Let me show how this is bad and how we can manage economic downturn in a better way.
A single job loss creates multiple problems for the government and the business economy:
Loss of Tax revenue - Income Tax, Sales Tax(spending decreases as people get pink slips)
- Social cost - Unemployment benefits from government.
- Wastage of Company Learning and Developement Expenses, Low employee morale and productivity.
- Less Spending - Means less business: which means more job cuts. Emperical study should show one job loss means X more job losses in future.
- Other Financial and social issues - More credit defaults, more criminal activity, more social tensions etc.
Hence it is evident that job losses have a downward spiral effect in the country's economy. Agreed. Then what we can do for sustaining a global economic crisis like this? Here are some of my thoughts:
- Government should ban(or at least control) Job cuts by companies and also should reduce any lower cap on salary. The idea is not to cut any jobs but reduce the costs by reduced salaries. This way government can still get taxes(Income and sales Taxes) and need not pay unemployment benefits.
- Once people have jobs(although having less salaries) they will continue to spend(although at lesser rate but still more than if they didn't had any income). This will reduce the downward pressure on the sales numbers and make the economy more sustainable.
- To stimulate the economy government should reduce tax rates at least on a temporary basis. This way both companies and customers will have more money at hand to spend. This loss of tax revenues can be compensated once the economy becomes strong by charging more taxes.