Circuit City's Job and Wage Cuts Won't Work

Circuit City’s decision to summarily fire 3400 employees and replace them with lower paid workers is only the latest maneuver by corporate American to shore up short term profits by cutting labor costs. Retail firms can’t move to Mexico or China like their manufacturing counterparts. So Circuit City decided to bring Mexican level wages to the U.S.

Mainstream economists argue that flexible American labor markets give us a competitive advantage over other mature economies like France or Japan with greater job security.
But several recent studies argue that layoffs undermine corporate effectiveness by demoralizing the workforce and undermining the cooperative relationships between employees that are critical to efficient retail and service operations.

Dr. Kim Cameron, a critic, writes: “Corporate downsizing remains the most pervasive yet unsuccessful organizational improvement strategy in the 1990’s business world… the evidence suggests that quality, productivity and customer service often decline over time and financial performance-while frequently improving in the short run after downsizing due to promised savings and lower costs-erodes over the long run.”

The management consulting firm Bain and Company has studied layoffs and argues that companies with the highest customer satisfaction are the least likely to engage in layoffs.

It makes sense that employees who feel valued will work harder and smarter than those treated like disposable assets. But Circuit City execs weren’t interested in common sense or studies. They were motivated by dollars and cents.