Hershey’s Profit Falls on Cost of Job Cuts
According to New York Times, the largest US candy producer, Hershey, its second-quarter profit fell 96 percent due to the elimination of jobs and higher dairy costs. The net income dropped 41 cents a share compared to a year earlier.
In the article, it says “the elimination of 1,500 workers and the transfer of some operations to Mexico cost $124.4 million before taxes in the quarter.” I do understand the transfer of equipment will cost a lot to the company, and I think moving the manufacture to Mexico just fits capital flows theory. Because in Mexico, the wage rate is lower than the US, capital flows can help reduce the labor costs. However, I am not sure why the elimination of workers will cost money too, and it seems this cost is not small.
Hershey is trying to make profits despite the temporary loss. “We understand the missteps over the past few quarters and we are aggressively addressing them,” Richard H. Lenny, the chief executive, said.
3 comments:
I believe this article is connecting the cut in workers to the move to Mexico. This means the cost of cutting workers in the US is part of the cost of moving production to Mexico. These changes hit on the difference between short-run versus long-run costs.
I agree that the cost of cutting workers in the US is part of the cost of moving production to Mexico. The reason is due to the cheaper production costs. It is amazing how the economy always says things about employment rate is down, because right here is your answer. We are sending or buying production overseas because it is cheaper instead of helping the people in America by giving them jobs. These foreign people come over here to find jobs but the fact is many of our jobs are going over there to their countries.
I think the cost of terminating employees might be unemployment compensation. In many US states, workers who are laid off or fired can file an unemployment claim and receive compensation. Unemployment compensation discourages companies to terminate their employees.
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