LAYOFFS: Firms Gird for Competition : Cut to the Bone : Layoffs Continue Despite the Recovery as Companies Gird for Global Competition
U.S. companies have let loose an explosion of layoffs in recent days, and notified thousands more employees that their jobs are in jeopardy, even as economists proclaim the recession has ended.
From computers to communications, autos to aerospace, the ranks of displaced workers are rising with extraordinary speed, seeming to underscore a painful truth rattling through corporate America: Pressure to slash costs--and workers--probably will endure whether a recovery takes hold or not.
“In many cases, things began to go sour before the recession, and in the recovery they won’t improve,” says Audrey Freedman, an economist at the Conference Board, a business research organization in New York.
Why the bloodletting?
In part, it may reflect the normal caution of business executives after an episode of hard times, analysts say. Employment levels typically remain spare after a slump, until the signs of a turnaround become overwhelming. And the latest signs of the economy’s health have been decidedly mixed. Last week’s report that the nation lost payroll jobs in July has raised questions whether a recovery is taking place.
“A slow expansion may produce more of these layoffs than you normally would have,” observed Richard D. Rippe, chief economist at Dean Witter Reynolds.
But today’s pattern of layoffs may also reflect an important departure from the past: In many cases, the cuts are responses to long-term shifts in the global economy rather than short-term ups and downs of the U.S. business cycle. At home, varied economic currents have heightened pressure to operate “lean and mean,” in the jargon of cost cutters.
These forces include continuing effects of deregulation, the shrinking defense budget, heavy debt loads and weakness plaguing much of the financial service and real estate sectors. The real story beyond the layoffs, some maintain, is American industry’s quest to maneuver through a difficult period, one that traces to the rise of global competition in the 1970s.
“The recession gave the (staff-cutting) process a kick in the pants, but I don’t see any scenario in which it’s going to slow down,” declares Dan Lacey, editor of Workplace Trends, a newsletter that tracks permanent cutbacks by public corporations. “Every indication is that it has accelerated.”
To those in search of a job, such assessments are not encouraging. Robert P. Geleta recalls how a combination of forces buffeted his former employer, culminating in a job loss early last year.
“There were layoffs from the merger. There were additional layoffs from the economy slowing down. I was able to survive some of them, but then it came my turn,” said Geleta, a middle manager for a Boston area computer maker.
Geleta, 41, who worked in the data processing area, got the news on his 10th anniversary with the firm, which he declined to identify. Later in the year he left hard-pressed Massachusetts for California, where “the streets are paved with gold.”
Despite his fond expectations, however, Geleta ran into a sluggish economy--and the reality of technological change. Increasingly, companies are able to purchase software packages that help perform some of the tasks he used to do, “which means that much of my chosen profession is shrinking.”
He added, of the restructurings taking place throughout U.S. industry: “Over the longer term it will work out. But I have to live in the shorter term.”
Such short-term plights have become increasingly common. Even in the robust recovery of the 1980s, many companies conducted surgery on themselves, shutting down old plants, contracting out services that had been done by in-house staff, adopting labor-saving technologies and otherwise cutting payrolls. In the second half of the 1980s, 4.3 million workers were displaced, according to a recent study by the Bureau of Labor Statistics.
Past experience, at least, suggests the transition for many of those laid off may prove bumpy: About half of those displaced in the late 1980s ended up changing industries, and more than 40% returned to work at lower pay, with one-fourth suffering cuts of 20% or more, BLS economist Diane E. Herz found.
By Lacey’s count, corporations have announced permanent cuts--jobs that will not be refilled--affecting more than 600,000 jobs since mid-1989; of that amount, 250,000 cuts were announced this year--and more than 63,000 in July alone. The total figure, including private firms, is substantially higher, he maintains.
Such moves are raising new questions for employees, who are less likely to assume that they can keep a job forever. Beyond that, some experts say they dramatize the fact that workers and employers don’t always have identical interests; the economy grinds on, even with large numbers of people searching for work.
“The word ‘layoff’ is obsolete,” said Lacey, whose newsletter is based in Cleveland. “These people are being dismissed, and they’re being dismissed permanently.”
The phenomenon is not easily discerned through government statistics. Jobs are constantly being created as well as wiped out, with corporate retrenchments offset in part by the growth of smaller enterprises. The unemployment rate, which fell a bit to 6.8% in July, doesn’t include people who have given up searching for work. In a separate survey, the Labor Department reported that payroll employment dropped by 51,000.
If anything, efforts to cut back may continue, as 26% of corporate controllers foresee smaller work forces at their own firms within six months, according to a June survey by the Institute of Management Accountants. The trend has been evident in retail, financial services, computer manufacturing, aerospace, transportation and other industries.
Consider Arco, just one of many U.S. companies that have recently announced layoffs.
Company officials have cited low prices of natural gas--a result of deregulation--and costly clean-air regulations as pressures to cut costs. The need to compete globally--Arco sells jet fuel and other products on the world market--provides another reason. The Los Angeles-based energy firm plans to reduce its work force by 1,500 by the end of the year.
“If you don’t watch your costs and do the things we’re doing periodically, somebody is going to knock you flat on your back,” said George H. Babikian, president of Arco Products Co., the energy firm’s marketing and refining arm.
“Downsizing” efforts are nothing new for Arco, or throughout the Fortune 500 list of large American corporations, which overall trimmed their staffs by one-fourth during the 1980s.
Since a 1977 merger swelled Arco’s employee rolls to 50,000, asset sales and job eliminations have reduced the work force to just 27,300 worldwide. The coming round of cuts probably will include such areas as middle management, office personnel and in-house business analysts.
“No one that rings a cash register is leaving in the reorganization,” Babikian said.
Deregulation has also unleashed competition in other industries, such as telecommunications and transportation, raising the penalty for missteps--or just plain bad luck.
America West soared in the deregulated skies of the 1980s, expanding rapidly as other fledgling airlines went out of business. More recently, the Phoenix-based carrier was one of several U.S. airlines slammed by the recession, higher fuel costs during the Persian Gulf crisis and bruising competition for travelers.
Faced with a heavy debt burden and running out of cash, America West applied for Chapter 11 bankruptcy protection in late June.
If the airline is to survive, it will have to become more compact and cost-conscious, analysts say. America West has notified 500 customer service employees that their jobs may be eliminated, has agreed to return nine jetliners from its 115-plane fleet and may shrink its fleet more.
“It’s clear that America West will be a somewhat smaller company than it was prior to filing for Chapter 11,” said spokesman Michael R. Mitchell.
The airline is one tiny part of America’s huge service sector, a part of the economy that made only meager productivity gains in the 1980s. Now, as many companies struggle with rising foreign competition, heavy debt loads and--for financial firms--troubled real estate investments, the price of poor productivity becomes painfully clear, contends A. Gary Shilling, a private economist.
One sign: In the 12 months after the 1990-91 recession began, the service sector lost more than half a million jobs, excluding government and health care, according to the U.S. Bureau of Labor Statistics. Retail and wholesale trade, finance, insurance and real estate bore the brunt.
By contrast, services actually gained 3,000 jobs in the first year of the 1981-82 slump. The large number of cuts outside blue-collar manufacturing may explain why some have misleadingly dubbed the recent downturn a “white-collar” recession.
“This is very different from previous recessions,” Shilling said of the anguish spreading through retail, finance and some other services. “We think it’s the beginning of something big.”
Recession or not, some industries face a grueling shakeout in the coming years. Banking, for instance, is in the throes of a major consolidation, in light of bad loans in real estate, corporate leveraged buyouts and other areas. The industry is considered to have too much capacity and is facing intense competition from unregulated financial services giants.
Citicorp, the nation’s largest banking company, has laid off 7,000 workers and announced plans to lay off an additional 10,000. The planned merger of Manufacturers Hanover and Chemical Bank will cost 6,200 jobs; that of NCNB Corp. and C&S; Sovran up to 6,000. The restructuring is expected to continue.
Is the agony worth it? Whether paring payrolls to the bone ultimately pays off may become increasingly at issue as the process grinds on in the coming years. A new study by the Bureau of National Affairs, a private research group in Washington, found that “randomly cutting the work force often does more harm than good to employee morale and productivity.”
Still, such cuts may be necessary steps in improving U.S. competitiveness, many economists say. The painful steps ahead for banking and other services echo some of the moves U.S. manufacturers took as they boosted their efficiency in the 1980s.
“Ultimately, it’s very beneficial, but in the short run it means a lot more layoffs,” Shilling said.
To be sure, some struggling companies have been reinvented as lean and mean, with whopping gains in productivity.
In the early 1980s, Storage Technology, a high-tech firm in Colorado, had 15,800 employees worldwide. But it stumbled in attempts to establish new products, such as a mainframe computer, posted huge losses and filed for bankruptcy on Halloween of 1984.
Today, its 9,100 employees generate more revenue for the firm than the much larger, money-losing operation of several years ago. Storage has cut its five lines of business to three, enjoying great success with a robotic tape storage device.
The Colorado firm thrives, even as many others in the computer field slug it out in tough times. “We got back to doing what we do best and made a strategic decision to focus on fewer products,” said David W. Reid, spokesman for the Louisville Colo. firm.
Clearly, many companies have been trying to emulate Storage’s example: An entire industry of outplacement firms that help laid-off workers find new jobs has blossomed in recent years.
At the start of the 1980s, about 50 firms made up the outplacement industry, which is retained by employers who cut their staffs. Today, more than 200 outplacement firms with $500 million in revenue--a pie that is 10 times bigger than a decade ago--clamor for business, according to Kennedy Publications of Fitzwilliam, N.H.
Outplacement executives bear witness to the new relationship between employer and employee in a world where smaller sometimes means better: “Job security is what’s in your head,” declares Bradford H. Taft, general manager of the Lee Hecht Harrison outplacement firm in Los Angeles. “It’s the skills, the knowledge, the experience you can take with you.
“The reality of today’s marketplace is that almost everyone is expendable.”
Layoffs by Industry
U.S. corporations have announced more than 250,000 permanent staff cuts. Here is a list of the five industries that have reduced their staffs the most in the first half of this year.
A Closer Look:
Here are layoffs announced by some key companies in the five industries most affected.
* Retailing
Sears: 30,000, plus closure of East L.A. distribution centers in 1992, affecting 2,000. Hills Department Stores: 3,000; Avery Dennison: 900; Liquor Barn: 200; L.A. Gear: more than 100.
* Defense
General Dynamics: 1,200 by September and 500 more jobs, or 10%, from its Space Systems unit, mostly in San Diego. Hughes: 3,000; Grumman Corp.: 1,900, about 7.4% of its work force; Pratt & Whitney: 1,500, 4% of its domestic work force; Northrop: 1,000, most in Hawthorne and El Segundo; McDonnell Douglas: 1,000 at Douglas Aircraft unit in Long Beach and 350 at helicopter plants in California and Arizona; Lockheed’s Missiles & Space unit: 800.
* Computers
IBM: 10,000, or nearly 3% of its worldwide payroll. Unisys: 10,000; Wang: 500, plus plans to cut 4,000 more jobs. Digital Equipment: 3,500 jobs, its first layoffs ever; Texas Instruments: 3,200; Seagate Technology: 1,200 jobs worldwide, plus 450 announced Friday; Apple Computer: 900 employees in June and 1,560 jobs by year-end; Texas Instruments: 725; MAI Systems, 400.
* Transportation
General Motors: Van Nuys plant to shut in 1992, affecting up to 2,600, including the 900 on temporary layoff. U.S. Air: 3,585--7% of its payroll; Pan Am: 4,000, plus cuts of 5,000--nearly 25% of its work force--announced Friday; Boeing: 2,000; TWA: 3,000 on temporary layoff; Chrysler: 990 on indefinite layoff; America West: 500.
* Financial
Citicorp may lay off up to 17,000. The pending merger of Chemical Bank and Manufacturers Hanover Trust will cut 6,200 jobs. Glenfed: about 1,100; New York Stock Exchange: 18% cut in work force; USF&G;: 900; KMPG Peat Marwick, 300; Crum & Forster, 400; First Capital, 166; Imperial S&L;, 70 laid off by the Resolution Trust Corp.
Company data gathered by Times Researcher Melanie Pickett.
Layoff Time Line
Permanent staff cuts have risen sharply in the past two years, reaching a peak in the first quarter of 1991.
