Mar 03 2009

Recession’s effects on small vs. large companies: some evidence in support of the Classical view of self-correction

Why Are Large Companies Losing More Jobs Than Small Ones? – TIME

This is a fascinating, short article from TIME. Before reading it, see if you can answer the multiple choice question below:

Q: Why do small companies lay off proportionately fewer workers during a recession than large companies?

A) Because small firms are less likely to be in the industries hardest hit by a recession (such as manufacturing)?
B) Because small firms are less focused on maintaining profits to satisfy greedy shareholders?
C) Because small companies are able to hang on to employees and even hire new ones during a recession because of all the talent being laid off by big firms.

Still thinking? Well, it’s likely that all three are true to some extent. But it’s the third one that seems most intriguing as a student of economics. Here’s what the article says:

…small companies hire disproportionately more early on in an economic recovery because it’s easy for these firms to find good workers while unemployment is still high—and easy for workers to come across small companies since there are so many of them. Once the economy is chugging along at full-steam and the labor market is tight, larger companies regain the advantage, since they’re likely able to offer more money—and poach from smaller outfits.

Seems pretty straight forward, right? Sure, but the fact that small firms are likely to hire when unemployment is high supports one side in a long-running economic debate over the economy’s ability to “self-correct” in times of recession.

As any student of Macroeconomics learns early on, there are two dominant theories of macroeconomics, both which are represented in the aggregate demand/aggregate supply diagram that we learn and use in AP and IB Economics.

The two models below represent the two opposing views of macroeconomics. First we see the Keynesian model, which shows that when overall demand in an economy falls, unemployment increases drastically and output tanks, plunging the economy into a deep recession. This is primarily because of the “inflexible” nature of wages, meaning that even when unemployment rises, workers are unwilling to accept lower wages and firms therefore are unwilling to hire more workers.

According to Keynesians, the only way to get the economy out of the recession is by increasing overall demand through heavy doses of government spending (case in point, the $775 billion stimulus in the US).

Next is the Classical AD/AS model with a vertical long-run aggregate supply curve. The implication of the vertical AS curve is that regardless of the level of overall demand in the economy, output will always return to the full-employment level, and thus unemployment will always return to its natural level. The major assumption underlying the Classical model is that wages are in fact flexible in times of recession. As unemployment rises, workers will accept lower wages since they’d rather be making less than making nothing at all. As wages fall firms will begin hiring more workers, increasing overall output and decreasing unemployment until full-employment output is restored.

The implication of the model on the right is that government is NOT needed to get the economy out of a recession, because it will self-correct due to the new hiring and production by firms in response to falling wages in the labor market.

The reason this article stood out to me was that it seems to offer some evidence in support of the flexible-wage, Classical model of macroeconomic self-correction. There has been surprisingly little talk among news anchors, pundits and politicians about the likelihood of the US or ANY economy suffering in the global slowdown “self-correcting” as the Classical model would suggest it should. But the fact that small businesses are less likely to lay off workers in a recession and more likely to begin hiring them due to the large number of workers being laid of by big companies offers at least an inkling of evidence in support of the Classical model of flexible wages and macroeconomic self-correction.

Discussion Questions:

  1. Why is laying off workers the first thing big companies do when faced with falling demand for their products? Why don’t they shut down factories instead?
  2. What pressures does a publicly traded company (one that sells stocks to investors) face in times of recession that a small, privately owned business does not?
  3. When the global recession is finally over, do you think more people or fewer people will be working for small companies (less than 50 people) than before the recession? What would you rather work for, a small firm or a large one? Why?

About the author:  Jason Welker teaches International Baccalaureate and Advanced Placement Economics at Zurich International School in Switzerland. In addition to publishing various online resources for economics students and teachers, Jason developed the online version of the Economics course for the IB and is has authored two Economics textbooks: Pearson Baccalaureate’s Economics for the IB Diploma and REA’s AP Macroeconomics Crash Course. Jason is a native of the Pacific Northwest of the United States, and is a passionate adventurer, who considers himself a skier / mountain biker who teaches Economics in his free time. He and his wife keep a ski chalet in the mountains of Northern Idaho, which now that they live in the Swiss Alps gets far too little use. Read more posts by this author

262 responses so far

262 Responses to “Recession’s effects on small vs. large companies: some evidence in support of the Classical view of self-correction”

  1. rpuri2on 01 Mar 2012 at 8:18 pm

    1

  2. rpuri2on 01 Mar 2012 at 8:18 pm

    1. The first thing big companies do when faced with falling demand for their products is to lay off workers. This is because firing is more feasible and easier than shutting down factories. Their main aim, either way, is to reduce costs as falling demand causes losses in profit and revenue. Shutting down a factory would mean that when the economy is back in the recovery phase, getting the factory back is much more laborious and harder a task to do than it is to hire someone. Changing the amount of capital is a lengthier and time consuming process than is changing the cost of labour.

  3. rpuri2on 01 Mar 2012 at 8:19 pm

    2. Being a publicly traded company, society and individuals can invest into the firm and become stakeholders. This means that during times of recession, in order to keep the investment into the firm, the firm must find a way to please the stakeholders, thus adding pressure on to the company. One cannot invest in a private company, and all profits are retained for the private firm’s business and thus the pressure does not exist for such businesses.

  4. rpuri2on 01 Mar 2012 at 8:19 pm

    3. I agree with the article and support the view that after the global recession is over, more people will find themselves working for small companies. Small companies will have the skilled and the people with expertise in their fields, those individuals who had been sacked by large firms during the recession. Small firms had the option to pick the best from everyone; the large firms will be left with the runt of the pack, i.e. those who are less skilled. I, personally, would prefer to work in a bigger firm. Even though I would run the risk of getting fired when recession comes, working in a bigger fun does come with a sense of stability, i.e. the chances of the company going bankrupt is much less than it is for a smaller firm.

  5. Konstantin Frankon 03 Mar 2012 at 2:10 pm

    Why is laying off workers the first thing big companies do when faced with falling demand for their products? Why don’t they shut down factories instead?
    By shutting down factories, the company will have no income at all. By firing employees they have smaller expenses,but can still make some revenue.

    What pressures does a publicly traded company (one that sells stocks to investors) face in times of recession that a small, privately owned business does not?
    They do not only have to cope with their own decrease in income, but are also partially responsible to what happens with the money of their shareholders. A small privately owned business can afford it to have, for a short period of time, a smaller revenue, but a publicly traded company has a lot of pressure from outside to keep revenue up.

    When the global recession is finally over, do you think more people or fewer people will be working for small companies (less than 50 people) than before the recession? What would you rather work for, a small firm or a large one? Why?
    I think more people will work for small companies, as often they get higher incentives when the company begins to grow and small companies offer a higher job security.

  6. Nick14on 15 Mar 2012 at 4:05 pm

    – Companies lay off workers because it is a much less drastic measure than shutting down their entire plant. If they had done that, then they would have no source of income. When firms do not shut down plants, it shows that they still hope the market for their product will improve. Should it show no signs of improvement, then they would be wise to shut down or move their plant.

    -Public companies have multiple issues to worry about. To begin with, they're huge, and so have large operating costs to worry about, as well as multiple salaries and benefits. Additionally, they have shareholders in their company. As a public firm, they are responsible for paying these shareholders above all other costs. As a result, they have multiple difficult decisions to make. A small private company has only its own (generally small) operating costs and limited salaries and benefits to pay. On account of their size, they have no shares to pay.

    -I think that more people will work for large companies, as their greater size would project the aura of invincibility. On the other hand, I would rather work for a small company, as there would be greater opportunity for advancement when the company began to grow.

  7. Samanthaon 19 Mar 2012 at 5:07 pm

    •Why is laying off workers the first thing big companies do when faced with falling demand for their products? Why don’t they shut down factories instead?
    Laying off workers is the first thing that big companies do when faced with falling demand for their products because they must still make enough money to satisfy their shareholders even though they must decrease production. By decreasing production they are hoping to sell of the goods at the new rate that they are producing and the excess supply that they have. They do not simply shut down the factories because doing so would make it harder to open up the companies in the event that the economy recovers and their products start coming in high demand. Also, shutting down factories leaves no room for further investments or improvements that can be made in order to make the products more desirable to consumers.
    •What pressures does a publicly traded company (one that sells stocks to investors) face in times of recession that a small, privately owned business does not?
    A publicly traded company faces many problems that small, privately owned businesses do not. The main problem is that of the stockholders. These large corporations are faced with the prospect of losing money that they do not have and not being able to pay back their investors to break even, never mind make a profit. This may result in making the economy even worse as a whole, decreasing consumption of products, and eventual bankruptcy as a result of these inefficiencies. Small businesses only risk losing their own money and may take as many risks are they are individual willing to.
    •When the global recession is finally over, do you think more people or fewer people will be working for small companies (less than 50 people) than before the recession? What would you rather work for, a small firm or a large one? Why?
    When the global recession is finally over it is likely that more people will work for small companies than big companies. This will result from the fact that small companies are willing to take risks and increase production when the competitions, the large corporations, are decreasing production.
    Personally, if I had the right qualifications I would want to work for a large corporation. Even though there are definitely risks, especially when the economy is in the condition it is right now, there is a pride factor in working for a large corporation. Also, when the economy recovers and the large corporations start to thrive once more, the salary earned in a large corporation will most likely be higher than those at a smaller corporation. Working for a large corporation also provides more opportunities for upward mobility through different departments and divisions whereas working in a small corporation will really limit these opportunities to only a few people.

  8. azacharjaszon 28 Feb 2013 at 10:56 am

    • Why is laying off workers the first thing big companies do when faced with falling demand for their products? Why don’t they shut down factories instead?
    Because the fall in demand force the companies to reduce the supply, when the demand fall the products that they produce aren´t consumed and they aren´t making a profit for producing them, less workers are needed. So the companies in order to reduce the supply will lay off workers because in the fixed plant period the labor is the only variable resource.
    • What pressures does a publicly traded company (one that sells stocks to investors) face in times of recession that a small, privately owned business does not?
    Usually the small companies aren’t as involved in public trade but they concentrate on their personal benefits, also very often they are directed by less people (a family, group of friends…. ) than the big companies. The big companies have a lot of parties involved in their business, those parties have stocks of the companies and when the situation get worst they start to sell the stock in order to them to get as much money as possible. So when all the investors sell their stocks the company has no money left and therefore is likely to become bankrupt. However the small companies don’t have so many investors and when the situation gets worst the investors will be more confident about the future of the business because they are related to the directors of the business.
    • When the global recession is finally over, do you think more people or fewer people will be working for small companies (less than 50 people) than before the recession? What would you rather work for, a small firm or a large one? Why?
    According to the article after a recession more people would work for small companies than before, because small companies hire workers even during a recession when the big companies lay off workers who might have good skills. However the big companies will start to look for good workers and they will offer a higher wage to the workers of the small business that will decide to change their job. I think that it is compensating.
    I don´t know, it depends on what I’m going to do in the future.

  9. azacharjaszon 28 Feb 2013 at 11:00 am

    # Samantha

    I don´t think that the big companies will be decreasing the production after reccesion. I think that then they will start to increase in order to increase their output and make an higher profit. In order to do it they will need more workers and they will start to look after the good workers in the market. They will offer a job too many people that work for the small businesses and many of them will accept the job because the big companies normally offer better conditions of work.

  10. jdebeljakon 01 Mar 2013 at 5:11 pm

    1.
    Logically, if there is a falling demand for products offered by big companies, in short run, output has to be decreased as well and looking it on a larger scale, economy experiences a deflationary gap because short-run equilibrium output is smaller than full employment level of output. It is much more simple for big companies to lay off workers and decrease costs of production than shutting down the whole factories, because demand will in long-term pick up and all they need to do is increase output by hiring more workers instead of making the whole production plants work again.

    2.
    Investors are always investing in something due to their expectations of increasing value of stocks. In times of recession, aggregate demand is falling, so in short term firms have to lower the output, price level in economy is falling and profits are plummeting. These big public companies may also face dispute with unions if they want to lay off workers. This all affects value of stocks, which is of course not the goal of investors. I believe small, privately owned business, are more flexible in short run. They do not sell stocks to investors, can rearrange production goals and establish various agreements regarding the occupation of workers – for instance not laying off workers but decreasing incomes slightly and increasing working hours a bit – all corresponding to the current situation workers in small, privately owned business are aware of. I think flexibility of small, privately owned business is something that big private companies with established huge facilities for specific products lack.

    3.
    I think more, also the trend goes in this way. Due to the flexibility of small companies they can change the course of production (which is relatively smaller than the one of big companies) and increase efficiency in short run. Small private companies can hire new workers that were laid off by bigger companies because of their flexibility and lower wages. However, as wages are getting smaller, big firms are hiring more people, unemployment decreases and aggregate demand increases. After recession is lower, demand for money is low, interest rates are low and big companies can provide more incentives and opportunities to talented workers than small businesses. Thus in my opinion, small business are better off immediately after the recession (more people working for them), but shortly big companies become dominant once again – in recession it is vice versa because of the reasons I already mentioned. I would have my own private firm, but also work part-time for the large firm; because of more opportunities and incentives it can offer. When economy booms I would neglect my private company, however keeping it alive. When recession arrives I would hand in my resignation at the large firm. I know many people who did this and it actually worked and it is the best trade-off point, but of course you need luck as well.

  11. jdebeljakon 01 Mar 2013 at 5:17 pm

    By “Small private companies can hire new workers that were laid off by bigger companies because of their flexibility and lower wages” because workers will rather earn lower wages than no wages at all as unemployed because they were made redundant by bigger companies.

  12. jdebeljakon 01 Mar 2013 at 5:18 pm

    # azacharjasz

    I like you stated that workers are the only variable resource in the fixed planet period in your respond to the first question. In your last answer I do not get what “compensating” means. One suffers and the other one not? Or did you mean more even distribution of workforce among bigger companies and smaller ones?

  13. dst.clairon 02 Mar 2013 at 12:58 pm

    1.
    Falling demand means falling supply, and with not as much supply required, fewer workers are needed for the big companies to maintain output. So, the additional workers would be surplus factors of production that the company doesn’t need, and would hence be laid off. Furthermore, to a large company, employees are simply numbers to the executives that make the decisions.
    2.
    A publicly traded company faces pressure from the stockholders because the stockholders obviously do not want their money to be lost. The publicly traded company has to have in mind that they are dealing with the money of others, and not their own. Privately owned businesses on the other hand are dealing with their own money, and do not need to worry about pleasing stockholders with their decisions.
    3.
    As the article states, directly after a recession, more workers will be working for small companies because they will be able to take them in during the recession. Sometime thereafter workers will start to shift back into the large firms because they will most likely be able to offer more. Personally, I would prefer to work in a small firm because then my skills would be more valued, and my role would also be a lot greater. The draw of the larger firms though is the prospect of better benefits.

  14. dst.clairon 02 Mar 2013 at 1:00 pm

    # jdebeljak

    I liked your post a lot. I specifically thought you did a good job in mentioning how the economy experiences a deflationary gap with the falling demand and supply.

  15. yingnan.wangon 02 Mar 2013 at 9:05 pm

    Why is laying off workers the first thing big companies do when faced with falling demand for their products? Why don’t they shut down factories instead?
    because big companies are responsible for the country economics too, specifically when it’s during recession, plus big companies have a lot of shareholders, if during the recession, companies just shut down, the shareholders wouldn’t be happy with that, and it will make the economics even worse since the unemployment will be very high if the big companies shut down, and I also think it will make it harder for companies to open again after recession.
    What pressures does a publicly traded company (one that sells stocks to investors) face in times of recession that a small, privately owned business does not?
    the consideration of take responsibility of the economics of the country, big companies need to help the government to go out from recession, and big companies also need to satisfy a lot of shareholders, compare with big companies, small companies don’t need to think about that that much.
    When the global recession is finally over, do you think more people or fewer people will be working for small companies (less than 50 people) than before the recession? What would you rather work for, a small firm or a large one? Why?
    the beginning of the recovery, more people will work for small companies because during that time, the unemployment rate will still be high and small companies will not lay off workers easily, but in the end of recovery, more people will work for big companies because big companies are willing to pay more than the small companies, I personally think I will work for big companies, because they pay more, even though we will take the risks of being fired.

  16. yingnan.wangon 02 Mar 2013 at 9:07 pm

    #Samantha
    I really like your answers about number 3rd question.

  17. kyuhwanlon 03 Mar 2013 at 8:13 am

    1. Why is laying off workers the first thing big companies do when faced with falling demand for their products? Why don’t they shut down factories instead?

    Big companies must lay off workers or else they would have too much supply and not enough demand. They must decrease production to match the decreased demand at the new equilibrium. As wages are fixed in the short term, big companies cannot lower the wages of the employees so they must fire them. They wouldn’t close down factories because of the prospect of the demand bouncing back. It would cost too much for companies to reopen factories if demand goes back up, instead, hiring employees would be cheaper.

    2. What pressures does a publicly traded company (one that sells stocks to investors) face in times of recession that a small, privately owned business does not?

    Investors buy stocks in hopes that the company will do well and yield dividends or profits to the investors. If investor confidence is lost and shareholders sell their stocks, then companies will lose money and can face bankruptcy. Consequently, publically traded companies must give incentives or try to raise investor’s confidence. Contrary to big companies, small businesses have no worries like this because there are no shareholders and all the investment came from their own pockets.

    3. When the global recession is finally over, do you think more people or fewer people will be working for small companies (less than 50 people) than before the recession? What would you rather work for, a small firm or a large one? Why?

    I think more people will be working for small businesses because that’s where the work force would during the work force. It will also take time for the work force to adjust post-recession periods. Therefore, in the short run after the recession, the work force would be employed by small businesses, yet as time progresses, the tighter labour market would lead to bigger companies giving more incentives to attract skills labourers.

    I would work for a large company because large brand name has relatively better consumer confidence than smaller companies. Also larger companies have better benefit packages such as health care and insurance.

    # yingnan.wang

    I like your comment on the second question of how large companies can help the government. I do agree that large corporations influence the government such as in the US with the companies of Wall Street receiving bailout from the government.

  18. joana wanderleyon 05 Mar 2013 at 1:39 pm

    1. Because that means that they gain profit by not having to spend so much money in wages (it is usually the employees with minor wages whose job will not affect the company’s production greatly). Moreover, employes are easily replaceable and accessible whereas even the process of shutting down a factory can be long and have a long – term affect on the company.

    2. They have to worry more about their outcome and revenue as their production or even profit may affect others who in the first place give them the capital to produce whatever is being produced. This usually means more pressure as contracts and legal matters are more involved with publicly companies as they have a larger number of shareholders and they are usually other enterprises or their owners who may willingly stop investing in the company if they see that it is in trouble, which leads to more pressure if the company if income stops coming as they are already in recession.

    3. Fewer people, because the bigger companies will now be hiring at higher wages (as they would have now more capital to invest on employees and not in their investors) and more opportunities for the employee himself or herself in the future as a job experience and even a higher promotion therefore the bigger company would benefit people in the long run. I would rather work for a small firm in the beginning as I would get more experience and therefore when I moved to the bigger company I could get a higher rank of job. I’d move to a bigger company as, said previously, it would benefit me on the long – term.

  19. TranHon 05 Mar 2013 at 4:54 pm

    1. Why is laying off workers the first thing big companies do when faced with falling demand for their products? Why don’t they shut down factories instead?
    Because they are big companies, if they shut down, the economic system of the country would be negatively affected. More accurately, in another word, since they have a lot of shareholders, big companies are responsible for the economy of the country, especially during recession. Laying off workers helps those companies longer the time before the business really go down, for them to still make more profits, also, gives the chance for those companies’ demand to go up again. Moreover, laying off workers will reduce supply, as the demand is low; doing that helps equalize demand and supply a little.

    2. What pressures does a publicly traded company (one that sells stocks to investors) face in times of recession that a small, privately owned business does not?
    Publicly traded company has quite a lot of pressures during recession. First of all, there are shareholders. Shareholders are very important because they support the company by their money, and they need to be satisfied. Furthermore, publicly traded company is usually big company, which means they have responsibility to the country’s economy, they need the government’s help to get out of the recession. Small business doesn’t have to concern about those things that much.

    3. When the global recession is finally over, do you think more people or fewer people will be working for small companies (less than 50 people) than before the recession? What would you rather work for, a small firm or a large one? Why?
    In my opinion, after the recession, more people will work for small companies because at the period of time, a lot of people don’t have a job, since they were fired by the big companies; and also because small companies is not likely to lay off workers easily, plus, during that time, big companies are recovering, they won’t take a large amount of workers in. Personally, I would really rather work for big companies, because obviously, my income would be better even though they are still recovering from the recession.

  20. TranHon 05 Mar 2013 at 4:58 pm

    # yingnan.wang: I have pretty much the same idea with you, I would prefer to work for big companies

  21. sbroughtonon 05 Mar 2013 at 6:18 pm

    • Why is laying off workers the first thing big companies do when faced with falling demand for their products? Why don’t they shut down factories instead?
    Well, because workers are there to help you produce more goods and services but, if you are selling less of those goods and services than before, then you don’t need the extra labor to create so much supply. Shutting down factories would also cause huge layoffs but, the fact is, all the costs of not only starting up a factory once the economy is back on track but shutting one down during a recession are much greater than if the company were to just fire a few hundred or thousand people.

    • What pressures does a publicly traded company (one that sells stocks to investors) face in times of recession that a small, privately owned business does not?
    Unlike CEOs or business owners, investors don’t have as much of an attachment to an individual business. They’ve likely put a little bit of cash into many business and, so, when it comes time to decide whether a business is profitable enough during a recession, will be much more ruthless. Small, privately owned business, however, are controlled by those who are more interested in the welfare of the company and, so, even if they aren’t making as much money as they could during a given period of time, they will not give up the important factors of production like labor (employees) or capitol (factories) to remove a temporary financial burden.

    • When the global recession is finally over, do you think more people or fewer people will be working for small companies (less than 50 people) than before the recession? What would you rather work for, a small firm or a large one? Why?
    I think there will be more people working for small companies simply because start-ups are a big thing now and everyone is looking to get rich off the latest innovations and ideas in the technology front. My preference for what company I’d work for is less dependent upon the size and more so on my influence within that company. Climbing the ladder in a large corporation can be tough and, so, if I were to start out at a low level, I wouldn’t have much fun. However, if you can get into that corporation at the ground level, before it’s even made a name for itself, then you’ve got a chance of really making a difference. That’s what I’m interested in and I think that’s one advantage of working in a small firm. However, the most important factor for me is whether I feel this company has made decisions that I support in terms of how they serve their customers and how they present their products.

  22. sbroughtonon 05 Mar 2013 at 6:22 pm

    #joana wanderley

    I had the same thoughts you did on that question. Not only are you looking at shutting down an entire factory and losing almost all the people in it, you’re ensuring a great amount of effort to get that factory back up-and-running if and when you’re company recovers. No matter how you look at it, laying off employees would be much more cost effective.

  23. jvanderelst123on 05 Mar 2013 at 8:06 pm

    Discussion Questions:

    1) Why is laying off workers the first thing big companies do when faced with falling demand for their products? Why don’t they shut down factories instead?
    They lay off workers due to the fact that in a recession the aggregate demand decreases, therefore leading to an over aggregate supply. As a cause of this they will have to lay off workers since they dont need them anymore and also to cut there costs of FOP. If they shut shut down there factories that would mean that they wouldnt be supply anything and therefore not make any money which would be worse than just laying off workers where the firm still makes money. Also shutting down a company would also cause alot more workers to be unemployed than just laying off a percentage and further worsen the crisis.

    2)What pressures does a publicly traded company (one that sells stocks to investors) face in times of recession that a small, privately owned business does not?

    They have huge ammounts of pressure because in order for the company to grow they need investors to invest in there company, that is buy shares, but since in a recession the shareholders confidence is gone and no one is investing anymore many company go bankrupt. where as in small businesses there are no shares and the investments that the business gets comes out of its owners pockets.

    3)When the global recession is finally over, do you think more people or fewer people will be working for small companies (less than 50 people) than before the recession? What would you rather work for, a small firm or a large one? Why?
    After a recession fewer people will work for smaller companies due to a number of reasons. i personally would work for a bigger company because first of all its more rewarding, that is that you get paid a lot more in a big company than in a small company. also the bigger company has better facilities…

  24. jvanderelst123on 05 Mar 2013 at 8:15 pm

    # sbroughton: Commenting on your question 3, in my point of view, yes i do agree with you that everyone is starting there own company with a get quick rich plan. But i really dont think that after a recession employees will stay at a small firm earning low wages waiting for it to “potencially” get some sort of recognition and grow in size a significant amount, i rather think that they will be in need of money and leave the small firms to work for larger firms with higher wages.

  25. tishadon 06 Mar 2013 at 9:24 am

    1. Why is laying off workers the first thing that big companies do when faces with falling demand for their products? Why don’t they shut down factories instead?
    A part of the country’s economy is dependent on theses big companies. If they simply show down when there is a falling demand then there will be an adverse effect on the nation’s economy. Also when number of workers is reduced, then supply will decrease. Since the demand is falling too, it will bring demand and supply more towards equilibrium. Lastly, laying off workers gives the company more time to wait for the market to change.

    2. What pressure does a publicly traded company face in times of recession that a small privately owned business does not?
    If a company sells its stocks to investors, then this means that the company will have shareholders. During times of recession, a companies’ fate relies on all of these shareholders. Since a big company affects the nation’s economy, their decisions will have a causal effect too. Privately owned small businesses do not have any of these problems.

    3. When the global recession is finally over, do you think more people or fewer people will be working for small companies than before the recession? What would you rather work for, a small firm or a larger one? why?
    In my opinion, more people will work for larger companies. During the recession, more small companies will have shut down. These companies do not have much capital and cannot bounce with the changes in the market. They are much less adaptable than bigger companies. So more people will end up working for smaller companies.

  26. tishadon 06 Mar 2013 at 9:26 am

    # TranH
    Your answers are good and well explained. However I would like to differ about your third answer. I don’t think there will be very many small companies to hire workers after the global recession.

  27. mlayurovaon 06 Mar 2013 at 5:17 pm

    • Why is laying off workers the first thing big companies do when faced with falling demand for their products? Why don’t they shut down factories instead?

    Factories are long-term investment, and once they shut down it is harder to re-open them, than to hire new workers. That’s why for big businesses it is easier to lay off some workers and reduce costs of production when the demand is lower.

    • What pressures does a publicly traded company (one that sells stocks to investors) face in times of recession that a small, privately owned business does not?

    During the recessions the investors are not confidence in their investments, thus there are less of them made, therefore it puts pressure on the big companies. While privately owned companies don’t encounter with that type of problem.

    • When the global recession is finally over, do you think more people or fewer people will be working for small companies (less than 50 people) than before the recession? What would you rather work for, a small firm or a large one? Why?

    I believe, that more people will work in big companies. First of all, because the big companies offer more – higher wages, better facilities, stability, etc. And small businesses are less adaptable, and stable. So I would prefer to work in a big company.

  28. mlayurovaon 06 Mar 2013 at 5:57 pm

    # TranH
    I partially disagree with your answer to the third question, because I think when demand will increase, the companies will hire people anyways to increase their output and even if they are not aiming to hire a lot of people, there still will be possibility to get a job in a big company.

  29. bdiaz17on 06 Mar 2013 at 6:39 pm

    1. Why is laying off workers the first thing big companies do when faced with falling demand for their products? Why don’t they shut down factories instead?

    It is easier to lay off some workers and try to sell products even though it will be in a smaller scale. Instead, if they shut down the factory, there is not a way to get out of the recession or keep producing.

    2. What pressures does a publicly traded company(one that sells stocks to investors) face in times of recession that a small, privately owned business does not?

    Publicly traded companies have pressure because they need to satisfy their certain shareholders. Privately owned business can take decisions without having to satisfy anyone thus making their job a whole lot easier.

    3.When the global recession is finally over, do you think more people or fewer people will be working for small companies (less than 50 people) than before the recession? What would you rather work for, a small firm or a large one? Why?

    I think that when the global recession is finally over small companies will have less workers than before the recession had started. This is because the small companies are not able to offer as much work security as a large company can offer.
    I would work in a large company because in my opinion the work security is higher than a small company.

  30. bdiaz17on 06 Mar 2013 at 6:45 pm

    # jvanderelst123 I agree with you that is more rewarding to have a job in a big company, but I also think you have more chances of keeping your job during a recession.

  31. jinakasemsarnon 08 Mar 2013 at 8:29 am

    1. Workers are a huge part of running a business. They are one of the biggest or perhaps the largest cost of productions for many companies. More workers means more cost of production. Shutting down factories completely would stop all possible output. Laying off workers when demand falls allow the company to decrease some cost of production to respond to the decrease in the overall sales. This would allow firms to still generate some profits or at least survive through the low consumption phase. If firms choose to keep workers despite a decrease in demand, firms would probably experience insufficient demand to buy up potential output that could be produced when full employment of production is reached. Hence, losing workers will still keep the company running as they still have some demand.

    2. Publicly traded company is a company that sell shares to the general public. There are many parties involved in the company. Thus, these companies may face pressure from these investors to do well during a recession. I also think that with many people involved, it will face problems with slow decision making. Hence, it may be difficult for companies to make a final best decision for the company. Not only that, since investors expect the company to yield profits, public companies may choose to deal with problems for short term results rather than long term results.

    3. After the recession, more people would probably be working for small companies. During the recession, big companies would most likely lay off workers. These workers may now seek employment from small companies that are keen to keep the business going. Wages are probably more flexible for small companies. Most of these people are willing to accept any level of wages that they can get. However, as the article stated, once the economy is growing again, more people are likely to work for big companies as they have the ability to offer higher wages. Big companies are now more likely to grow faster and as such, they would need more work force. Many of these workers would find big companies more promising and more attract.

    I reckon choosing between big companies and small companies is rather a difficult decision if I am just a part of the workforce, not a big manager or a CEO. Small companies may offer a tighter community, where if your talent is good, you may be more recognized. And in times of recession, you may not be laid off easily since everyone probably matters. The future may be promising. The firm may have more flexibility in changing what is suitable for everyone and for the company. It may be more interested in looking at long term decisions, such as the growth of the company. Large companies, on the other, may kick you out any seconds. Surely, big companies would probably offer higher wages as it is probably the “dominance” of the industry. It probably has more consumer confidence, just like Kyuhwan Large companies may make decisions that best suit the overall, rather than everyone. Thus, during a recession, it doesn’t care if it needs to lay off thousands of labour. In conclusion, I would probably choose to work for small companies since the economy isn’t so certain.

    Comment: # sbroughton
    Your opinion on working for small company or big company is really persuasive! I agree that it is easier to be recognized if you have the talent and you may even earn more than the people that work for large companies.

  32. nnielsenon 08 Mar 2013 at 10:45 am

    By shutting down their factories, the firms will not make any money at all. The aggregate supply, of course, will decrease if you lay off workers, but this again is due to the decrease in demand. Lower demand leads to lower supply. In many cases, economic flow leads to yet another peak in the demand, which opens for employment again. It’s all a cycle.

    In small companies, the owners are comfortable with their stocks, they can wait it out, whilst in other companies, many parts are involved in the company, and the confidence will decrease significantly during a recession. They need to satisfy their shareholders.

    Lack of stability, and also wages and so makes me want to work for a bigger company. They offer more security. I think this is the case for most people.

  33. nnielsenon 08 Mar 2013 at 10:46 am

    jvanderelst123

    You’ve done a great job, and it seems to me that we agree on most of the questions.
    I would also prefer to work in a bigger company.

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