Question

Explain how substantial hiring and training costs create a buffer that may insulate high-skilled workers from layoffs during an economic downturn.

Answer 1

Economic downturn is a period when the aggregate demand has reduced and recession is occurring. This forces companies to reduce production, layoff workers and reduce wages.

When there is substantial hiring and training of workers,it implies they have gained the skills required to work in the company and also the company has incurred cost on their skill training.

Hence during recession or economic downturn,when there is a decision to layoff or fire workers, this high skilled group of workers would be insulated from it. This is because the cost of their skill upgradation has already being done and though the company might not require their complete potential at the moment, firing them would turn out to be more expensive. This is because , after the period of recession is over, the company would want to restart the production and would hire workers again, both skilled and unskilled.

This would lead to an increased cost of training the workers , which was previously incurred on the workers laid off. Hence even during recession, the company would not layoff high skilled workers who were trained and hired after substantial costs.

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