Reducing Layoffs as Economic Stimulus

President-Elect Obama has proposed that $10 billion of his economic stimulus package be dedicated to expanding and extending Unemployment Insurance to help people who have lost their jobs. Given the fact that the unemployment rate increased from 4.9% to 7.2% last year, this appears to be a good idea. However, I have a suggestion for him - redirect some of those funds to encourage companies not to layoff their employees in the first place! As we all know, companies are laying off employees in alarming numbers to cope with the recession. Aside from the terrible impact layoffs have on those directly affected, they also have insiduous effects on the company and society as a whole:

1) Low morale and reduced productivity - The employees that survive layoffs are typically traumatized by the experience and are constantly watching over their shoulders to make sure they don't go next. A culture of worry permeates the environment and workers spend significant amounts of time discussing the layoffs, what happened to their colleagues who were let go and what the future holds. Consequently, although everyone keeps up the appearance of being busy, productivity takes a big hit. Given the fact that we have a knowledge economy, the impact of the reduced productivity of employees cannot be overstated.

2) Increase in consumer fear - Every time another corporate layoff and the increasing unemployment rate becomes public news, consumers become even more afraid that their company may be next even if their company has announced no such plans. This fear contracts consumer spending even further thereby making the economic crisis worse, thereby increasing the number of companies that feel pressured to layoff employees.

This vicious cycle will continue to perpertuate itself unless companies are given an incentive not to layoff their employees. A few ideas include:

a) Tax breaks for companies who don't take part in layoffs

b) Tax incentives for companies to utilize Flexible Working Arrangements to reduce payroll costs

c) Tax breaks for employees who agree to a reduction in their salaries and benefits
Do you have any other ideas as to how to reduce the layoffs epidemic? Do you know any company being creative about managing payroll costs? I would love to hear from you.