Arnold Kling

Ford Layoffs

Arnold Kling, Great Questions of Economics
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Yesterday, Ford announced a large restructuring plan, that ultimately will involve cutting 35,000 jobs.

But the plant closures and many of [the] future job cuts are years away. Ford did not give details on when the plants will be closed other than to say it will occur by mid-decade.

The current labor contract with the United Autoworkers union, which runs through fall of 2003, does not allow plant closings ...

The Ford situation illustrates an apparent conflict between macroeconomic stability and growth. From the perspective of efficiency and long-term growth, companies need to adapt, make changes, and shift resources away from inefficient uses. However, layoffs put people out of work.

Keep in mind, however, that the unemployment rate depends on flows in two directions:

  1. People looking for work, either as new entrants to the labor force or because they separated from a previous job
  2. People hired into new jobs

As long as new hiring is strong, the economy can absorb layoffs without an increase in the unemployment rate. In fact, the 1990's were a period of falling unemployment, even as large companies such as General Electric and IBM made dramatic reductions in their work forces.

Discussion Question: Many countries have laws that make it costly for companies to eliminate jobs. Do such laws help to keep the unemployment rate down in those countries?

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