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Tuesday, January 18, 2011

Productivity Over the Business Cycle (Wonkish)

From the comments: Why there is less labor hoarding during recessions.

Productivity Over the Business Cycle (Wonkish) - Readers' Comments - NYTimes.com: "1
3:09 pm


4. Training of business managers. Managers schooled in perfect market theories and taught to view stock market reactions as the arbiter of success are likely to over-emphasize the gain to current earnings from quickly firing employees during recessions, and to under-estimate the difficulties (and lost profits) of having to institution build later on. It is the same dynamic that so consistently leads to losses for business acquisitions, where quick cuts get stock market plaudits and leave long lasting damage that managers have trouble seeing.

5. Ever faster turn-over among managers. Managers who won't be around to see the long term consequences of their actions have a very strong incentive to manage for current profits. Cutting temporarily redundant employees when demand is low, like cutting R&D, increasing leverage, or growing through acquisitions-and-accounting-gimmicks works splendidly in the short term. The problems are likely to become most visible under someone else's watch.

6. Increased profits from cutting employment are very visible. Lost profits from having to find and train and integrate new employees and rebuild lost expertise later are just opportunity costs, completely invisible to casual observers or managers who have no tools to measure them."

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