18. Hiring and Firing: What is Fair?

“IT IS NOT FAIR that companies can terminate their workers to increase profits” was one of the statements made at the dinner party that evening. Why employ someone in the first place? Does an employer hire to see someone work and earn a living or to reduce national unemployment figures? Of course not! Entrepreneurs create companies in pursuit of their own self-interests. And when they create these companies, they do not do so in a vacuum. First and foremost, they are dependent upon customers, their real bosses, who must be lured away from competing choices in the marketplace. Second, they must lure employees away from competing employers by offering a more profitable, or more interesting, opportunity. Once hired, these new employees must continually be pleased; otherwise they will move on to the next employer who will please them. Third, entrepreneurs must be able to produce their goods and services at costs that are less than the revenue received from their customers.

Since revenues will vary as market demand for products and services varies, companies must be able to vary expenses, as well. If one were prohibited from reducing the number of employees to reduce company expenses, as was suggested, one should be prohibited from reducing every other expense, too. Why? Every expense is someone else’s revenue, and when expenses are cut, someone’s job is jeopardized. If one stops having the windows washed to reduce expenses, then the window washer is terminated. If the employer decides not to have the annual company Christmas party, he is terminating caterers.

If an employer is prevented from terminating employees to increase profits or reduce losses, the employer will be reluctant to hire them in the first place. In essence, if you can’t fire, you don’t hire. So the statement made by my guest that evening (“No company should be allowed to terminate employees simply to increase profits”) is proposing, in effect, that employers should not be allowed to hire employees to make a profit, either.