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Cope with recession
06 Nov 2017 (32 views)

In a recession, the business activity is subdued and the sales revenue decrease. The business has to cut its expenses to remain profitable.

The usual way to cut expenses is to lay off workers. It can be traumatic for the workers that are laid off. They have financial commitments. 

Some companies adopt a better way to handle this situation. They ask the workers to take compulsory no-pay leave. For example, if the workers that one day off every week, the company will cut its expenses by 20%. 

It is better for workers to cope with a 20% reduction in earnings, rather than to suffer a 100% reduction.

Some workers have financial commitments, and cannot cope with a 20% reduction in earnings. A good way is for them to have access to a government loan to cover the reduction of earnings. This loan can be administered by the employer for the government. The interest rate on the loan can be at the same rate as government bonds.

When the economy recovers, the workers can go back to a full work week. If the economy is strong, they can work overtime to earn the extra income. That would be a good time for them to repay back the loan.

It would be better for workers to be prudent and not spend 100% of their earnings in good times. They should have a 15% saving rate. This allows them to suffer a 15% reduction of income, during a recession, without having to borrow money to meet their living expenses. 

For this to be possible, the worker must earn an adequate income during good times, and the cost of living must be kept at a level that is commensurate  with the wages. The cost of living cannot outstrip the wages.

What I described above is a sound system that a good government should implement for the country.

Tan Kin Lian
 


Cope with recession
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In a recession, the business activity is subdued and the sales revenue decrease. The business has to cut its expenses to remain profitable.

The usual way to cut expenses is to lay off workers. It can be traumatic for the workers that are laid off. They have financial commitments. 

Some companies adopt a better way to handle this situation. They ask the workers to take compulsory no-pay leave. For example, if the workers that one day off every week, the company will cut its expenses by 20%. 

It is better for workers to cope with a 20% reduction in earnings, rather than to suffer a 100% reduction.

Some workers have financial commitments, and cannot cope with a 20% reduction in earnings. A good way is for them to have access to a government loan to cover the reduction of earnings. This loan can be administered by the employer for the government. The interest rate on the loan can be at the same rate as government bonds.

When the economy recovers, the workers can go back to a full work week. If the economy is strong, they can work overtime to earn the extra income. That would be a good time for them to repay back the loan.

It would be better for workers to be prudent and not spend 100% of their earnings in good times. They should have a 15% saving rate. This allows them to suffer a 15% reduction of income, during a recession, without having to borrow money to meet their living expenses. 

For this to be possible, the worker must earn an adequate income during good times, and the cost of living must be kept at a level that is commensurate  with the wages. The cost of living cannot outstrip the wages.

What I described above is a sound system that a good government should implement for the country.

Tan Kin Lian