Having completed a 45 + year career in the business world without losing my job or having my pay cut I cannot know the pain and anguish, especially with the financial burdens of a family. It would appear obvious that given the alternatives, spreading that pain among many people with far less of an impact is a better alternative. For example, stop the 401(k) company match and or freeze or cut wages, cut or eliminate bonuses. This is what many employers did during the Great Depression just to keep people employed.
Is it better to avoid laying off say 5% of a workforce in exchange for a negative financial impact on 100%? I am not so sure because down the road we don’t know the real impact on the 100%. With 401(k) plans in the tank, now is the time to be adding to the account for long term growth. How is that possible if wages are declining and the employer match gone? If wages don’t grow neither do future Social Security benefits or the pension benefit for the lucky workers with a pension plan.
There are no easy answers, but it is very clear that we are not thinking in the long term with its unintended consequences. Some would argue as the President does that we need to accelerate spending to stimulate growth and as he likes to say create or save jobs, but in that process we further increase the financial burden on all workers down the road unless you believe the stimulus will not result in higher taxes and perhaps higher inflation.
As we make it harder to save for the future we are also making the future more expensive for all Americans. Employers who have eliminated, frozen or converted pension plans, who have stopped 401(k) contributions and the like are making a strategic mistake. I can understand those actions if it means the survival of the organization. I cannot understand such a strategy if done to preserve an earnings target to keep the “Street” happy or to avoid a temporary drop in the stock price.
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