Firms Cut Jobs Before Slump Worsens : Economy: Businesses are much quicker to institute layoffs than during the last recession. Then, many companies were hurt badly by waiting too long.
As an economic slump ripples through the nation, hard times are prompting harder medicine:
General Motors, Chase Manhattan, Merrill Lynch, Saks Fifth Avenue, Nordstrom and Winnebago are just a few well-known employers that have announced job cuts in recent weeks. Many employers are slashing costs--and jobs--with a vengeance.
“The watchword among companies is ‘run your business as if we’re in a recession--whether we are nor not’--and that means very lean staffing,” said James F. Smith, an economist at the University of North Carolina.
More than ever, employers say, it is preferable to swallow the medicine today--however distasteful--than to wait so long that more drastic measures are required to salvage a company from bankruptcy down the road. Staying competitive is the key, they say, a lesson that many defunct companies learned too late in the past.
To that end, factories are moving to cut production--and production workers--rather than get stuck with costly products nobody will buy. Retailers, insurance companies and other employers are scrutinizing their payrolls to weed out administrative layers that don’t boost the bottom line. Many job duties are under cold-eyed review.
At Winnebago Industries in northern Iowa, the ax fell last month. Plunging consumer confidence and fears about the Middle East were pounding sales of gas-guzzling recreation vehicles. In September, sales were down 17% from the previous year, according to the Recreation Vehicle Trade Assn. in Reston, Va.
In response to the plummeting demand, Winnebago last month announced the layoff of 30% of its 2,600 employees. The remaining factory work force has been restricted to a four-day workweek.
“We don’t want to build up an inventory here in the plant that we can’t sell,” explained Sheila Davis, a spokeswoman for the firm.
Such sentiments are widespread. Layoffs have recently been reported among a broad spectrum of manufacturers--including makers of textiles and home appliances--construction, banking, finance, retail and other industries. Employers also have clamped down on labor costs in other ways, such as placing freezes on job openings, reducing working hours and offering early retirement incentives.
The joyless effort contrasts with past slumps when U.S. employers were slower to react, some experts say. Moreover, it reflects a painful lesson of the 1980s: In a global economy, inefficient producers are easily sacrificed.
“That was one of the lessons of the early ‘80s; you don’t wait or it can be very costly,” said Daniel J. B. Mitchell, a labor economist at UCLA. “Employers are much quicker now to drop employees at the drop of a hat.”
Sears, Roebuck & Co. exhibits the hard-nosed thinking of many employers today.
In September, the Chicago-based retail and financial services firm announced that 1,400 jobs were under review, while offering 600 other employees financial incentives to quit. Sears--criticized by analysts for having higher costs than Kmart and some other retailers--has eliminated more than 1,500 management jobs and 1,100 non-management jobs through a combination of layoffs, attrition and transfers since August, 1989.
The budget ax is aimed at non-sales jobs, including such areas as economics, law, public affairs, human resources and planning. “It’s an intensive, ongoing companywide effort,” said Mary Jean Houde, a spokeswoman for the retail firm.
Certainly, the U.S. jobs picture remains a jumble of conflicting trends. As Sears and Winnebago cut back, some other employers are adding workers. These ups and downs take place whatever the overall economic climate. In October, for instance, U.S. employment went up in education, health care and social services.
Yet, for all the crosscurrents of the labor market, there is clear evidence that the jobs picture has gotten worse for many Americans in recent months, as cost cutting by many employers take effect:
* Claims for unemployment insurance surged last month to the highest level since 1983, reflecting layoffs by manufacturers in parts of the East, South and Midwest.
* Nationally, hundreds of thousands of jobs have been eliminated in construction and manufacturing this year, and cutbacks are spreading through retail, finance, insurance and other industries.
* Help-wanted advertising has fallen in most of the country, including Southern California, according to the Conference Board. In September, such ads had dropped 14% from last year and 20% from 1988, according to the New York-based business research organization.
“Labor markets have deteriorated very sharply over the past few months, said Lawrence Chimerine, a fellow with the Economic Strategy Institute, a Washington think tank. “We’re seeing it in large military contractors. We’re seeing it in retailing, restaurants, vacations and travel.”
The squeeze is particularly evident in manufacturing. Many U.S. factories have enjoyed brisk business this year, aided by a falling dollar that has given them a price advantage over foreign rivals. Yet they also have been slashing at the labor force: U.S. manufacturers have eliminated 378,000 jobs in the past 12 months, 580,000 since January, 1989.
On the shop floor and in the office, these moves can be felt in a number of ways.
Hewlett-Packard, for instance, has scissored 3,000 jobs from its work force by restricting the amount of outside hiring and offering early retirement incentives. The San Francisco Bay Area high-tech firm also plans to close for four days at Christmas.
A company official said the moves were prompted by the weak U.S. economy. “In response to the economic conditions, we’re just doing it more (cutting costs), just really looking carefully,” said Mary Lou Simmermacher, a spokeswoman for Hewlett-Packard.
As other employers do the same, America’s once mighty jobs machine--which yielded gains of 350,000 jobs per month in the boom years of the 1980s--is fast winding down. In October, for example, the number of U.S. non-farm payroll jobs actually shrunk by 68,000. On balance, growth in total U.S. jobs halted around June.
The tough measures by employers are noticeable in another way: an unusual surge in requests for unemployment insurance.
In late October, states reported 454,000 first-time claims for unemployment insurance, the highest number of new claims since 1983, just after the last recession. New unemployment claims now are coming in at a weekly rate that is 100,000 claims above a year ago.
The claims, while a volatile gauge, provide at least some hint of the location and nature of the economy’s ills.
For all the attention to problems of the Northeast, the highest number of new unemployment claims came from Ohio--with 3,853--followed by Virginia, Indiana, Missouri and Georgia. The new claims also underscore the economy’s broad weakness.
Textiles, apparel, household appliances, electrical equipment, construction, motor vehicles, wholesale trade and transportation were among the industries laying off workers, according to the Labor Department.
There are other signs of an unusually weak labor market, according to the Labor Department: A steep plunge in hours worked by production workers last month, and a large increase in the number of part-time workers seeking full-time jobs since the spring.
“Companies were not only laying off workers, but they were shortening the hours worked for their remaining workers,” observed Lynn Reaser, a vice president and senior economist at First Interstate Bancorp in Los Angeles.
Nevertheless, some economists say that if employers are tightening the screws on labor costs, that is not all bad. While it may provide little consolation to those thrown out of work, the argument is that some cost cutting now may mean less misery later.
That is the hope at Aetna Life & Casualty, a Hartford, Conn., insurer that recently announced plans to cut 2,600 jobs. The official reason: to improve efficiency for the long term, not in response to today’s conditions.
The jobs, to be eliminated through layoffs and attrition, will mainly be in middle management and administrative ranks.
“If we just maintain what we’ve got, somewhere in the next few years we’re going to be in an uncompetitive position,” explained spokesman John C. Hawkins.
The efforts to enhance efficiency, if well aimed and carried out promptly, pay off for the economy as a whole by making it more resilient, according to those who subscribe to the economic theory.
“You’re getting a lot of bad news out of the way early, which means if there’s a recession, it’s likely to be shallow and short,” said Smith of the University of North Carolina.
