When revenues are squeezed options exist beyond downsizing
Bahrain’s government chose to offer early retirement to shrink its workforce.

When companies or governments face a squeeze on revenues, they may be forced to slash labour costs.

Traditionally, employers tend to favour downsizing their labour force, rather than decreasing compensation. This principle was adopted by the Bahrain government in October whereby, in response to fiscal pressure, instead of cutting wages in the public sector it launched a voluntary retirement scheme that it hoped would be adopted by a large number of public sector workers. The main reason was the desire to maintain the living standards of Bahraini citizens. However, company managers often avoid wage cuts at all costs, suggesting that some principles of managerial economics may have also played a role in the Bahrain government’s decision.

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