Elliott Wave Free Forex Signal

February 26, 2009

This article is part of a syndicated series about deflation from
market analyst Robert Prechter, the world’s foremost expert
on and proponent of the deflationary scenario. For more on deflation
and how you can survive it, download Prechter’s FREE 60-page Deflation Survival eBook,
part of Prechter’s NEW Deflation Survival Guide.

The following text was originally published in Robert Prechter’s
February 2009 Elliott Wave Theorist

By Robert Prechter, CMT

During depressions, many businesses make a fatal mistake: They
lay off employees. Some businesses have no choice; if the product
or service is related more to quantity than quality, then perhaps
there is no alternative. But many businesses are far better served
by keeping their employees and reducing compensation. That way,
they can continue to serve customers with full quality and stand
ready to lead the competition when the next economic expansion arrives.

Surely most employees would rather endure an across-the-board salary
cut than risk being laid off. In the 1930s, General Electric polled
its workers on this very question, and the majority agreed that
they would rather endure salary reductions. A few years later, when
the economy recovered, GE had all of its employees in place and
did not have to spend years recruiting new people. It shot out of
the gate in full operating mode.

Moreover, the company had made progress improving designs and making
plans during the lull. When business picked up, so did salaries.
In the end, it was win-win for everyone.

Take, for example, a news service that needs to reduce costs. Instead
of cutting staff by 50 percent, thereby forcing a radical reduction
in the scope of the news coverage, it would make more sense to cut
salaries by 50 percent and retain full service. If lowering the
price of the service would keep the subscriber, viewer or listener
base steady, or if reducing the cost of advertising would keep the
support base steady, it would be better to make one of those moves
rather than cutting staff. Either program would maintain quality
and serve to keep the service in the forefront among news providers.
Inflexible competitors would go out of business, thereby helping
the survivors.

If an airline is in trouble, it should not cut routes and service
while holding prices and salaries up. It should cut salaries and
prices and continue serving the highest possible number of customers.
That way, it will be the carrier of choice for many fliers when
the economy returns to expansion mode. Again, everyone wins, including
the employees.

This idea would work well for any business that does not have long-term
contracts – such as with labor unions or high-level employees
– guaranteeing salaries. Even in such a case, negotiating
reductions would be smarter than going bankrupt.

This approach could work for many kinds of businesses: airlines,
manufacturers, newspapers, shippers and sports teams, to name a
few. If you work for a business for which this plan would serve,
mention it to those in management. Even they would probably prefer
a reduction in income to none at all.

Reducing salaries has another benefit, which is that fewer people
would go to the state for “unemployment benefits,” reducing
the strain on state budgets and taxpayers. If your business would
operate better with all its employees, consider a company-wide salary
reduction as opposed to layoffs.

……….

For more on deflation, download Prechter’s FREE 60-page Deflation Survival eBook
or browse various deflation topics like those below at www.elliottwave.com/deflation.

• What happens during deflation?
• Deflation survival
• Why is deflation bad?
• Deflation personal debt
• And much more in Prechter’s FREE Deflation Survival Guide.

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