Saturday, November 20, 2010

Cheapness, layoffs, and small businesses

As mentioned in frequent previous posts, in Cheap: The High Cost of Discount Culture Ellen Ruppel Shell emphasizes the need for small local businesses to stimulate local economy. However, she also emphasizes the need for workers to have salaries that provide them with a decent standard of living (she references a few times Henry Ford's decision to pay his employees enough to be able to eventually buy cars). The small businesses put more money back into the local economy and help create a sense of place within a community.

On December 18th, the mayor's office released the city's financial plan:


http://www.nyc.gov/portal/site/nycgov/menuitem.c0935b9a57bb4ef3daf2f1c701c789a0/index.jsp?pageID=mayor_press_release&catID=1194&doc_name=http%3A%2F%2Fwww.nyc.gov%2Fhtml%2Fom%2Fhtml%2F2010b%2Fpr477-10.html&cc=unused1978&rc=1194&ndi=1


Over a thousand city workers will be laid off as in attempt to balance the budget. In the short-term, this will save NYC money. In the long-term, the layoffs may have a more adverse effect on the city economy. As of October, 2010, the NYC official unemployment rate was 9.2%, the lowest in 18 months:


http://www.nytimes.com/2010/11/19/nyregion/19jobs.html?partner=rss&emc=rss

However, the actual poverty rate in NYC as of 2009 was 21%:
http://www.gothamgazette.com/article/economy/20100927/21/3372



The layoffs will increase the rates of both unemployment and poverty by unemploying city workers. However, they may also cause additional unemployment among non-city workers.

In my previous post, I linked to an announcement that Saturday, November 27th is Small Business Saturday. The NYC small businesses have been hard hit by the high rate of unemployment in the city:


http://www.citylimits.org/news/articles/4207/the-life-and-death-of-the-mom-n-pop


While discretionary spending went up around the country last quarter, it dropped 3% in NYC:

http://online.wsj.com/article/PR-CO-20100922-906779.html


New Yorkers are spending less money on restaurants, clothes, and pets (the NYC shelters are filling up with pets from people who can longer afford to feed them). This is affecting small local businesses, who have had to lay off employees and even close.

These businesses will be impacted even more by the layoffs. Many city employees shop in the neighborhoods where they work while at lunch or after work. They also shop where they live (and most live within the five boroughs). In addition to the city employees, the cultural organizations have also had money cut, and may have to lay off employees, which will increase the unemployment rate even further, and erode the discretionary spending population even further.

Many laid-off NYC workers will apply for unemployment. Many will have to move out of the city, and even the state, leaving a smaller economic tax base and fewer people who are shopping locally. As of October, 2010, 37,000 people were living in NYC shelters, including 9600 families:

http://www.coalitionforthehomeless.org/pages/basic-facts-about-homelessness-new-york-city-data-and-charts

These homeless individuals obviously have limited discretionary spending.

It is obvious that NYC must balance its budget and reduce its expenses. This is a time when cheapness and thrift are needed. However, the short-term solution of cutting employee salaries may have more expensive long-term effects.

How can we cut the NYC budget and help the city get back on its feet? If you have any suggestions, you can submit them to the city at:

http://www.nyc.gov/html/misc/html/2010/ideas.html

This is your opportunity to make the money-saving suggestions that you've always secretly thought!

1 comment:

Anonymous said...

The push for austerity is coming at a difficult time, as the economy is still too weak to stimulate hiring. One intriguing suggestion that came out of discussions at the federal level was to grant a one year holiday on Social Security taxes. The thought is that might stimulate spending and spur enough economic growth to get businesses to hire.