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Addressing the U.S. Unemployment Rate

Since January 21, 2009, President Barack Obama and his administration have attempted to rectify a multitude of issues plaguing our nation. He should be commended for his efforts. The next challenge on the administration’s agenda is the U.S. unemployment rate. According to U.S. Department of Labor Statistics, the reported unemployment rate has surpassed 10%. This number is based on unemployment claims. It does not include those who are unemployed, but have not filed for unemployment assistance.

This week’s blog highlights two critical elements that must be addressed in order to reverse the existing unemployment trends. The two critical areas identified are corporate mergers and acquisitions; and offshoring jobs to other countries. The attitudes and behaviors in Fortune 500 companies when laying off American workers may influence the attitudes and behaviors, and operations of small to mid-size companies – thus adversely affecting the overall health of our economy.

Mergers and Acquisitions

I am fortunate to have spent over 30 years in Corporate America. The business strategies, operations, and relationships I experienced are priceless. During the very first-six months of my career as an educated (yet somewhat naïve) junior executive, I noticed the stiff competition within the industry I worked. In a meeting with my director, I asked why our company didn’t merely acquire or “buyout” one or two of the smaller companies within our industry. This would increase our market share and decrease a percentage of our competition. The response I received was “federal regulatory agencies would not permit a company of our size (and influence) to grow too large. It may result in an attempt to monopolize the market and/or deter fair competition and trade.”

The acceptance of multi-billion dollar corporate mergers and acquisitions has evolved in the U.S. corporate landscape. Thirty years ago, federal agencies were more vigilant in monitoring corporate operations that could potentially harm fair trade and competition. During the past eight years, less government oversight has facilitated a trend in merging, acquiring, downsizing, offshoring, and eliminating businesses. The banking and lending industry is an example of how merging/acquiring companies within that industry have affected our economy.

The Case Against Corporate Mergers and Acquisitions

Corporate mergers and acquisitions are not good for the U.S. economy for three reasons. First, when two separate companies exist and compete in the marketplace, there are two separate groups of employees at each company. In addition, competitive pricing provides consumers with viable options. When those two companies merge, there is no longer a need for two employees doing the same job. Someone is eventually released.

Second, the released employee may feel resentment toward the company and choose to purchase goods and services from another company within the industry. Even worse, the released employee may no longer have the financial resources to purchase goods and services from any company, thus decreasing revenue generation throughout the industry. Third, if there is no competition (or limited competition) within an industry, a company may price goods and services however they deem appropriate for being profitable (i.e. price gouging) – without any consequences. As a result, the business strategy of merging/acquiring other companies is not a means of maintaining a sound U.S. workforce and strong economy.

The Dilemma of Offshoring U.S. Jobs

The primary goal of every business is to make a profit. Companies must generate enough revenue to cover its expenses. A popular company strategy is to “offshore” a portion of the organization to a business entity in another country. This entity may be an affiliate of the corporation or a separate entity altogether. A company may implement this strategy in an effort to reduce employee operating expense by utilizing a workforce whose salary, healthcare, and medical expenses are far less than the expense incurred in using the American workforce. Further, the company may have identified favorable tax laws in another country or a workforce with comparable knowledge, skills, and abilities as the U.S. workforce.

This strategic approach provides a short-term benefit. The salaries and healthcare expenses for U.S. workers are eliminated which will result in improved profitability. However, just like in the case of corporate mergers and acquisitions, the attitudes and behaviors of released employees may result in a drastic reduction in revenue, thus defeating the objective of downsizing in the first place.

Based on leadership’s prior behavior, integrity, and interaction with their environment, the method(s) by which a company executes an offshoring or downsizing initiative may result in a “boycott” of the company. This may be done not only by released employees, but also by released employees’ friends and family members; vendors; suppliers; and possibly even employees chosen to stay at the company (the anxiety and questions of who’s next to be released can be de-moralizing). Above all, the reaction of the investment community will determine corporate long-term success of failure. If the company’s investors are not comfortable with the potential profitability of the company, the company will fail.

Therefore, any incentives, plans, or other attempts to reduce our national unemployment rate must consider addressing these existing ineffective corporate practices. These practices have significantly contributed to the unemployment rate, and will continue to do so. Finally, this “big company” approach to laying off workers has trickled down to the small and mid-size companies, and the national unemployment rate is higher than the reported statistic of 10% because of it.

More information on employee morale and productivity can be reviewed in Corporate Leadership Selection: Impact on American Business, Employees, and Society (Authorhouse Publishing).

Feedback to the bi-monthly blog entry is always welcome.