Thousands of Jobs Cut
A recent article on CNNMoney.com, by Rob Kelley, says that Citigroup, the world's largest bank is planning on downsizing. They are planning on cutting their current work force of over 300,000 employees down by at least 5% and at most 14%. This is thousands of full-time employees that will be left unemployed. So why are they downsizing? According to Citigroup's CEO, Charles Prince, "Revenue growth has not kept pace with spending at the company, putting a damper on earnings." This smothered revenue is due to poor decisions of the previous CEO of Citigroup. The company had built up a huge investor base that would generate great returns, but when the decision was made to strip cash from current businesses to buy out other companys' businesses, Citigroup's stripped businesses ended up failing to produce revenue and lost market shares. Now the company is underinvested. Obviously, in turn, the company's total revenue declined and has not be able to pick back up. Prince feels this job cut will help them regenerate the revenue they once had.
On the other hand, analysts of the situation feel that this cut will not help them as much as they would like and possibly hurt them in the longrun. They feel in the shortrun, yes, they will have a revenue boost, but it will not last for long. Citigroup will end up finding themselves back in the same old rut that it was in before the job cut and needing to hire those previously laid off.
As an economist, what would you suggest that Citigroup do? Should they try to lay off thousands of workers, or should they leave it alone and let the company take care of itself?
2 comments:
In my opinion, it depends on different situations. The jobs cut can gain much more capitals for the company to do further investments and businesses with others. This move will generate an opportunity cost of the possible benefits from the dismissal employees. If the company is able to shrink and make its management structure more efficient, the opportunity cost might be diminished or even eliminated. Furthermore, if they expect to gain a lot by the following businesses, their expected returns can cover the loss of opportunity cost, the company can absolutely benefit from this move of jobs cut.
With less revenue and less investors why wouldn't they cut jobs? Efficiency is the key to have a smooth operating business, and if they have too many employees and can still be efficient with less workers then they should probably do it. This could also be smart move to show investors that the new CEO is trying to get the business running smoothly and efficiently. Once the CEO can show this they may get investors returning or new investors coming it. Which will let them eventually add more human capital once they are moving forward in profit.
Post a Comment