We Don’t Want Our Companies to Be Jobs Programs

It seems like hardly a day goes by without a headline blaring about some selfish company that had the audacity to lay off workers even while profitable. How dare they!

CBS News MoneyWatch warns that “Corporate profits are soaring even as layoffs mount.” Quartz declares that “Big tech companies are richer than ever and Wall Street is happy. But they're still laying off thousands of workers.”

When The Washington Post announced steep layoffs earlier this month, some attacked billionaire Jeff Bezos for not keeping those employees on. After all, if he has that much money, surely he should be willing to give it to deserving Post reporters the paper no longer needs.

Truthout said that if only evil Bezos would give $100 million to the paper, his net worth would decline from $248.7 billion to $248.6 billion. Look, you won’t get any argument from me that we should tax billionaires more, but if the paper is losing $100 million a year, why should he—or anyone—subsidize it?

You get the idea. As long as companies are not losing money, they should never lay off workers. But what if a company uses technology to produce the same output with 5 percent fewer workers? Should it keep employing those workers even though it no longer needs them?

Yes, according to the new zeitgeist in America, which sees a company’s purpose not as serving consumers through lower prices, higher quality, and innovation, but as running cushy jobs programs for workers.

They used to call this featherbedding: A labor practice where unions require employers to hire more workers than needed or maintain inefficient work rules, often to protect jobs from technology. It leads to higher costs while providing job security (and cushy work) for some members. Think of rules requiring extra crew members on trains regardless of operational need. Thankfully, Congress made that practice unlawful decades ago, and the National Labor Relations Board (NLRB) enforces the prohibition on payment for services not performed.

So how do so many people get this so wrong? The short answer is that they believe corporations have virtually unlimited profit opportunities and that every worker laid off translates directly into more profits.

This is mistaken. If one company in an industry achieves efficiencies and lays off some workers, it will initially earn higher profits—until competitors follow suit. At that point, competition kicks in and companies pass most of their savings on to consumers.

But what if they don't? Well, that would require rewriting the fundamental laws of economics. Since 1950, U.S. labor productivity has increased approximately 299 percent—meaning the average American worker now produces roughly three times more output per hour worked—while average corporate profit margins have not trended upward over the long run. Worth pausing on.

Another way to think about this: Imagine Senator Bernie Sanders and Representative AOC get their wish, and the United States becomes a socialist economy, with most companies operating as worker-owned cooperatives. Now imagine AI arrives and allows those co-ops to produce the same output with 10 percent fewer workers. If all the co-op workers said, “hell no, we won't go,” incomes would stagnate. No one would see declining relative prices, and living standards would flatline. Surely that can't be what socialists want.

The same logic applies to a for-profit economy. We should want companies to shed workers they no longer need, because the lion's share of the savings—especially over the medium term—flows through to lower prices, higher real wages, and new investment opportunities, while displaced workers move on to new jobs.

That's how it has worked since the founding of the Republic, and there is no good reason to believe it will stop now. While future posts will detail why the AI job doomers are wrong, I’ve been making this argument for decades.

If you’re curious, peruse ITIF’s @Work Series, which houses publications dating back to 2011 examining how technological change has reshaped labor markets historically, why claims that innovation destroys more jobs than it creates are wrong, how productivity growth affects wages and employment, and what specific steps policymakers should take to reform the nation’s workforce training and employment systems. (You could also start with my most recent book, Technology Fears and Scapegoats: 40 Myths About Privacy, Jobs, AI, and Today’s Innovation Economy.)

Yes, like today’s headlines, I too write about workers, productivity, AI-driven job loss, robots, wages, and technological disruption. The difference is that I don’t traffic in alarmism or fuel public panic. I explain why the answer is not to slow innovation, but to accelerate it.

Finally, just to prove I am not a hard-hearted son of a gun—or a libertarian, or both—while I don’t believe economic organizations should be jobs programs, I do believe that government can and should do much more to help workers who have lost their jobs through no fault of their own. I have laid out such an agenda here.

Wake me if Congress ever gets around to doing anything to move that agenda forward. In the meantime, I still value growth. So, three cheers for companies that lay off workers when they genuinely no longer need them.