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Economics/Voluntary Retirement Scheme (VRS).

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Question
Dear Dr Raza

http://economictimes.indiatimes.com/definition/voluntary-retirement-scheme
http://www.pbdisinvest.nic.in/pdf/vrs_scheme.pdf
http://business.gov.in/manage_business/vrs.php
http://dpe.nic.in/important_links/dpe_guidelines/voluntary_retirement_scheme
http://www.slideshare.net/AshwiniPise/voluntary-retirement-scheme1


1. Are these schemes provided by both public and private sector companies ?.
2.What are the Business benefits for the cos who are offering VRS Schemes ?.
3.What are the primary reasons for offering these VRS Schemes by cos ?.
4.People who opt for VRS can apply for other job/s in the same industry sector ?. example Banks, Healthcare, Manufacturing etc with the same pay scale,perks and designation which they were working.

Awaiting your reply,

Thanks & Regards,
Prashant S Akerkar

Answer
Hi Prashant,
Thank you for posing a socioeconomic question that has political, philosophical, legal, and psychological implications.

Let me first tell you that this concept is a recent development. This basically originated mainly in late twentieth century when profit-motivated ethos began to pervade the warp and woof of societies that had so long been woven into a moral-based structure. That started from the developed free-enterprise economies but made its starkest mark in developing countries.

The boundless strides in commercial undertakings, fed on productive efficiency (not necessarily allocative efficiency)and profit maximization, led to a shift in the "deontological" interpretation of business. That is to say, the very set of ideas and notions in the extant ethics underwent a drastic change. Before, it was more or less assumed that "business is for people." Now there was the new drift: "people are for business." So VRS, in its pristine interpretation, springs from the idea that humans are created by nature for economic production and are better to be relegated to a "discarded life" whenever their services, even if not on the wane, are redundant.

However, owing the modern caring system for the unemployed, disabled and dependent, especially in the developed countries, statutes were created with a view to economically, though somewhat partially if not stingily,  compensating the individuals who would be shoved out in the uncertainty. There was, however, no sufficient provision to rescue them out of psychological impairment due to the action of VRS.

Second, at the outset this phenomenon took a stronger hold in the private sector than in the public sector, more so in capitalistic societies such as the U.S. or the U.K. than in developing societies such as India or Pakistan. Private sector came under it because the philosophy of "hire and fire" rules the economic arena. Public sector was slightly shielded against deleterious consequences owing to established governmental commitments. We, nonetheless, see some variations.

Henry Ford, for example, got the intimation from his favorite engineer who had designed models for him that, owing to onset of sudden incurable illness, he would not be able to continue with the job. The great guy, Ford, told him he simply CANNOT RETIRE from Ford's company --never. Henry then told him that he would not need to come to the factory and would not need to do anything so long he was sick but would continue to be fully on Ford payroll. He never retired.

Mr. Johnson, proprietor of Johnson & Johnson, once called to Director of Marketing to his office. The Director's plan for a product had caused the company loss of millions of dollars, and the Director entered his boss's chamber in trepidation. Johnson told him not to worry but to continue the "good" job and gave him a raise in salary! You know why? Johnson knew even better than the Director: the same product in due course made so much profit beyond covering the losses.

Yet there are examples that private companies do not at all care for the emotion of their workers. What they want is only profit and growth.

The same think happens, to a lesser extent, in the developing countries.

The private companies also make compensation when employees retire, but that does not compensate those who are forced into retirement prematurely.

In the public sector this works less. Yet in the developing countries like India, Bangladesh, and the like,this is a recent scourge, especially imposed by international agencies and foreign government to which the futures of these countries are mortgaged.

Q2. ARE THE COMPANIES OFFERING VRS BENEFITED?

Yes and no. Yes, because the company offering VRS may have to give a lump-sum amount to the employee. This is sometimes called the "golden handshake." But the company pays, in fact, way much less than what it would have to pay had it continued with the employee. It so happens the employee may not be contributing ANYMORE now as s/he used to, maybe because of shifts in demand for the products or technological redundancy. It so happens that at this prime age one often neither can contribute much in a new setup with new technology nor can find a new job. So when he gets retired, he is often mentally depressed. The financial benefit he might get at one go may not in fact do much to him and his family in the rest of his life, especially when he still may have years of active potential.

No, sometimes. Faulty decision by business based on wrong information may cause loss of experienced hand which may not be replaced. However, this is a very piddling concern, because there is a large army of trained job-seekers.

Q3. THE PRIMARY REASONS FOR OFFERING VRS BY COMPANIES

The companies do so primarily because they want to tidy up faltering business. Profit maximization is the main motive. This may also result from the company's shift from labor-intensive technology to capital-intensive technology.

Q4. CAN PEOPLE OPTING FOR VRS APPLY FOR NEW JOB?

Yes, of course. There are quite a number of cases people get jobs. Sometimes they may even have to change their professions. Optimistic people with perseverance do often succeed, sometimes even spectacularly.

Q5. CAN THOSE OPTING FOR VRS APPLY FOR JOBS IN THE SAME INDUSTRY?

Yes, indeed; they can, and they often do. Legally, there is no bar. Other similar companies --with their product life cycle in the growth phase --sometimes eagerly accept their proficiency. Bankers from ICICI or IDBI may be welcome to private banks. However, the scope is limited. For some getting job in the same field may be difficult. As regards pay scale, perks, etc., they may get what may exceed their previous compensation. Or, they may even settle for less rather than sucking thumb back home.

CONCLUSION
This what I can offer as my suggestions on a very general scale. This is a very challenging new field. There is enough scope for going deep into studies. Best of luck.  

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Eklimur Raza

Expertise

It appears some students in this website are confused about elasticity of demand and the slope of the demand curve when they are trying to figure out why rectangular hyperbola comes up in case of unitary demand curve. First, they don't know that RH can be depicted in a positive quadrant of price,quantity plane. Secondly, they make the mistake that the slope of RH is constant at -1. Two points could help them: first, e=1 at each and every point of the RH, because the tangent at any point shows lower segment=upper segment (another geometric definition of e); yet slopes at different points,dQ/dP, are different; second, e is not slope but [(Slope)(P/Q)]in absolute terms. Caveat: only if we measure (log P) along the horizontal axis and (log Q) up the vertical axis, can we then say slope equals elasticity --in which case RH on P,Q plane is transformed into a straight-line demand curve [with slope= -tan 45 deg] on (log Q),(logP) plane, and e= -d(log Q)/d(log P). [By the way, logs are not used in college textbooks --although that is helpful in econometric estimation of elasticity viewed as an exponent of P, when demand equation is transformed into log-linear form.] I have not found the geometrical explanation I have given in any textbook followed in undergraduate and college classes in Canada (including the book followed in a university where I taught for a short time and in the book followed in George Brown College, Toronto, where I teach.

Experience

About 11 years' teaching economics and business studies, and also English, history and elementary French.Practical experience in a development bank, working with international donor agencies like the World Bank and the ADB. Experience in free-lance journalism, including Canada's "National Post."

Organizations
I teach micro- and macroeconomics at George Brown College (continuing education), Toronto, ON, Canada.

Publications
Many articles and editorials, on different subjects, in English newspapers. Recently an applied Major Research Paper, based on a synthesis of the Solow growth model and the Lewis two-sector model, has be accepted by Ryerson University, Toronto. Professors Thomas Barbiero and Eric Cam, Ryerson University, accepted the paper.

Education/Credentials
Master degree in Interantional Economics and Finance and diploma with honours in Business Administration from Canada.

Awards and Honors
Received First Prize in an inter-university Literary Contest.

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