Question

Please use the economics knowledge you have learned so far to analyze the case below. You can propose your own questions and then answer them. Remember, there is no absolutely correct answer to this exercise. Its purpose is to provide you an opportunity to demonstrate your ability to think like an economist by applying economic principles to interpret the logic of a real-world phenomenon. Why Is JPMorgan Chase Laying Off Workers? Many workers lost their jobs during the 2007–2009 recession and the banking industry was hit especially hard. JPMorgan Chase, the largest bank in the United States, saw its profit decline by two-thirds from 2007 to 2009. By 2015, the U.S. economy and JPMorgan were well into a recovery, but banks were still struggling for three key reasons: Interest rates remained at low levels, increased regulation caused some banks to stop certain activities—such as making student loans—and technological change resulted in more activity taking place online. In May 2015, JPMorgan announced it would lay off 5,000 workers. Three other banks—Bank of America, Citigroup, and Wells Fargo—also laid off workers for similar reasons.

Answer 1

Every organization whether banks or any other industry will try to cut it's cost and increase its profits. The following are some reasons for JP Morgan laying off people:

• Low interest rates. When interest rates are low people spend more and take more loans resulting in economic growth. But there is other side of coin.When people can't earn attractive interest income on their money in savings accounts and certificates of deposit, they either use their money to pay down debt or invest in goods, services or assets like houses and stocks. This means banks lose deposits.However, when interest rates are abnormally low, banks don't have a high deposit base and the income from loans doesn't encourage taking risks, so they only loan to borrowers with the highest credit ratings and substantial assets to collateralize those loans.Uf the interest rates are very low then it can result into liquidity trap and slow the economic growth . This is because the flow of money does not go to main Street economy rather it is being used for payment of loans or investment in assets thus resulting in unemployment and deflation. When banks have less deposits and economic growth is slow then obviously they will look for ways to cut costs in firm of laying off
• Increased regulations. Banks have been guided by strict regulations in granting loans to avoid the occurrence of non performing assets . If the number of defaulters are high then banks will run into losses. Also being selective in granting loans will result in lesser profits but will avoid the possibility of potential losses. Again to cut the costs it had to lay off the people.
• Technological Changes. Technological Changes affect employment a lot. Online banking and use of internet have resulted in less requirement of banking staff. Also with growing popularity of machine learning and artificial intelligence requirement of manpower has reduced. This has resulted in laying off the extra banking staff as automation helps in reducing costs and increasing efficiency and productivity by speedy transaction processing and increasing the level of accuracy