't need or want them. When an employer understands the consequences, they are averse to hiring. It's a stupid concept that should never happen on the soil of the USA.