On Sat, 03 Feb 2001 00:11:04 -0500 "Henry C.K. Liu" <[EMAIL PROTECTED]> writes: > > > Suupose a management theory is adopted to favor cutting prices > instead > of instant layoffs, there is logic to suppose that this would be a > preferred systemic option. The organization of labor for production > is > the > fundamental asset of a corporation. As I am sure that Henry is well aware, neoclassical economists have long taken the view that if only prices and wages could be made downwards flexible then decreases in aggregate demand would not necessarily give rise to increasing unemployment. I think it was Pigou who developed an analysis to show how a controlled price deflation would make it possible for a capitalist economy to work though a crisis without experiencing mass unemployment. Pigou took it for granted that such a price deflation would encompass a drop in money wages for workers, amongst other things. One of the arguments that John Maynard Keynes gave in support of the use of fiscal and monetary stimulus for combatting economic downturns was that such policies would work in part by producing a price inflation which would result in a drop in real wages, without employers having to go through the hassle of having to cut money wages. Thus labor would be made cheaper but without the social unrest that would no doubt accompany the direct slashing of money wages. I am not sure how prices can be made downwardly flexible without also doing the same for wages. Right now it easier for companies to quickly reduce their labor costs by slashing employment rather than by directly reducing wages. Presumably, an increased reliance the use of stock options and profit-sharing for compensating employees could help to make this more feasible. However, it is also the case that these forms of compensation are generally used in compensating the most privileged workers rather than workers in general. And as the recent dotcom collapses have shown, that stock options only remain attractive to employees as long as share values continue to rise. As soon as employees recognize that their stock options many be expected to increase in value or that may well prove to be worthless then they will cease to be of use to employers, who now find that prospective employees demanding to be compensated up front in the form of a higher wage or salary. Years ago, many economists used to blame the downwards rigidity of wages on the presence of unions which would be resistant to the cutting of money wages. However, economic research indicates that downwards wage rigidity is as much a feature of nonunion sectors of the economy as those where unions are still a factor. Microeconomic analyses have been developed to show why this is the case. Most of these analyses seem to focus on the problems that the direct cutting of wages has on employee retention and employee morale. When workers see their paychecks being reduced, they are more likely to leave, and to become less productive, or so it is argued. >It seems illogical to reduce > this > asset at the first sign of trouble. What is needed then is micro > analysis to show that this approach of preserving labor as a > fundamental > > corporate asset is also good for the individual enterprise. To do > this, > a rethink of social and business accounting definitions and > principles > needs to be done, to devise a new tax incentive to make layoffs > unprofitable even in the short term and price cutting profitable for > companies. This is what Congress should be focusing on in dealing > with > the Bush II tax cut proposal and Wall Street analysts should focus > on in > evaluing share value. > > > Henry C.K. Liu > > > > ________________________________________________________________ GET INTERNET ACCESS FROM JUNO! Juno offers FREE or PREMIUM Internet access for less! Join Juno today! For your FREE software, visit: http://dl.www.juno.com/get/tagj. _______________________________________________ Crashlist website: http://website.lineone.net/~resource_base
