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justbeatit

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The following is part of a business plan being discussed at a board meeting of the Perks Company:

“It is no longer cost-effective for the Perks Company to continue offering its employees a generous package of benefits and incentives year after year. In periods when national unemployment rates are low, Perks may need to offer such a package in order to attract and keep good employees, but since national unemployment rates are now high, Perks does not need to offer the same benefits and incentives. The money thus saved could be better used to replace the existing plant machinery with more technologically sophisticated equipment, or even to build an additional plant.”
Discuss how well reasoned . . . etc.

Although the potential savings from cutbacks in employment benefits and incentives deriving from changes in unemployment levels appear to make logical sense at first sight, it is seriously flawed on several fronts

Firstly, an over-simplified assumption is made that when the unemployment rate is high, perks not need to offer the same level of benefits and incentives compared to when unemployment is low. Essentially, this assumption treats labor as a commodity, where all workers have equal knowledge and skills so that they are easily replaceable, however, the argument provides no information whether this is the case. For example, a more sound argument could be made if more information was provided regarding whether Perks was a mass manufacturing company where employees were readily available and easily replaceable, or it was a company which relied on several key highly skilled and knowledgeable workers.

In addition, the argument fails to consider the possibility that once cutbacks in benefits and incentives are made, Perks company’s employees could be enticed to move to a competitor company with a more attractive benefit and incentive package, even in a economy with relatively high unemployment. After all, regardless of macro-economic conditions, competitors would want to attract and steal the best workers, some of whom might be currently working for Perks. By failing to consider the benefits packages of competitors, Perks may find itself failing to retain its best employees and also developing a negative reputation to attract new, potential employees.

Also, the argument mentions that savings made from benefits and incentive packages could be used to build an additional manufacturing plant or invest in machinery, yet, there is no evidence that this will indeed be beneficial for Perks. For example, if Perks is a company with low degree of dependence on technology and places high emphasis on the skills and knowledge of workers, more attention and investment should be made to these workers rather than technology and machinery which could play a only supporting role for Perks.

Although on a high level, the logic mentioned in the argument appears to make sense, on closer inspection, there are serious flaws that make the argument weak. The argument treats all employees as commodities that are easily replaceable, fails to consider Perks’ benefits and incentives package in relation to its competitors and does not examine the relative dependence of Perks on human workers and technology and machinery. For these reasons, the current argument is flawed.