Latest Cost Savings Move Is Short-Sighted
-- June 11, 2003

The US economy's woes have been pounding away at the labor market for a long, long time. Just last week, for example, the unemployment rate climbed to an astonishing 6.1%, the highest level since 1994! And to make matters worse, record unemployment claims are rolling in, week after week after week.

But there's a new twist: In a desperate move to shore up the bottom line, many companies are busy firing experienced workers -- and replacing them with inexperienced, lower-paid workers. For example, electronics retailer Circuit City handed out pink slips to 3,900 highly-paid commissioned workers -- and then promptly hired 2,100 lower-paid hourly workers to replace them. And Circuit City isn't alone -- US Airways and Wal-Mart stores also use similar tactics, with many more companies likely to follow suit.

Sure, this tactic may trim costs in the short-run, but over the long run, it's an act of outright desperation. That's because experienced workers are the back-bone of a thriving organization: They've been through expensive training programs ... they have established clients, which means robust sales ... they're more productive, producing more sales at an average lower rate ... and they provide a pool of much-needed future managerial talent. To think that cheaper, inexperienced workers can carry this same load is ludicrous.

And it's not just the workers that get hammered -- economic growth gets pulverized as well. That's because an $8.00 per hour replacement worker has much less income to spend than the $20.00 experience worker he replaced. That's means the overall size of the economic pie is getting smaller, not bigger -- a tell-tale sign of an ailing economy.

related article: New Recipe for Cost Savings: Replace Highly Paid Workers