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Comment by zackmorris | Hacker News Reader

Something I've never understood about layoffs is that large corporations have nearly unlimited borrowing power. Amazon's market cap is just over $1 trillion, so it could probably borrow up to ~10x or $10 trillion against that (almost half the US GDP).

Isn't that enough money to keep employees through a downturn?

The flip side is that individuals have almost no borrowing power. The bottom 40% of the US population has a negative net worth, so can't borrow anything:

https://news.harvard.edu/gazette/story/2016/02/the-costs-of-...

To me, this looks like evidence that profit comes from offloading externalities onto the public.

Ordinarily, workers could find work at other companies. But because companies are so large now, they have effective monopolies in markets like shipping. So layoffs could be used as a signal to bring companies up on antitrust charges.

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Why would they keep employees through a downturn? They're profit-driven entities.

Of course they're going to dump externalities onto the public any chance they get, and we should strive to limit their capacity to do so... But in this case I'm not sure what you mean exactly? Nor do I understand what you mean about bringing antitrust because of layoffs? That sounds much more difficult to justify than most of the other reasons you might bring antitrust against these companies.

There are alternative ways to deal with a downturn, in the past German companies have successfully introduced part-time employment for all employees to avoid having to layoff employees. This avoids employee knowledge and experience from leaving, making it easier to scale back up once economy picks up again.

https://www.researchgate.net/publication/277267537_Securing_...

>This avoids employee knowledge and experience from leaving,

Amazon is very specifically optimizing their company to get rid of the need for both of those things!

Not everything people don't like is an externality. It has a specific meaning. Fired workers are not an externality.

But the unemployment that those workers receive is an externality. Now, the nature of UI does mean that it should wash out in the end, but in the near term laying off thousands of people simultaneously potentially puts a strain on the system.

No, unemployment costs is not a externality from the company. It is a public cost resulting from the layoff.

Externality has a specific meaning. It is a cost of production passed on to the customer or third party.

Not everything that has a consequence is an externality.

By your own logic, the government is a third party. Because the government aka the tax payer covers that public cost...

Let's say I'm a good neighbor and I take your trash to the curb. I decide to stop, you now have to take out your own trash or pay someone. That change brings a real cost to you, but it is not my externality.

If I put my trash in your bin, that would be an externality.

Not employing someone is neutral.

Laid off workers and the state are not harmed by the company that stops sending paychecks.

To think otherwise leads to absurd conclusions.

> Why would they keep employees through a downturn? They're profit-driven entities.

Because keeping people paid for a year during a downturn is cheaper than firing them and then rehiring and retraining someone else a year later?

Under what reasoning is it cheaper to keep them?

Under the reasoning that hiring is expensive and training is extremely expensive?

1. The salary of a current employee will always be lower than the salary of a new hire, even a year later,

2. The hiring process itself costs tens of thousands of dollars,

3. A new joiner is useless for 2 months, needs to be babysat for 4 more and will ask constant questions for 6 more (if not 18). This costs the company a lot in terms of support that has to be provided from more senior (in tenure) employees.

This comment is unnecessarily cynical.

The unemployment benefits system is indeed designed to buffer against unemployment which is why both employees and employers pay into it.

What's unnecessarily cynical? They have a duty to shareholders.

I like how the word greed not got replaced with duty.

This is like how in medieval times it was your duty to serve the lord and make him rich.

Lol it cannot borrow 10 trillion $$. Where are these make believe numbers coming from? And it can carry the employees at somewhere between moderate to severe risk of bankruptcy (in the case of amazon, it is lower than moderate).

If you have a crystal ball and know when the economy will reverse, no one will fire anyone. Otherwise you have to cut costs and human labor are the biggest costs in most companies. Sure, we could get into a culture where we ask people to take pay cuts for a brief period in return for stability but that seems to not work for some reason so people get laid off.

They absolutely certainly can not borrow 10 trillion USD. They do have massive revolving lines of credit (think billions, not even 10s of billions, much less trillions) but those come with conditions; it's not like a credit card at that level where you can just use it your whims. I don't even think the Federal government could borrow that amount overnight.

Corporations don't always see attrition as a bad thing, especially amazon. When execs buy to much it's nice to be able to make some returns, especially if it's the stuff you don't really like.

Why go into debt if it's not going to benefit the company in the long term? We don't actually know how long economic downturns can be, or what kind of turmoil will be encountered. Why keep a liability.

Then you have the attitude of management itself. There has been talk for some time that companies have been going crazy with hiring, and that's certainly the case. However, many mangers and execs have gotten in the mindset that their being horribly abused, and their employees have gotten lazy and entitled.

Have you talked to a manager, or CTO in the last few years (off the record, and not as an employee/coworker). They absolutely despise the average working stiff and are relishing the opportunity to exercise their powers again.

Why does a corporation do what is in its financial interests?

That is what they are designed to do. That's why people pay to be part-owners.

If my business is valued at a million dollars and I take out a loan for a million, my business is now valued at 0. That’s basic accounting. Amazon had a net income of 14B last year - no one will let them borrow anything close to their market cap, much less 10X it.

Edit: This assumes I spend my loan on payroll which is what the OP originally suggested.

Your original million doesnt go anywhere. If you start with a million and borrow a million, you now have 2 million in assets and 1 million in liabilities. Your valuation is not zero.

Now, If you pay one million to workers, you are now at zero

> If my business is valued at a million dollars and I take out a loan for a million, my business is now valued at 0.

No, my business would have the existing assets of $1m, new assets of $1m in cash a liability of $1m, leaving a value of $1m

(minus any interest payments)

No, your edit still ignores something else: at the time you took out the loan, you already had a liability for those employee salaries of $1M, so the $1M valuation means that you had at least $2M in assets.

Acquiring the loan moves you up to $3M in assets (original assets, plus $1m cash from the loan) and $2M in liabilities (employee salaries + $1M loan)

When you pay those employee salaries, you wipe out the salary liability and the $1M cash asset from the loan. This leaves you the original $2M in assets, and the $1M loan, for a net valuation of...$1M.

Basically, the loan ends up replacing the salaries as a liability on your balance sheet.

I think you might be misunderstanding how liabilities and assets work. If your business is valued at 1 million already, it means your assets and liabilities net out to $1M. Taking out an additional loan for $1M just gives you $1M in assets AND $1M in liabilities (assuming this is before interest kicks in)... so your business valuation is actually neutral.

Now, if you squander the $1M and don't generate more than $1M+interest, your business will lose value... but you would have to lose $2M to then increase your liabilities to wipe out your original valuation

They don't want to keep the employees and they want the remaining employees to be scared.

Iirc, the Soviet Union used to guarantee a job. Not sure how well that worked out for them, though. Don't they have a massive alcoholism problem still?

And Hitler was Vegan, didn't work out for him either.

Is meth vegan?

My pet theory is this boils down to investor confidence. Executives get more comp in stock, cutting workers sends the right signal.

I second that. These big corps are willing to pay contractor rates for thousands of workers and use phycological manipulation to balance it all out with FTEs. Contractor rate is often double+ FTE pay for the people they work alongside. All of this so they can report lower "employee" headcount.

This exactly. Investors need regular signals that the exec team is on their side. These layoffs (especially in troubled economic conditions) are just the kind of rituals that do that.

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