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I admit I tend to be a bit doom and gloom about the economic situation in the EU. I’ve predicted time and time again that the trouble countries, such as Spain, will not take the difficult steps to reform their economy. I have to tell you I am happy to have been proven at least partly wrong.
The Spanish government has announced that it is going to reform Spanish labour laws to make it easier to fire and hire people. Previously firms were not allowed to lay off workers to save money nor was it easy for them to fire someone for incompetence. This led to a stagnation of the work force and the economy.
As the BBC article that I linked above points out, many economists have said that Spain needs to reform these laws to improve their economy. So it will be a benefit to Spain and ultimately to the whole EU if the government manages to pass their reforms. But there is another dimension of this issue that should not be over looked: the moral dimension.
A few months ago my professor was discussing Spanish labour laws with the class. Many of my classmates comment that the labour laws were good because firing people to save money was selfish of the companies. The implication of most of my peers, and indeed the professor, was that business firms have a moral obligation to pay a person even if they didn’t want or need that person anymore.
What follows is a back and forth between myself and the professor as I point out an important fact that was being overlooked:
Prof: Why should a firm be allowed to fire people just to save their profits in an economic downturn?
Hugh: Because it is the firm's money.
Prof: Well isn't it really the economy's money?
Hugh: No it is the firm's money.
Prof: Okay, but isn't it ultimately the consumer's money?
Hugh: No it is the firm's money.
Prof: Well it depends on what model of the economic system you use.
No it does not depend on what ‘model of the economic system’ that you are using. It is the firm’s money. It is the money that they have earned. They are only as morally obligated to pay employees that they don’t want as you are to buy products that you don’t want.
Every business has the moral right to fire someone.
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7 comments:
"It is the money that they have earned."
You mean, the company's employees earned for the company. Unless it's one of those small mom & pop operations where the owners have no choice to be hands on, more often than not a company's executive simply plays golf, or has 3 hr martini lunches and jetsets in a private plane somewhere while their employees live from pay checque to pay checque.
You never adequately explain how a high turn over in employees is better for a nation's economy rather than a stable company whose employees remain until retirement.
I worked in a company in Montreal while I watched a grand total of 18 employees leave voluntarily or involuntarily in a space of 3 months. The company is losing money and the only reason it's still even in business is that the president's parent company in Quebec City run by his daughter does quite well, and thus Montreal leaches off of it.
Anyone who feels that "a company" OWES them anything but a paycheck is living in a fantasy world. These folk are free to start their own business and run it any way they please.
Rob C
CK the money earned by the Employer is not money made for the employer by the employee, the employee exchanges his labor for a wage, end of employee story, the company then sells what it created and what the employee was paid to put together. It's called value added.
With out the employer there is no profit and no wages.
pretty simple yes?
A company that pays people to just show up is stable IYO? No no no they go bankrupt and that's not good for the economy, nobody ever promised a job for life except those that use taxes to pay people just to show up and create our national debt, the Government who create no wealth what-so-ever and leach off the private sector economy.
ck,
An employee is a tool for which a company generates a good or service. The employee wouldn't be able to generate that good or service if it wasn't for the company directing their activity. So yes it is the company that is earning that income.
I think you are falling victim to a misconception of the activity of executives but that isn't really the point. The CEO isn't the company, the owners are the company. The CEO is merely an agent of the owners.
I didn't explain why the ability to fire is beneficial because I didn't want to write that long of a post. It is a commonly discussed economic idea called constructive destruction. It involves the redistribution of resources that creates more effeciency and ultimately more wealth. That redistribution is impossible if it is locked in by law.
I don't know what point you are making in the last paragraph.
The more difficult it is for companies to fire, the more reluctant they are to hire.
Thus economies which make it difficult to fire people tend to have high unemployment.
The unemployment rate in Spain: 18%.
By making it difficult to lay off people, Spain puts its economy at risk. Companies need to able to downsize quickly should their business turn sour. This gives them at least the chance to survive a recession, and return to profitability quickly (and start hiring) when things get better.
But the inability to lay off people often means the company may be doomed to bankruptcy in a severe recession, which helps no one. Even if they survive, they are so financially crippled that they can't respond when things improve. They go through an entire upturn trying to dig themselves out of the fiscal hole caused by the recession.
I can't believe people are instructed to be crazy.
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