Inflation's Demise:Labor Cost Control
During periods of persistent surplus capacity, manufacturers can be expected to reduce their variable labor costs as much as possible. This may be done through elimination of overtime, shift reductions, work-hour reductions, temporary or permanent pay cuts, temporary or permanent layoffs, and reduction of employee benefits. Further, operations may be scaled back or eliminated at high-cost union shops, as well as within high-cost or restrictive labor markets such Germany and labor markets characterized by low unemployment such as the United States.
These effects will be moderated by substitution of variable labor for fixed assets in the drive to control overhead costs, as previously demonstrated. In doing so, however, manufacturers are likely to accelerate the redeployment of productive capacity from high-cost, capital-intensive locales such as the United States to low-cost, labor-intensive regions such as Asia or Central and South America.
These actions may have adverse and increasing social effects, as dramatized by recent protests in Seattle and Washington, D.C. against the International Monetary Fund and World Trade Organization. Worker demands for improved economic security may lead to renewal of isolationist policies in some locales, which would effectively reverse the economic liberalization and globalization trends of recent years.
Business models designed to optimize performance in the previous climate of unrestricted free trade will have to be adjusted to take account of the artificial incentives and penalties created by any new government regulations. This is likely to create new demand for localized regulatory compliance systems that address taxes, duties, tariffs, prohibited goods and foreign exchange controls. At the same time, reduced demand can be expected for general business and supply-chain management systems designed to integrate the unrestricted operations of multinational enterprises.
These effects will be moderated by substitution of variable labor for fixed assets in the drive to control overhead costs, as previously demonstrated. In doing so, however, manufacturers are likely to accelerate the redeployment of productive capacity from high-cost, capital-intensive locales such as the United States to low-cost, labor-intensive regions such as Asia or Central and South America.
These actions may have adverse and increasing social effects, as dramatized by recent protests in Seattle and Washington, D.C. against the International Monetary Fund and World Trade Organization. Worker demands for improved economic security may lead to renewal of isolationist policies in some locales, which would effectively reverse the economic liberalization and globalization trends of recent years.
Business models designed to optimize performance in the previous climate of unrestricted free trade will have to be adjusted to take account of the artificial incentives and penalties created by any new government regulations. This is likely to create new demand for localized regulatory compliance systems that address taxes, duties, tariffs, prohibited goods and foreign exchange controls. At the same time, reduced demand can be expected for general business and supply-chain management systems designed to integrate the unrestricted operations of multinational enterprises.
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