Not all Lay-offs are Good for Society

WHY ARE THERE LAY-OFFS?

• Productive Efficiency
  • Productive efficiency is producing at a minumum cost. If a company can lay off workers AND STILL PRODUCE THE SAME AMOUNT OF OUTPUT, then their costs will be lower.
  • The layed-off workers can then go get a job somewhere else where they produce more. Producing more reduces scarcity and increases society's satisfaction.
  • Coca-cola example (assuming coke still produced the same amount of output).
  • These lay-offs are GOOD for society because they reduce scarcity (more products are produced when the layed off workers get jobs somewhere else).

   

• Allocative Efficiency
  • Allocative efficiency means the economy uses its limited resourses to produce what people want. Resources are not wasted producing products that people do not want. This increases society's satisfaction.
  • Some lay-offs occur in industries that were producing products that people no longer wanted like when the Kodak company layed off workers in its photographic film factories. Since most people now use digital cameras, few people want film. The layed-off workers can now be use to produce something else that would give society more satisfaction.
  • These lay-offs are GOOD for society because they increase society's satisfaction from the same amount of resources

   

• Recession
  • Some lay-offs are the result of an economic recession when people buy fewer products and companies therefore lay off some workers causing unemployment to rise.
  • In December of 2007 the United States entered a recession that lasted eighteen months. That means that there was eighteen months of declining output and rising unemployment.
  • These lay-offs are NOT GOOD for society because they result in MORE SCARCITY since fewer products are produced.