When Layoffs Are Immoral

[OhioChick]

May 26, 2009, 7:04 am

The Issue
In mid-May, British Global Services announced 15,000 job cuts, while Japan’s Sony continued cutting 16,000 jobs. Here in the U.S., 5.7 million jobs have been lost since the recession began in December 2007. To cite one example, Caterpillar, the heavy equipment manufacturer, is moving to lay off more than 20,000 workers. These days such mass layoffs are sadly unsurprising, but are they ethical?

The Argument
They are not, at least until more benign tactics have been exhausted. Caterpillar may not simply pile a bunch of unwanted workers into a van, drive across town, drop them on the doorstep of a flourishing company, ring the doorbell and run away. (All right: these days there are no flourishing companies, but wouldn’t it be lovely if there were?)

To deprive thousands of people of their livelihood can have a catastrophic effect on them, their families and their communities. For a company to get through a recession, suffering may be unavoidable, but ethical management means minimizing that hardship, spreading the pain equitably and bearing some responsibility for its consequences.

Although the law limits the duties employers have to employees, ethics sets a different standard. Caterpillar’s workers have existed for years — sometimes generations — in profound dependence on the company. (No work, no food.) In accepting and profiting from this relationship, Caterpillar (i.e., its stockholders) incurs moral obligations to those workers. In hard times, it may not simply say: find another job. There are no other jobs, or surely not enough of them.

Mass layoffs relegate people to the status of disposable objects. A company can mothball its welding robots (although I hear the new models can wake themselves up and contact some kind of killer robots of the future who will travel back in time and terminate us all). But people are not machines. Many ethical systems mandate that you do not treat a person like a thing. You must regard other people as full human beings with the same moral rights as you. And that must include the right to make a living.

This is not to assert that Caterpillar can never downsize. Companies must be able to shrink as well as grow, to adjust to changing circumstances. (A restaurant with fewer customers needs fewer waiters.) But prudent staffing must be part of an ongoing strategy, not a panicky response to an economic downturn.

It’s easy to say that some must perish so others can survive, if you are sure to be among the survivors. (It is worth noting that Jim Owens, Caterpillar’s chief executive officer, the person ultimately responsible for these layoffs, made $9.77 million last fiscal year. His total compensation over the past five years is $25.89 million. That’s some comfy survival.)

Before adopting the ethics of the overcrowded lifeboat, before tossing thousands of non-millionaires over the side, gentler — and more equitable — methods must be tried. Everyone’s hours might be reduced, diffusing the pain. Dividends to stockholders can be eliminated. Pay cuts can be instituted company-wide, with the deepest reserved for the highest paid (that is, those most able to endure them). To its credit, Caterpillar has done some of this, trimming some executive pay by up to 50 percent, less for other management and support staff, and offering buyouts to some employees.

(Caterpillar is also to be commended for posting cool videos of its construction gear in action, like this backhoe loader and these wheel excavators. Even more amazing video can be found here, of another sort of caterpillar, the Hickory Horned Devil. It is a wonder of nature, nearly as wondrous as the expression on the face of Motorola’s co-C.E.O. Sanjay Jha. His compensation in 2008? $104 million. In late April, Motorola announced plans to lay off 7,500 people.)

It’s no defense of mass layoffs to argue that the worst effects will be mitigated by the social safety net. Indeed, “safety net” is a misleading analogy, one that evokes individual failure — a tumbling tightrope walker — rather than events over which no single worker, however good her balance (or spangly her costume), has much control. What’s more, that net is badly frayed, particularly when compared to programs in other advanced industrial democracies, where extended unemployment pay, for example, means laid-off workers can still shop in local stores, keeping the store’s staff on the job and buffering the effects of nationwide downturns. Benefits vary, but most European countries provide 60 percent to 80 percent of a worker’s lost salary — the average is just over 50 percent in the U.S. — and most ensure that workers and their families preserve their health benefits if they lose their jobs. Even with more generous benefits, mass layoffs would still be a slapdash response to a changing economy, jolting to companies and bruising to workers, their families and their communities. When a C.E.O. is earning tens of millions a year, we can ask for more sophisticated — and humane — management.

If Caterpillar is to relegate legions of employees to the care of the public, it may not simply echo Ebenezer Scrooge: “Are there no prisons? Are there no workhouses? Is there no COBRA?” Instead, it must use its considerable political clout to ensure that those programs are robustly funded, hardly a priority either for Caterpillar or its confreres among the Fortune 500. That is, if Caterpillar is to deprive thousands of people of a livelihood, it must either provide for their basic needs or see that the public can do so. To do neither is to dodge a moral obligation.

http://ethicist.blogs.nytimes.com/2009/05/26/when-layoffs-are-immoral/?hp

Comment section follows.

[OhioChick]

1. An Update on Mass Layoffs

May 27, 2009, 10:21 am

Some comments to yesterday’s post on mass layoffs deny that corporations (or owners and managers) have any ethical duties — No. 23 because such an idea is “socialist,” No. 25 because ethics has no place in a “business argument.” But we denounce child labor not just as a legal but also a moral offense. We condemn racist and sexist hiring policies both legally and ethically. We regard a chemical company as having an ethical as well as a legal duty not to poison a town’s drinking water. Mass layoffs are another sort of harm a company inflicts on individual employees, their families and their communities — and hence similarly susceptible to ethical consideration.

A few readers, with amiable cynicism — or is it genial realism? — assert that it is nonsensical to expect a company to do more than simply adhere to the law. I agree. That’s why unethical conduct, like the aforementioned acts and like mass layoffs (absent adequate public programs), should be restrained by law. And because such laws would apply to all corporations, we wouldn’t have to worry about the objection raised in comment No. 66, a claim that Caterpillar and every other company that behaves ethically is at a disadvantage relative to its competitors.

Other comments (Nos. 17 and 28, for example) argue that because individual employees are free to find better jobs, companies are free to institute mass layoffs. This falsely assumes that the power balance between the two is equal, that a solitary employee has the clout of Caterpillar. Not so. What’s more, the harm any decamping Caterpillar employee does to the company is negligible; the harm Caterpillar does through mass layoffs is profound.

Comment No. 31 is one of several to assert that companies have other obligations — to stockholders, for instance. Quite so. But increasing stockholders’ profits does not trump all other duties; it is one of many. Profits could no doubt be increased if companies could stop paying wages altogether or ignore workplace safety or shoot the management of rival firms. But ethics frowns on such tactics.

http://ethicist.blogs.nytimes.com/2009/05/27/an-update-on-mass-layoffs/

[Shireling]

2. It is a shame

that those at the top can't let go of a little of their wealth, so that those at the bottom don't have to starve.

[Igel]

6. To some extent, they do.

Unemployment insurance is paid for by employers--ultimately, like many other things, it can be considered a silent part of the employee's compensation package, or going back a bit further it can be considered to be something that the customer pays for.

Still, that 3.25% or whatever is part of the employer's payroll so that those at the bottom don't have to starve, in addition to most other taxes.

At the same time, in a lot of cases the effects of across-the-board paycuts can be devastating. Consider a company where most of the people have debts so that 99% of their income is needed to cover their expenses. Then, in order to prevent laying off 5% of them, everybody's income is cut by 5% for a year. The result can be many more foreclosures than you'd get from laying off 5%. Depends on where the money's cut and what the level of indebtedness is.

Of course, we cut just cut the income from the top two or three people. That $9.77 million the CEO earned last year distributed to the 26k people being laid off would be a whopping $325 (for the year). Of course, I'm betting not all of it was in cash, so they'd probably get less (esp. after taxes, among them unemployment, is taken out). A fairly piddling amount in the short run, and in the long run. Big numbers all the way around, to be sure.

But in the short run, people complain either way.

[AdHocSolver]

3. The problem is due to the fact that corporations are allowed to merge until they are too big to fail

Monopoly power is what is destroying the U.S. economy. There is no competition for markets, employees, and capital. A handful of megacorporations effectively controls finance, trade, and employment.

The first thing that corporations due after a merger or buyout is "eliminate" hundreds or thousands of "duplicate" jobs. A few megabanks demand, and get, billions of dollars in bailout money to keep the economy moving, and then stop loaning money to businesses and individuals, which was the excuse promoted for the bailout in the first place.

If there had been some good old-fashioned competition in the first place, we wouldn't be in this predicament.

Megabox stores like Wal-Mart can operate with what amounts to a skeleton crew of unskilled labor. Wal-Mart drove tens of thousands of small manufacturing and retail companies out of business that gave employment to hundreds of thousands of people. The number of jobs Wal-Mart created (crummy, low paying jobs) is a pittance compared to the number of jobs they eliminated.

What we need (but likely won't get) is some good old-fashioned trustbusting. Even eliminating NAFTA, the WTO, the IMF, restructuring the Fed, and rewriting the tax laws to eliminate corporate tax evasion, would help by promoting some competition. However, don't hold your breath as it isn't going to happen anytime soon. Unfortunately, the coming depression is going to have to get worse before people wake up and demand action.

[ihavenobias]

4. K & R n/t

[daggahead]

5. Corporations have to be ...

... beholden to more than just the stock market.