Final answer:
The statement is false as companies tend to retain employees during economic downturns to avoid the costs associated with hiring and training new workers when the demand picks up.
Step-by-step explanation:
The concept of undertime implies that a company is operating below its maximum capacity and can therefore easily afford to have fewer hours worked by their employees. However, the statement that 'undertime is used when it is easy to hire employees and is inexpensive to carry inventory' is false. In economic downswings or recessions, companies might shy away from quick layoffs due to the uncertainties about the duration of low demand. If the demand decline is temporary, rehiring and retraining would incur extra costs. Companies often opt to keep their workforce, possibly using understaffing strategically or resorting to overtime when the business climate improves, rather than hiring new employees immediately.This strategy avoids the costs and challenges associated with hiring in an uncertain market and maintains the skilled workforce necessary for when conditions improve. In contrast, having a large inventory can be costly, especially if the products are perishable or become obsolete quickly, so companies focus on strategies like just-in-time production to minimize inventory costs.