Stick or Carrot: Employment Through a Cisco Lens

In a recent interview, the ever-bullish John Chambers stated that Cisco would hire between 2,000 and 3,000 workers this year. He then added:

“Assuming that governments create the right environments for job creation, we’d like to balance it about 50% here and 50% around the world.”

This statement is significant in two ways.

First, Cisco had a blowout earnings report recently (9.8 B in revenue) and employs nearly 65,874 people. At best, this means, a golden company like Cisco will increase number of new hires in the US by 1500 jobs, or 2.25%. Not that much.

Moreover, a key part of Cisco’s growth model is strategic alliances, meaning that Cisco will be looking to not only improve their revenue-to-employee ratios but also to leverage worker productivity of partner companies ─ an admirable business model, but not so good for employment. Maybe it’s time to dust off Hayek’s “The Road to Serfdom” and really read it this time.

But what’s even more interesting is the conditional statement that precedes the employment information. What is the “the right environment” for job creation? Should we interpret the phrasing as a stick or a carrot?

In any case, the implication is that if Cisco does not like current or changing conditions in US markets, it will take its ball and play elsewhere. Cisco is clearly playing from a position of strength in an unbalanced economy.

The bottom line? Layoffs are declining and the economy is showing signs of recovery, but employment is not improving that much and is not likely to improve substantially in the near future (see employment report highlights below).

We may be seeing increases in capacity and business investment, but the more likely scenario is that new hiring of permanent workers will be minimized, temporary workers will see increases, and employees will be working longer and harder to keep the wheels of industry turning. Tax credits or no tax credits.

Disclosure: the author owns shares of CSCO.