33. The following is part of a business plan being discussed at a board meeting of the Perks¹ Company.
“It is no longer cost-effective for the Perks Company to continue offering its employees a generous package of benefits and incentives² year after year. In periods when national unemployment rates are low, Perks may need to offer such a package in order to attract and keep good employees, but since national unemployment rates are now high, Perks does not need to offer the same benefits and incentives. The money thus saved could be better used to replace the existing plant machinery³ with more technologically⁴ sophisticated equipment, or even to build an additional plant.”
Discuss how well reasoned... etc.

The author of Perks Company’s business plan recommends that funds currently spent on the employee benefits package be redirected to either upgrade plant machinery or build an additional plant. The author reasons that offering employees a generous package of benefits and incentives year after year is no longer cost-effective given current high unemployment rates, and that Perks can attract and keep good employees without such benefits and incentives. While this argument has some merit, its line of reasoning requires close examination.
To begin with, the author relies on the reasoning that it is unnecessary to pay relatively⁵ high wages during periods of high unemployment because the market will supply many good employees at lower rates of pay. While this reasoning may be sound in a general sense, the particular industry that Perks is involved in may not be representative of unemployment levels generally. It is possible that relatively few unemployed⁶ people have the type of qualifications that match job openings at Perks, if this is the case, the claim that it is easier now to attract good employees at lower wages is ill-founded.
Secondly⁷, the argument relies on the assumption that the cost-effectiveness of a wage policy is determined⁸ solely⁹ by whatever wages a market can currently bear. This assumption overlooks the peripheral¹⁰ costs of reducing or eliminating benefits. For example, employee morale¹¹ is likely to decline if Perks eliminates benefits; as a result, some employees could become less productive, and others might quit. Even if Perks can readily replace those employees, training costs and lower productivity associated with high turnover¹² may outweigh¹³ any advantages of redirecting funds to plant construction. Moreover, because the recommended reduction in benefits is intended to fund the retrofitting of an entire plant or the building of a new one, the reduction would presumably be a sizable one; consequently, the turnover costs associated with the reduction might be very high indeed.
In conclusion, this argument is not convincing, since it unfairly assumes that a broad employment statistic¹⁴ applies to one specific industry, and since it ignores the disadvantages of implementing¹⁵ the plan. Accordingly, I would suspend judgment¹⁶ about the recommendation until the author shows that unemployment in Parks’ industry is high and until the author produces a thorough cost-benefit analysis of the proposed plan.