With the Ports of Auckland industrial dispute and the layoffs in the public sector, restructuring in the face of financial pressure seems very fashionable at the moment. Executives are quick to point to the cost savings of having fewer staff, or the potential productivity improvements. As the government says:
In a restricted funding environment we must find new ways to do more with less.
Of course, it is really only possible to do less with less, unless some staff are actually reducing what can be done. That seems unlikely, even though there may be some who are not providing value-for-money, as in any organisation. But there’s no point making a song and dance about obvious holes in what is more window dressing than substance. More interesting is to ask what the costs of these layoffs are. The short-term monetary costs to the organisation have been discussed by Danyl at Dim-Post:
…months of stop-work meetings, losing hundreds of millions of dollars in customers, sacking the entire work-force, paying millions more in redundancy and being placed on a global black-list is also going to compromise the efficiency and profits of the port, and its ability to return a dividend to the people of Auckland
The costs to those who have been laid off varies widely in monetary terms: some people will find jobs rapidly, while others languish on the unemployment benefit. But the real costs I want to discuss are the non-monetary costs to people’s wellbeing and self-worth. They’re the things you see on the front page of the newspaper, but aren’t often mentioned by economists talking about the macroeconomic impact. A recent NBER paper finds:
For those who are unemployed, the subjective well-being consequences can be divided into income and non-income effects, with the latter being five times larger than the former. This is similar to what has been found in many countries, as is our finding that the non-income effects are lower for individuals living in areas of high unemployment. …At the population level the spillover effects are twice as large as the direct effects, making the total well-being costs of unemployment fifteen times larger than those directly due to the lower incomes of the unemployed.
So the costs to society of the loss in self-worth from layoffs are huge. However, though these costs are large, it is worth asking ourselves how much account we want society to take of them. When thinking about non-monetary costs, it’s important to remember that a large part of the loss in welfare from unemployment is loss of social status. Now, loss of status isn’t something that affects everyone equally because people don’t start out with the same status prior to becoming The Unemployed. That manifests itself in ways that aren’t immediately obvious. For example, unemployment programmes that force a former accountant to work in fast food because they haven’t been able to find work elsewhere probably aren’t socially efficient: the loss in social status that the former accountant would suffer has large, long-term costs for their sense of self-worth. Since people are loss averse and work from the anchor of their current status, a reduction in their employment status is hugely costly to them. Because of that, it is hard to account for the social costs of unemployment without recognising that they are relative costs, and fall most heavily on those that were previously of high social status. That may not be something that an egalitarian society wants to take account of, given that the greatest absolute hardship is felt by those from poorer backgrounds who don’t have the same financial resources to fall on in difficult times.