Why layoffs?

Corporations in financial straits lay off people “to protect the future of the corporation”. There are at least two fallacies inherent in this reasoning:
1) If the people laid off are developing future products, the ability of the corporation to bring these products to market will be impaired. You may think no corporation would ever lay off product developers, but based on 34 years working in technology-based companies, I can assure you they do.
2) If the number of corporations laying people off becomes too large, the impaired purchasing power of consumers may sink the economy.

Alternatively some companies have simply cut the salary and hours of staff members. The individual remains employed and therefore available to the corporation, albeit at a lower salary, but with more free time, which he can use as he sees fit.

Why isn’t this done more frequently? I suspect the main reason is the cost of keeping an employee on the payroll: Insurance, withholding, social security, paperwork, various government mandates … There is a minimum cost just for maintaining an individual on the payroll.

There are financial considerations for the employee. A company cannot pay an individual’s medical insurance if he works less than 30 hours per week. There is no such thing as partial unemployment. Either an individual is employed and ineligible for unemployment, or he’s not employed and can’t earn any money without endangering his unemployment.

One solution is simply for the employer to change the employee’s status to that of a contractor, so the company doesn’t have to withhold Social Security and income tax. This might require a change in the law, or a reinterpretation of existing laws defining what a contractor is, but it would allow the employer to reduce the cost of keeping the employee on the payroll.
Better yet would be looser laws about employment. Let employees opt out of social security, medicare and withholding . Let the employer decide what level of employment is necessary to extend healthcare benefits.

Thanks to Bob Kuhl for a discussion that gave some insights into the consequences of part-time employment.