Professor: We Need to Be More Inefficient to Show We Care

Ray Fisman, a professor at my alma mater, has an interesting article over at Slate examining some of issues regarding choosing lay offs versus across the board pay cuts in corporate reengineering efforts. The article is fine as far as it goes but is pretty typical of an academic approach. It is not clear Fisman ever talked to a CEO or any type of management practicioner whatsoever, rather he is more interested in recent "studies." He therefore misses a major aspect of the issue - layoffs are not merely seen by corporate managements as cost-cutting exercises, they are opportunities to pare "dead wood". In euphemistic, "corporate-speak" layoffs might be termed 'opportunities to optimize workforce resources' or other such fancy formulation, but the truth is more raw - there are always underperformers and from time to time you want to purge these people from your organization as a matter of basic institutional hygiene. Some companies even institutionize this need, such as GE's cashiering of the bottom 10% of its employee or the famous "up or out" mantra adopted at places like McKinsey and IBM. But purging dead wood has become harder over the years. Politically correct and/or tort-driven workplace grievances, from racial discrimination to ageism to the ridiculous extremes of some sexual harassment claims, have made it hard to fire the people that need firing during normal times. So companies tolerate dead wood and bide their time waiting for a chance to lump all these people together in a mass layoff to avoid the attention and mayhem that can come from individual wrongful termination claims. Increasingly this form of insulation is valued over the basic dollars and cents of reduced workforce expenditures. Any CEO will tell you this, sotto voce of course. Finally, Professor Fisman takes a stab at judging what might be socially optimal and makes reference to government employee furloughs as a potentially a better solution, missing of course the obvious point that corporations answer to their investors and accountability is usually swift and direct, while governments only ostensibly answer to constituents and accountability is usually rare and ambiguous. So yes, (and thank God we have academia to tell us these things) accountable organizations seek efficiency and there may be some attendant heartlessness involved, and unaccountable organization labor along inefficiently as a cost of their putative sensitivity. Still, there is some value here, at the very least Professor Fisman has confirmed for us, indirectly, that which we all know - the least effective among us gravitate to government work. Such is a good view to have reinforced during these times where we have to choose to between continuing to lavishly feed our public sector at the expense of crowding out our private sector. Valuable indeed! Thank you Professor Fisman!