Headline: Sign of times: hair-trigger layoffs

Pink slips are proliferating, but they are a different signal than they used to be.

Source: The Christian Science Monitor, 31 Jan 2001

URL: http://www.csmonitor.com/durable/2001/01/31/fp1s1-csm.shtml

The layoffs now rippling through the United States economy may exemplify a new aspect of work in the Information Age: Companies are quicker to pass out pink slips than they used to be.

Why? For one thing, sophisticated data systems now allow managers to see downturns coming sooner. They can more easily spot corporate weak spots, and trim accordingly.

For another, unions are weaker, and job reductions today often include nonunion white-collar workers.

But the biggest change may be in the symbolism of the act. Once layoffs were seen as desperation, a sign that bankruptcy might be blowing in the wind. Now, Wall Street often judges such cost-cutting as a positive move.

Increasingly, a big layoff announcement is a means for management to try to convince impersonal markets that it is on the case and in charge. "Today employers are more willing to have major layoffs at the first sign of trouble," says Gary Chaison, a professor of industrial relations at Clark University in Worcester, Mass.

For the laid-off, this does not necessarily mean a loss of employment is easier to swallow. And right now, the worry, dislocation, and resentment caused by forced unemployment are sweeping through a broad cross-section of US firms.

Last week, layoffs hit Lucent Technologies, J.C. Penney, WorldCom, and Sara Lee. This week, DaimlerChrysler has announced plays to cut 26,000 workers - fully 20 percent of its workforce. Xerox plans to shed 4,000.

The hard-hit Internet sector continues to deflate like a pricked balloon. Dotcom layoffs increased 23 percent in January to a record 12,828, from December's 10,459, according to the outplacement firm Challenger Gray & Christmas.

This spate of layoffs may indicate that an overall business downturn is looming. The force reduction at Chrysler, in particular, marks the largest restructuring in years of one of the big three manufacturers in a core US industry.

Or it may not. A recession could well be hiding just below the horizon, but layoff announcements are not themselves an indicator of a gathering storm, say a number of economic analysts.

"Downsizing per se is not an economic indicator," says Bruce Tulgan, a management consultant and founder of RainmakerThinking Inc.

How concerned are you about your job security? Vote and discuss here. Look at the figures, says Mr. Tulgan. In the third quarter of 2000, 975 companies had layoffs, affecting some 210,000 workers. But in the third quarter of 1999 - a period when dotcoms were still booming and prosperity seemed unabated - 1,072 companies cut some 238,000 jobs.

Globalization and the relentless 24/7 economy may simply have made the corporate world more ruthless. Reorganizing, restructuring, hiring, and firing are a way of life.

Last year, General Motors Corp. had one of the most profitable years in its venerable history. Sales softened toward the end of 2000, however. The reaction? Management announced plans to lay off 15,000 workers and one entire brand, Oldsmobile.

"Markets move faster, and so do companies," says Tulgan.

This trend has been gathering strength since the go-go years of the 1980s, say analysts. But whether this proliferation of pink slips has made corporate America more competitive is an open question.

Layoffs that truly trim dead wood undoubtedly help. And today in general, businesses that are more flexible are also more successful.

Just-in-time employment, in which firms strive to have only the workers they need on a given day, no more and no less, may increase efficiency, as does just-in-time inventory management.

"I'm inclined to think it might have a smoothing effect on the business cycle," says Marvin Kosters, an economist at the American Enterprise Institute here.

But no computer system can perfectly identify an ideal level of corporate employment. And blunt layoffs meant to convey resolve to Wall Street may backfire in the end.

Employees are not leased computers, to be disposed of and reacquired without real cost. Human capital is expensive to train and reacts in unplanned ways to its environment. It's tough for even the best worker to remain productive when surrounded by a sea of suddenly empty desks.

"If [management] could really measure employment needs well, they wouldn't be hiring people they then have to lay off in the first place," says Mr. Chaison.

Currently, the unemployment rate is quite low by historical standards, at around 4 percent. But a slowing business cycle could cause that figure to rise by the end of this year to close to 5 percent, say analysts.

That would still be low compared with past recessions. But for the 1 million or so more workers without jobs, it would be a jolting dislocation in their lives, nonetheless.

-- Andre Weltman (aweltman@state.pa.us), January 31, 2001

Answers

A few observations on this article:

"...sophisticated data systems now allow managers to see downturns coming sooner..."

Sure, ask managers at Hershey Foods or Royal Doulton or Whirlpool how enjoyable those sophisticated systems are.

"...And right now, the worry, dislocation, and resentment caused by forced unemployment are sweeping through a broad cross-section of US firms..."

It’s exactly the psychological impact of losing one’s income that leads to less spending by consumers leading to further declines in revenue leading to Recession/Depression...go ask the Japanese.

Not to mention the extreme and perhaps violent actions to which "resentment" may lead.

"...Just-in-time employment, in which firms strive to have only the workers they need on a given day, no more and no less, may increase efficiency, as does just-in-time inventory management. "I'm inclined to think it might have a smoothing effect on the business cycle," says Marvin Kosters, an economist at the American Enterprise Institute here..."

I expect the exact opposite. "Just-in-Time" means walking right on the edge of disaster, a point covered at length on several discussion boards in the past three years.

"...It's tough for even the best worker to remain productive when surrounded by a sea of suddenly empty desks..."

you would think this would be obvious, but not to the pointy-haired bureaucrats who "manage" modern business.

"...If [management] could really measure employment needs well, they wouldn't be hiring people they then have to lay off in the first place..."

Exactly, relating back to my first point above.

-- Andre Weltman (aweltman@state.pa.us), January 31, 2001.