Working on Computer and Phone

Preparing for a Layoff

In the recent past, my company announced that it is being sold.  It is a large public company, so it made pretty big news in the industry and locally, as it is the biggest private employer in the state.  For the sake of privacy, I am not going to disclose the name of the company I work at as long as I am an employee.  (I'll just say that I work in one of the buildings in this picture)

At the time the “merger” was announced, we were told that the deal is expected to close in the first half of 2010.  Based on that knowledge, I figure that I have a year or so left at this company.

I recently asked the readers whether they would focus on saving or loan payments in the short term.  One astute commenter, Suba from Wealth Informatics, asked if I expected my financial situation to change in the near future.  That clearly is a yes.

I expect that I will receive a 3 month paid severance at the time I am let go.  That will be after March 31st.  There are a lot of questions surrounding my team’s position in the merger.  I am in the treasury department, but my specific group does not have a counterpart at the new company, so our value to the company would not be duplicated.  I would say I have about a 20% chance of not being laid off at all.  My employer told me that I should have notice of three to six months before the layoff occurs.

I have been thinking about building up my savings a bit more for safety’s sake.  I have taken solid steps to do that.  While it is not automated, I am taking $200 per paycheck and stashing it away in a savings account.  I have maintained my $250 per paycheck student loan payment and paid off my car completely.  My only big fixed costs are rent ($615 per month), utilities ($150 per month including TV and phone), car insurance ($120 per month), and eating.

Having just finished an MBA, I am not too worried about finding a job.  However, there is always a risk that it will take time.  I am hoping to be able to spend a month backpacking in Europe and two months job hunting with the severance pay.

So, now that you know more about my future financial situation, what would you do to keep on top of things with the knowledge of a pending layoff?

Are Layoffs Good for the Economy?

Unemployment rates are one of the top economic measures used to measure the economy. The general mindset is that low unemployment is good and high unemployment is bad. While there are many truths to that statement, most people ignore the good parts of a high unemployment rate.

Good for Businesses

Companies generally try to avoid layoffs to keep their workers employed and producing. Large, widespread layoffs are bad press and bad for the individual workers. Companies usually lay people off for one of two reasons: cost cutting or efficiency increases.

If a company cuts costs, it increases profits. Increased profits mean that the company has more free cash flow to invest in expanding the business or will return a higher profit to investors. Either way, no one can argue that increased capital investment and profitability is bad for the economy.

Investors and politicians are hung up on employment data, but they are ignoring that many companies are posting major profits. In many cases, companies are posting record profits or have returned to pre-recession levels.

Encourages Education

While some may argue that education is not good intrinsically, I argue that it is. Coming from a family of educators, I think furthering your education is one of the best decisions anyone can make.

While the cause for the motivation is not great, any motivation to increase your job skills and educate yourself should be welcome. The unemployment rate for people with business and engineering degrees is lower than other areas and the unemployment rate for people with advanced degrees is much lower than people with less education.

A lot of people are going back to school during their unemployment. Those skills will ultimately raise the standard of living of those going through the programs and will increase their productivity when they re-enter the work force.

Mixed Bag

I know that this is the optimist look at a bad situation, but it is important to focus on the major benefits to companies after layoffs. As long as the quality and quantity of work is not compromised, there is no reason to keep the extra expense.

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