Defense Industry Cutbacks: Real Pain Is Yet to Come
Waiting for a shoe to drop is nerve-racking, especially when you suspect that it’s going to be a Size-16 clodhopper.
Faster than almost everybody anticipated, California’s defense contractors have been whacking away at payrolls, with more than 20,000 jobs expected to vanish from the state this year alone.
They aren’t waiting for the Pentagon or Congress to decide which programs to cut; they’re turning out the lights before somebody does it for them. On Monday, for instance, McDonnell Douglas threw a long-anticipated switch and eliminated 8,000 jobs in Long Beach and 1,000 at other California locations. Many of the jobs lost are in the commercial sector, but the corporate belt-tightening was brought on by the anticipated loss of major defense work.
No one knows how bad it will get. About 20,000 defense jobs in the state were already knocked out between 1987 and 1989. Talk of 100,000 jobs lost by the mid-1990s is beginning to be heard.
So far, though, there is less grimace than the pain seems to warrant. California’s unemployment rate in June was 5%--down from 5.3% in January and below the national rate of 5.2%. The number of people with jobs is still setting monthly records. And even Los Angeles County, which is expected to take the biggest hit during the defense “build-down,” actually showed a drop in unemployment last month versus January--to 5.4% from 5.9%.
However, there are enough early warning signs of what may lie ahead to cause clammy hands in some quarters. Home sales and prices have stalled. Construction is falling into a black hole. Office space vacancies are rising. Help-wanted advertising has shriveled. Retail sales show a loss of fizz.
But why does none of this seem real, at least not yet? It’s partly due to the crescendo of optimistic talk about economic diversity in California and how that’s going to tide us over all this defense layoff unpleasantness.
Last week, for instance, Bank of America’s chief California prognosticator pronounced that international trade, related manufacturing and tourism would drive economic growth in the state during the 1990s, taking up the slack of defense and aerospace.
“Is the guy laid off in aerospace going to get a job in apparel-making? The answer in all likelihood is no. There will be a lot of dislocation,” said bank Vice President Frederick Cannon. “But over a three- or four-year period, net job growth will offset these current losses in California.”
He acknowledged, however, that the new jobs being created in California for the most part are semi-skilled and lower paid, thus making them a mismatch as replacements for the skilled and technical aerospace jobs being lost.
More than optimistic talk seems to be cushioning--or perhaps masking--the early effects of the defense industry’s nose-dive. Many of those who have been told that their defense jobs are ending aren’t yet without a paycheck. Some may never be. Until now, many workers have received hefty severance payments, and others took early retirement. What that means is that many have been protected from economic hardship, at least for a while. Clearly, most will face a daunting task finding jobs that pay the same or more than their old defense industry jobs.
The McDonnell Douglas announcement on Monday makes it clear that those kinder, gentler days of cushioning the blow may be over. The Douglas employees are being laid off with no severance or early retirement benefits. They will at least receive more time to consider the future than the old-fashioned Friday afternoon pink slip--some may not be out of work until the end of the year and none will be gone before at least 60 days.
“We’re seeing Chapter 1 of a long book,” said Robert Paulson, an aerospace specialist with McKinsey & Co., a consulting firm in Los Angeles. “It will be several years before the ripples all filter down.”
What’s more, a fair number of those being let out by defense contractors have already had enough time to think about new jobs. After all, the Reagan-era defense buildup peaked in 1986, and Pentagon budgets have been shrinking ever since.
But few were banking on is what is now happening: The defense companies aren’t waiting for signals from Washington. Layoffs are coming in bigger chunks and much more rapidly than expected. And eventually that will have significant consequences for would-be job seekers--whether free-lancers or salary earners.
“There is so much pressure on the defense firms to slim down quickly,” said David Hensley, director of California forecasting at UCLA’s Graduate School of Management. The defense contractors realize that the post-Cold War marketplace for their airplanes and weapons will be smaller and much more competitive than it was. They want to be ready before the Pentagon pulls the plug.
By the end of summer, Hensley predicts, unemployment in the state will begin a long, inexorable climb as the more-rapid-than-expected job losses finally overwhelm California’s ability to create new employment.
That’s the clodhopper on our horizon. And it’s why the economic anxiety level is rising, even though the numbers don’t yet suggest hard times.
And while we wait, there are plenty of things to worry about. Lockheed, for instance, decided that it makes more sense to build its P-3C Navy patrol aircraft in Georgia than in Southern California. There may soon be a lot more shifting of the remaining defense work, which could include the transfer of California jobs to empty plants in states where it costs less to live and work. And the defense contractors will very soon have a lot of those empty plants from which to choose.
It’s nothing new, of course, to watch manufacturing jobs leave California. Anybody remember the auto plants here? Or the steel factories?
There were alarm bells then too as those jobs departed. And lots of optimistic talk about the ability of California to generate new jobs as the old ones disappeared. Both the alarms and the optimism proved accurate: California has a tradition of killing off one industry, only to give birth to another.
CALIFORNIA AEROSPACE MANUFACTURING EMPLOYMENT
in thousands ’87 ’88 ’89 ‘90* ‘91* ‘92* Aircraft & parts 161 164 166 159 143 130 Missiles & space 81 82 79 76 72 66 Aerospace instruments 131 116 127 105 98 90 Total 373 372 361 341 313 286
*estimate
Source: UCLA California Forecast
