LAY-OFFS IN THE BLENDED ECONOMY

J P SINGH

INDIAN INSTITUTE OF MANAGEMENT, AHMEDABAD

JANUARY 2002
 Abstract
Recent reports suggest that the Government of India is favourably inclined to change
policy and enable establishments employing less than 1,000 workers to lay-off employees
and undertake retrenchments or closures without prior permission. Corporate lay-offs in
the U.S. indicate an ever-increasing trend and do not make a comforting reading. The
year 2001 for example, saw the highest number of job cuts in the Fortune 500 companies
than in any year ever since the survey of lay-offs were launched. Japan, despite its
tradition of high employee concern, seems also to be overwhelmed with this new trend at
least in the I.T. industry. In India, it appears that pressure is building up to similarly allow
this enabling facility to all corporations. Prima facie, it appears as if the business is moving
towards a state where manpower in an organisation is kept eternally in the transient state.
In the process not only ensuring short-term profits but also as a way out of the long-term
social security and welfare benefits obligations towards the employees.

The paper examines the impact of lay-off and suggests that while individual impact is
important in its own right, the research suggests that the effects of lay-offs go well-beyond
the physical, material and psychological state of the individual to the organisation,
community and the nation.

Literature review suggests that several alternatives to lay-offs are available and examples
of implementing these alternative solutions are available around the world. The literature
also negates the general view that the unions will not cooperate in finding solutions.
Example in industry clearly show that unions and workers are not only willing to cooperate
but even show new ways of coping with the business problems to avoid lay-offs. The
paper examines various reasons proffered in favour of lay-offs and argues that they are
not necessarily a good option for an enterprise faced with business fluctuations. The crux
of the issue is as to what is more important: the short-term gains in the stock market or the
longer term financial health and stability of an enterprise.

The paper suggests that a clear, agreed, rational policy that addresses concerns of
management, labour and the general society be developed to address the issue.
 LAY-OFFS IN THE BLENDED ECONOMY
J P SINGH

The Reports

A recent front page report in a financial newspaper expressed satisfaction that the Group
of Ministers on Labour Reforms has recommended that the establishments employing less
than 1000 workers will not need prior permission of the government before layoffs,
retrenchment or closure. It further goes on to say, "according to estimates, 95% of the
Indian enterprises will benefit from the proposed legislative change”. (ET, Jan 3, 2001).
The follow up editorial next day, while commending the change as “unexceptionable”,
questioned as to why the big employers should be denied the flexibility in staffing that
smaller ones would be afforded. The change is considered progressive since it is
accompanied by the promise of enhanced payment of 45 days for each year of service as
severance benefit from the earlier 15 days. One gets the feeling that the entire economic
health of the country hinges on this one change and that the business is waiting with
baited breath for the new regimen to be implemented. If so, one can look forward to a
series of business closures and a significant improvement in the bottom lines of other
companies in the quarter following the approval of the recommendation by the Cabinet
and its enactment, possibly through promulgation of an ordinance to obviate unnecessary
delays in democratic fora.

The Media Desk

Lay-offs landed on the Media desk in a big way in the aftermath of the WTC attack, with
several airlines announcing cut backs and lay-offs not only in the U.S. but also in Europe.
While downsizing by the U.S. airlines is understandable, even though implemented
hastily, it is inconceivable that some of the front ranking European airlines suddenly
discovered that they had no money to pay wages and salaries to their employees. A
situation of that kind builds up over a much longer period of time than a quarter. Thus the
suspicion persists that events have been exploited to hide other weaknesses. Mercifully,
no major lay-offs have been announced in the Indian Aviation, Hotel and Travel Agency
businesses, though some have been noted in select IT companies.

The American Count

Several statistics of Layoffs are available and do not make a comforting reading.

As per reports, the Fortune 500 companies collectively announced 1,040,466 job cuts in
2001. Journal of Business Strategy (April 2001) reported that U.S. corporations as a whole
also announced a record number of planned job cuts during the same period. According to
Challenger, Gray & Christmas, there were 142,208 lay-offs announced in January and
1,34,692 in December – the largest number in any month since the outplacement firm
launched it survey in 1993. The automotive sector led all industries, laying off 34,959
workers during the same period; telecommunication companies had 22,060 planned
layoffs; retailers announced 15,344 job cuts.

Home Textiles Today in September 2001 issue similarly highlighted the record layoffs in
the industry and its impact on U.S. business.

Brick-and-mortar businesses weren’t the only ones to suffer. Dot-com firms also
announced a record number of job cuts in January – 12,828. Since December 1999, the
firm has recorded 54,343 cuts from 610 dot-com companies. As per the report, while
early dot-com job cuts were announced by companies selling goods and services over the
Internet, firms that build and maintain the technological elements of the Internet, as well as
those providing professional services such as advertising and consulting are also now
being hit.

The Editorial of June issue of Journal of Business Strategy (2001) further highlighting the
point wrote that the layoffs announced in the first quarter of 2001 (406,806) were 187%
higher than the number announced in the first quarter of 2000 (141,853).

Ellen Florian (2001) focusing on layoffs in the United States during autumn 2001 in the
Fortune 500 companies noted that jobs have been cut by Sprint, United Technologies,
Corning, and BellSouth. Included in the tally: American Express hacked 6,500 employees;
Alcoa reduced its work force by 6,500; and Motorola eliminated 9,400 positions. This is
despite the earlier hope that the layoffs will slow down after the summer end.

The Japanese Scene

Economist of September 2001 focussing on the Japanese Electronics Industry wrote,

“Toshiba says that 19,000 jobs will go. Fujitsu is jettisoning 16,000 workers. NEC is
adding 4,000 jobs to the 15,000 it already plans to shed. Kyocera is cutting 10,000 and
Oki Electric 2,200. Hitachi, which has yet to break the bad news, may top them all with
cuts expected to total 20,000. The author states that were there any doubts about their
health, there can surely be none now: Japan’s lumbering electronics conglomerates are in
pain.

The Indian Scenario

In India while estimates of the pending and intended layoffs, as and when allowed in the
workers' ranks, are not available, informal check with the recruitment professionals
indicate that significant lay-offs are underway at junior officer/ managerial levels and
restricted layoffs at the middle and senior levels in select businesses. In IT, while
information about the major players is not known, layoffs among the medium size players
during the last year have varied between 40 to 200. Resultantly more people are staying
put. In any case going by the select media hype, the pressure is mounting to bestow this
enabling facility at all levels and all organisations.
Vaidyanathan (2001), based on the 1993-94 estimated total population of 895 million in
India, reports that 382 million persons were in the labour force and 8 million i.e., 2%+ of
the labour force were unemployed for greater part of the year. Of the employed, a little
over half the workers were self-employed or worked in family enterprises, about 15% had
a regular wage or salary and the rest, i.e., about one-third depended on casual wage
labour. Thus the issue of lay-offs basically pertains to the 15% of the regular wage
earners. Following the above statistics and assuming a base rate of approximately 42% of
the current population of 1 billion being in the labour force and 15% of that in the regular
wage earner category, we are dealing with a roughly 64 million of the current wage
earners as being targeted for lay-off “benefits”.

The Rationale

The reasons for layoffs can be many. But the most proffered reason is the fluctuations in
sales.

The other prominent reasons are:

∗ New Business Mortality

∗ Down-sizing of operations due major changes in the market.
∗ Change in technology and consequent reduced need for select categories of labour.
∗ Mergers and acquisition with associated reduction in managerial manpower.
∗ Shifting of businesses across globe.

A brief look at each one of these reasons is in order.

Fluctuations in Business

Fluctuations in business directly affect the bottomline and therefore make lay-offs a
desirable proposition. So to a management with its eyes glued to the share price in the
market, it is important that it be able to lay off employees as and when there is a slack in
the order book or for some reason the overall expenditure outstrips revenues.

Perhaps from a purely financial point of view, a 10 per cent job cut in any quarter will
automatically lower costs. While this may be arithmetically true, life often defies numbers.
Yet, and somewhat unfortunately, as the Japanese data show, more managements are
getting tempted to implement across the board job cuts by copying American corporate
culture, regardless of its efficacy as a solution.

It is also possible that perhaps there are other reasons hiding behind the facade of
fluctuations. Software is one industry where fluctuations in business are supposedly high.
Thus Sasken Communication Technologies in India first announced a 20% salary cut and
then a 100 Crore investment for expansion. It also talked of not ruling out lay-offs. So one
wonders as to what exactly was happening at Sasken.
In contrast, meltdown in the US economy has not affected Infosys Technologies. Instead,
it continues to plan recruitment and growth. It has also evolved a system of 'benching'
under which it rotates approximately a 15% of its 'techies' to be in training. But overall, if
Infosys Technologies has amongst the lowest attrition rate of 11%+, then the need for lay-
offs in the software industry is at best debatable. IT, of course, is not just the Data-entry
business, a simple jobbing operation that is prone to fluctuations, which will need to
examine a system with an eye on the order book.

Financial Services, another industry with high fluctuations in workflow, has tended to treat
lay-offs as a tool to keep its junior level employees eternally young and in the lower pay
scales. This is not new, as some industrial houses are known to have implemented a sort
of rolling plan for their Management and Executive Trainee Schemes. This is almost as if
the hourly wage concept is being modified to a 2-3 year period. So overall, one can
surmise, regardless of the new legislation, lay-offs for professional and executive position
will continue in some form.

New Business Mortality

In the U.S., and perhaps also in the other developed countries, the mortality rate of new
businesses is rather high, related as it is with the spirit of enterprise. The high mortality
rate is particularly true of small ventures and family businesses. While similar authentic
data in India is not available, high mortality of new enterprises seems to be the reason
behind the dot-com bubble burst. Notably, many of these dot-com companies were
individual driven single server based operations. The stable organisations in the I.T.
industry in India have not been badly affected, despite recession like conditions.

It is obvious that when a new company closes, its meager work force automatically goes.
In such a situation, one is not dealing with the issue of mass layoffs of manpower in a
company that has been doing business for decades. Generally no tears are shed in such
start-up efforts and particularly those that merely seem to join the bandwagon.

Down Sizing

Downsizing of operations basically refers to a reduction in the installed capacity due to a

slow down in the long-term demand for product. Ordinarily, overall demand for a product
grows naturally and slowly, related as it is to the growth of the economy and prosperity of
the people. It similarly slows down as a cycle of market need fulfillment or on replacement
with an improved product. Thus downsizing is essentially limited to cases where excess
capacity has been created over-estimating demand, or to pre-empt competition or avail of
easy credit. But in a country where the current consumption levels are low and in a
scenario where new markets are supposedly opening up, courtesy globalization, to build a
case for industry wide excess capacity is neither going to be easy nor, prima facie, a
rational strategy. Nevertheless, one cannot conceive of a blanket ruling out of downsizing
as an option and a management would need to examine the issue on merit. Thus, lay-offs
due to downsizing of capacity can be examined as one of the options in some situations.
The issue is whether it is the first or the last option.
Technology Change

Improvements in production and service delivery can often be accompanied by a reduced

need for labour. However, it is rare for an organisation to completely abandon its existing
technology and shift to new in one go. Thus the opportunity to gradually transform the
manpower skill base along with the technological change is certainly available. VRS can
certainly be explored in case of reduced need for manpower due to technology change
and for a sunset industry. Though other solution like re-training must also be explored.

Mergers and Acquisitions

One time when there is a definite promise of Lay-offs, particularly at the managerial levels
is the Mergers and Acquisitions. Mergers do not reduce capacity. Nor do they, add
capacity by the mere act of merger or acquisition. However, combined operations and
parallel facilities may require lesser supervision, beginning with the CEO down to the level
of a division and a department. Managerial lay-offs are often implemented without much
protest. In any case managerial layoffs do not appear to be a target of the proposed
legislative change.

Shifting Around of Businesses

One of the major reasons that the large corporations need easier lay-off opportunity is to
be able to shift businesses around the globe. Thus, Lucent opened a software facility in
India while announcing 10,000 lay-offs in the rest of the organisation. SGI similarly
announced major growth and recruitment plans in India while undertaking lay-offs in the
parent company. The world has seen shifting around of the bulk of the batteries
manufacturing and ample parts of the Chemicals and Dyes manufacturing to locations in
the developing countries while closing it at home in the developed countries. Though
implemented as having become too expensive to produce at home, nevertheless, they
also represent an attempt to avoid facing tougher pollution control norms. Whether it is
also a part of the national strategy for some to shift polluting industries to less developed
countries to be followed up with sale of pollution control technology will need to be probed.
If so, such shifting of businesses around the globe becomes one more contributor to the
global instability, particularly for the economies that are already vulnerable due to huge
debts and internal weaknesses.

The Emotional Content

Layoffs are an emotional issue and not only in India. One can not forget the 100,000 plus
workers that rallied in Bombay against the Finance Minister's announcement during his
2001 Budget speech to make it easier for units to close down and lay-off employees. Shiv
Sena even talked of the Civil War if this policy was implemented. Elsewhere in the US,
Jack Welch has never been able to live down his shifting of hundreds of thousands of jobs
to Eastern Europe, despite his otherwise illustrious career.
The Impact

The impact of layoffs is generally seen only in terms of its effect on the individual.

For example, as a result of all these layoffs, as per reports, increasing number of high
income group individuals in the U.S. have been forced to file for bankruptcy (Simon Ruth,
2001). Examples include William Oakes, former vice president for Sybase Inc. following a
layoff and his inability to find work. He also refers to James Brady (Dec 2001) similarly
presenting brief reports about the advertising and media industry in the US. He discusses
about high-profile lay-offs of Judy Glassman, formerly of Conde Nast Publications, as
'Premiere' magazine's executive director of marketing and creative services; former Cable
News Network (CNN) producer Laura Rowley and other individuals, including Bunny
Fensterheim, Keith Sherman, Diana Newman, Alan Katz, and Ken Kurson. Such high
profile lay-offs may affect the celebrity status of an individual; they do not necessarily
heighten insecurity. But in the economy that promotes the principle of “buy now, earn
later” particularly for the low and middle income groups, the extent of tension due to the
uncertainties associated with possible layoffs must be pretty high in the American society.

While the media attends to the high profile lay-offs, the impact is generally uneven on a
given work force. Iversen et al. (2000) Applying event history analysis to data from a
sample of 415 hospital employees over a five year period, found that older, full-time
employees, who were less absent, and had an acceptable workload, but responded
negatively to amalgamation were more likely to be downsized. By contrast, employees
who were younger, white-collar, and predisposed to the amalgamation were more likely to
resign. Overall, the five categories of variables, age, blue-collar, co-worker support, full-
time, amalgamation, and work overload distinguished between the two forms of turnover.

Other studies have similarly addressed other significant aspects.

Bennet and Martin (1995) reports the results of a longitudinal study of lay-off victims and
how they cope with job loss. ASQ (1987) similarly reported a study which examined the
effects of lay-offs on the retained individuals of an organization. Of particular note is the
issue of the 'Anger of the survivor'. With globalization a new dimension of the immigration
related consequences of layoff (Topolesci 2001) has been added. With the new economy
employing a large number of foreign nationals, laying off of alien workers has added woes
of alternate job search within a stipulated short time before being unceremoniously sent
home. Parker (1974) focussing on temporary employment industry highlighted as to why
the temporary workers have become a permanent fixture in the U.S.

Thus the impact of lay-offs is not limited to mere physical, material and psychological
states of the individual but goes way beyond to the larger economic outcome and work
place controls that aim to keep manpower eternally in a transient state. If that be the goal,
then business and governments must develop alternative social security and long term
employee welfare schemes under which a worker accumulates these benefits for every
hour of work rendered to whichever employer, for encashment in future.
The Costs and Benefits

Corporate managements tend to forget that layoffs hurt long term recovery (Zimmerman,
2001) apart from the Institutional Memory Loss (Omateseye, 2001). This is
notwithstanding the implementation of Decision Support Systems as there will always be
residual memory that stays with the human and gives rise to intuitive judgement.

Barbara Wiens–Tuers (2000) conducted an empirical analysis of the relationship between

employee attachment and the types of employment arrangement in an attempt to study
the long-term costs of lay-offs. She assessed the commitment of an establishment to its
core employees in terms of the length to which it will go to avoid layoffs. Three categories
of employment studied were:

a. The Direct Employment Arrangement as those arrangements in which employees

perform work for the firm or employer that hired them.
b. Intermediated Employment Arrangements as those arrangements in which employees
of companies like Temporary Help Services or Leasing Companies who perform their
services for a third party or business.
c. Indirect or Non-Intermediated Employment Arrangements like employment with
contractors, sub-contractors and consultants who are lured for specific jobs or projects
on non-permanent basis.

Based on the results the author concluded that employment uncertainty is contributing to
the “growing instability in income, status and economic security” within the United States.

Conlin (2001) summarizes the costs and benefits of lay-offs as under:

• Severance and rehiring costs

• Potential lawsuits from aggrieved workers
• Loss of institutional memory and trust in management
• Lack of staffers when the economy rebounds
• Survivors who are risk-averse, paranoid, or politically active

Benefits to the companies that avoid lay-offs are:

• A fiercely loyal, more productive workforce

• Higher customer satisfaction
• Readiness to snap back with the economy
• A recruiting edge
• Workers who aren’t afraid to innovate, knowing their jobs are safe

Overall perhaps the perceived benefits of layoffs do not necessarity match up to the costs
incurred at the levels of the individual, an enterprise and the general economy of a
community or a nation.
The Alternative

While it is more or less taken for granted that layoffs are the only way to deal with
fluctuation in business and dips in the economy, it may be worthwhile to look at the
alternative routes tried by some corporations.

In the early 1990s when Japan was just beginning to feel the impact of its post-bubble
recession and Ricoh suffered its first-ever operating loss, its chairman Hamada Hiroshi
laid down the law that every possible restructuring option would be pursued "except laying
off workers." That sort of regard for employees has been a traditional Japanese corporate
philosophy pioneered by Konosuke Matsushita. Interestingly, Himada Hiroshi's actiona
came at a time when it had been assumed that Japanese companies should follow an
American model that traded layoffs for efficiency. Instead, all that Ricoh did was to
encourage the bottom-up suggestions for change. It also made investments of more than
$100 million on technology infrastructure and software. Ricoh is now reported to be in the
run of its sixth consecutive year of record sales, and seventh straight year of record
profits. Contrast this with its closest competitor, Xerox Corp. which has lately been
rumored to be near bankruptcy.

The American Way

In case one is tempted to think that it is only the Japanese who can follow an alternate
route, here are some examples from the US corporate world. Witness the examples
provided by Philip Hyde (1998) on The Timesizing Wire™. As per Hyde:

Nucor Corp. of Charlotte, N.C., a rustbelt company and the nation's No. 3 most profitable
steel producer continues to be strongly committed to not laying off any workers even when
the business is down. During the past 20 years, it has not laid off a single worker due to
lack of work. Creating a sort of example of an ultimate flexible company, Nucor varies
between a 3-day and $8/hour wage workweek, to as much as a 7-day workweek and a
$22/hour wage, depending on the availability of contracts.

Lincoln Electric of East Cleveland, Ohio, also a rustbelt company with 2700 employees,
instituted a lifetime guarantee of employment in 1959, later extended it to the entire
company after 8 years of testing. Lincoln has a 3-year mutual approval period before they
give a new employee their lifetime employment, a bit of an improvement over the U.S.
academic environment where tenure is granted generally after at least a five-year
association. Lincoln follows the principle that everyone sacrifices together, starting at the
top and couples it with job reassignment and cooperation between workers and
management. Lincoln has no unions. Incidently, Lincoln employees have the highest
productivity and morale and the most pay of any rust-belt employees in the world.

Around the World

As one can easily surmise, similar examples are available around the world.
Swann-Morton surgical blades in Sheffield, UK, is a small British company that had its last
layoffs in the 1940s "but most eventually got their jobs back."

Volkswagen, Wolfsburg, Germany - Early in 1994, to avoid 30,000 layoffs in their

headquarters town, reduced the company workweek from the 35 (five 7-hr days) to the
28.8-hour level (four 7.2-hr days) and pay to the 32.5-hour level.

In Sao Paulo, Brazil - in Dec/98, Volkswagen's 20,000-worker Ancieta factory saved jobs
despite the 25% collapse of Brazil's car market by cutting hours and pay to the level of a
four-day week.

The Unions

"Unions will never go along with it" is a refrain one can hear even before asking. Witness:

At Brockton Hospital, Brockton, Mass., nurses OKed an hours cut to save jobs rather than
the lay-off of 86 nurses. The agreement also gave supervisors the ability to adjust staffing
levels to meet daily patient volume.

American Optical, St. Louis, Missouri, at the initiative of the union, implemented a 10%
workweek cut instead of a 10% workforce cut. Everybody took a small hit but everybody
kept his or her job. And some if not all appreciated the new 36-hour workweek anyway.

Local 76 - Communications, Energy and Paperworkers Union, Powell River, B.C., Canada
saved jobs by reducing overtime and by moving from 42 to 40 hours for shift workers. As a
result, all of the 89 workers who were laid off returned to work. Additionally, other
announced lay-offs were cancelled and further cut backs were absorbed without further
lay-offs. The overtime dropped from 7% to 1% and stayed there. In December 1998, shift
workers moved from 42 to 40 hours a week. Being the only CEP local in B.C. where all the
shift workers are on 40 hours, it resulted in 22 new positions at the mill.

Disneyland Paris, entertainment theme park reports: "...Four of the seven unions agreed
to reduce their hours from 39 to 35, part of a government plan to cut the nation's high
jobless rate. Instead, Park management said the shorter workweek will create 600 new
jobs by May 2000. The law, passed last May by the Socialist government of Prime
Minister Lionel Jospin, calls for businesses with more than 20 employees to institute the
35-hour workweek. Smaller companies have two more years to comply. Disneyland will
benefit from tax cuts and other incentives offered to businesses that act before the
deadline."

In Finland the commonest way of the companies to maintain employment is to shorten

working hours or reorganise them. Working arrangements consisting of part-time work and
short-term employment contracts are very common among women and young persons
who are entering working life. In some cases the companies have given up the system for
reducing working hours, known as Pekkanen days, as well as the holiday compensations.
The measures have not included the lowering of nominal wages because the above
measures have brought enough flexibility to the system.

The Early Emergence

Historically, Kellogg's of breakfast cereals, has for over 50 years offered a 30-hour
workweek option since they started operations in 1930 in Battle Creek, Mich., to provide
jobs for the heads of 300 families in their headquarters town.

At Ford Motor Co., in April 1931, 32% employees were on the full 5-day week; 18% on
four days; and 50% on the 3-day week. Incidentally, most of the Detroit car companies
have used Timesizing instead of downsizing in every recession since cars were invented,
to retain their skill set.

The idea of shorter workweek to cope with the reduced work is not new. In 1964, labor
leader Walter Reuther advocated the concept of "fluctuating adjustment of the workweek"
at the United Auto Workers convention in Atlantic City. In the 1970s, an All Unions
Committee to Shorten the Workweek was set up with headquarter in Chicago. In 1993 the
central organisations reached an agreement on improving employability of young people.
This agreement is the most comprehensive agreement on employment. The negotiating
parties agreed on new regulations concerning the salaries of young persons on a sector-
specific basis. Thus, to sum up, to a management willing to work towards a stable
operation, unions and workers are willing to not only cooperate but even show a way.

Nor is Timesizing the only option. Several other modes are available to a management
wanting to give alternatives a fair trial. These include:

a) Reassignment, Rotation and Retraining

b) Workflow Reforms
c) Universal pay cuts
d) Longer time incubation/probation period
e) Longer tenure of contract that does not make permanent employment mandatory.
f) Time sizing and shorter, flexible workweek.
g) A mutually agreed flexible wage structure.

The Sin

Sometimes a view is presented that there is a deep-rooted Indian aversion to sacking

people, as if it was a sin. One would be willing to give it some credence if one did not
know of the examples of withdrawal of work to put psychological pressure to quit, even in
the organized sector, and both at the managerial and the worker levels. In addition, many
small and medium size organisations are known to obtain an undated resignation letter on
the day of joining. Several others are known to build a case file before sacking. A
particularly sad case was the humiliating pressure at the aggregate level, wherein the
surplus clerical/support staff was put in a room, as if in a concentration camp, for 'display'
to visitors, thus defying the theory of sin.
One thing is clear. The Indian private sector is not waiting for this legislative change to
bring about improved efficiency through reduction in manpower. This is notwithstanding
the general moral responsibility towards the employees that increases with the longevity of
the association. The enhanced competition in the new liberal environment is sufficient to
force managements to re-examine their operations through means currently available.

Perhaps a quick check on the number of pending cases with the labour commissioners
around the country will show as to how many organisations are waiting for the change. A
systematic survey will similarly reveal the extent of the problem in the organized sector,
both large and small and in the private, public and the international segments.

Thus, one needs to ask for whose benefit is the bubble for layoffs being built.

The Bubble

The one segment where the layoffs are difficult to implement and will continue to be
difficult is the Public Enterprises, both central and state owned. This is regardless of the
new proposed enactment. These organisations, enduring under the political management
of their operations, by and large, carry forward losses without necessarily addressing the
issue of productivity improvement. Herein, only VRS is seen as a viable though not
necessarily a suitable solution. Other options are not even considered. Will layoffs be
accepted as a better solution in place of VRS needs to be checked with the affected
parties and their representatives?

While the need to restore operational autonomy and freedom from political interference for
these enterprises is “unexceptionable”, there is a lesson to be learnt from the Public
Enterprise management in India. This is the need to exercise restraint in recruitment at a
time of high profits including under monopolistic conditions. This is often ignored because
of the high pressures to 'give' employment without necessarily creating work or adding
capacity.

An Agreed Policy

Across the board job cut can not be a solution to improve the year-end bottom line. One
needs to look at the longer-term financial health of an enterprise.

Business of course, tends to smell opportunity in all situations. Thus the Head-Hunter
organisations are already in fray promising new job referrals and a lobby is developing to
help insurance industry with a plea that state should subsidize Lay-off Insurance.

In the new blended economy, thus one needs to address the issue rationally addressing
all concerns of the Management, Labour and the General Society. Hopefully, the second
National Commission report will be a good beginning in this regard. One change however,
which perhaps is long overdue is the substitution of the Labour Commissioner's
permission for layoffs, (for which also no known clear guidelines are available), with a
clear policy. One way to address the issue at the macro level is to bring Industry, labour
and other interest representatives together for evolution of a new policy. At the micro level
of a unit, it would mean involving workers and unions in the problem solving exercise. If
legislation can make such an exercise a mandatory first step before lay-offs, if only to
encourage shop-floor participation, it will be welcome.

The Grand Distinction

Since the layoff spectacle started with airlines, let us re-look at the alternative airlines
scenario. Michelle Conlin, writing in Business Week (2001) records that the Southwest
Airlines Company, has never in its 30 years history downsized a single employee despite
jet fuel spikes, recessions, even the Gulf War.

Even in the days after the WTC attack, while competitors announced job cuts of 20% and
more, Southwest executives met in the emergency command center at their Dallas
headquarters, planning to cut costs. Growth strategies were scotched. New plane
deliveries were delayed. The renovations at the headquarters were scrapped. But layoffs
never had to be considered. Said CEO James F. Parker: “We are willing to suffer some
damage, even to our stock price, to protect the jobs of our people.” To the Southwest, it’s
not altruism at work. They understand that maintaining ranks even in terrible times breeds
fierce loyalty, higher productivity, and the innovation needed to enable them to snap back
once the economy recovers. In the blended economy, that perhaps is the crux of the
matter: layoffs propelled by stock market conditions for short term gains versus
organisational stability with an eye on the longer-term financial health of an enterprise and
economic responsiveness to the society.

The Grand Slice

At home in Kolkata there is a grand Eastern property which, though eyed severally and
covetously, has never been sold. The primary hindrance is considered to be the existing
aging manpower. Perhaps with the Group of Ministers’ recommendation, it will now be
easy to dispose off this estate. As will be the disinvestment of other Public Enterprises,
some of them to be stripped of their liabilities for transformation into BIFR assets. After all
this is also a form of altruism.
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