Company Layoffs Taking a Less Damaging Toll

By WALTER HAMILTON

Feb. 3, 2001 12 AM PT

TIMES STAFF WRITER

The corporate downsizing phenomenon that rattled workplaces in the early 1990s is staging a sudden and dramatic comeback, as scores of companies make headlines with seemingly large layoff announcements.

Yet, despite the rash of planned job cuts, the actual toll on workers and the economy from the current downsizing wave is so far proving to be less severe than the early-1990s version.

In recent weeks, companies ranging from auto giant DaimlerChrysler to Internet retailer Amazon.com have said they will lay off workers in response to a slackening economy and sharp drops in their stock prices. Announced job reductions in December were the highest in at least eight years, and more are likely as the economy struggles.

U.S. companies announced 133,713 job cuts in December, three times the average of the first 11 months of the year, according to Chicago outplacement firm Challenger, Gray & Christmas.

But the ultimate number of layoffs is likely to be only a portion of the thousands that have been announced, experts say.

In part, some companies may be publicly reporting layoff figures chiefly to send a message to Wall Street that management is serious about cost-cutting.

“One of the surest ways to get your stock up in the past was to announce layoffs. That’s what’s happening today,” said Sung Won Sohn, chief economist at Wells Fargo & Co.

Indeed, some of the announced job cuts have amounted to just 2% to 3% of companies’ work forces--roughly the percentage of people who leave each year through normal attrition.

Discount department store chain J.C. Penney said last month that it would cut 1.9% of its work force. Most of that total are 5,000 workers at 47 stores set to be closed in the spring. The company said, however, that many workers will get jobs in nearby stores.

“Those 5,000 jobs are being eliminated. Whether those employees disappear from the payroll is an open matter,” said Tim Lyons, a company spokesman.

In fact, when Penney closed a large number of its Eckerd drugstores last year, many workers remained on the payroll. The company announced plans last February to close 279 Eckerd stores, a chain in 20 states throughout the Eastern and Southern U.S., and to cut 1,200 jobs. The company had closed nearly all of the stores within six months but ended up laying off only 560 people.

Because they don’t want to severely damage morale by going through subsequent rounds of layoffs, companies often announce a single large number, experts say. But those figures may include management’s plan to lose some jobs simply by not filling open positions or by eliminating temporary workers.

Office supply retailer OfficeMax said last month that it would cut 1,200 jobs, or 3% of its work force, as it closes 50 poorly performing stores.

But only 569 of the jobs are full-time positions, and the firm already has reassigned 137 of those workers to other locations, said spokesman Steve Baisden.

Even at DaimlerChrysler, layoffs are likely to be less severe than the 26,000 job cuts announced last week. Of the 12,300 U.S. factory jobs to be cut, the company hopes to accomplish up to half through voluntary buyouts. And due in part to its labor contracts, it says plant workers who are laid off can be rehired within 10 months as other workers leave through attrition.

Thus, in the case of many companies, “your final layoff numbers are generally not anywhere near what’s announced in the paper,” said Rudy Dew, president of Los Angeles-based outplacement firm Rudolph Dew & Associates.

Companies Fear More Shortages

That’s partly because companies spent recent years furiously building up their work forces in a taut labor market and are reluctant to chop too deeply for fear of renewed shortages if the economy turns around later this year.

Rather than lop off jobs, online brokerage Charles Schwab, for example, has trimmed the pay of top managers and asked employees to take unplanned vacation days.

Even those workers who are being laid off today often receive more generous severance packages than in the early 1990s--in some cases a full year’s pay, said Diane Swonk, chief economist at Bank One in Chicago.

“It is a much kinder and gentler form of downsizing than we saw in the past,” she said.

More important, laid-off workers have been able to find new jobs far more quickly than in the early 1990s.

A study late last year by the state Employment Development Department found that most California workers who lost their jobs in recent years found new ones quickly--and at higher wages.

Nearly 77% of the 124,000 laid-off workers in 1996-97 found new jobs within a year and at average salaries that were 15% higher than what they previously earned, the study found.

Nationally, the January employment report issued Friday said the median time it takes a laid-off worker to find a new job is 5.9 weeks.

The fast reemployment trend remains in place, though workers have had to lower their expectations for sign-on bonuses and other perks, Dew said.

“They don’t just walk across the street and get [new jobs], but they can get them in a reasonable time frame,” he said.

Indeed, statistics released in the last two days indicate that the economy is churning out enough new jobs to compensate for the mounting number of layoffs.

On Thursday, the Labor Department reported that the number of workers losing their jobs in mass layoffs--those in which a company fires 50 or more employees--rose 54% in the fourth quarter of last year compared with a year earlier. In California, more than 154,000 people lost their jobs, a 14% hike from the 1999 period.

Yet the January employment report showed the nation added 268,000 net jobs last month.

The U.S. unemployment rate has stayed low in part because small and mid-size companies continue to hire even as larger companies shed workers, economists say.

Also, many recent layoff announcements have been in the manufacturing sector, which now accounts for only about 20% of the total U.S. gross domestic product. The economy has continued to add jobs as service-industry hirings have outweighed manufacturing layoffs.

Still, the flood of layoff announcements means that some employees are certain to suffer as companies instinctively turn to job reductions as their most immediate tool to boost performance. And, of course, any layoff can be painful for the worker on the receiving end.

After almost boasting of its repeated losses in recent years as it spent to boost sales, Amazon.com now plans to chop 15% of its work force in a bid to achieve profitability and curry favor on Wall Street after an 87% drop in its stock in the last 14 months.

Announced job cuts have crisscrossed industrial as well as high-technology companies, such as Hewlett-Packard Co., Nortel Networks Corp. and Motorola Inc.

Layoffs Used as Tool to Hold Down Salaries

Even if the ultimate layoff totals are modest, they demonstrate that in many sectors of the economy the pendulum of power is increasingly swinging back to companies.

Some firms are announcing layoffs in part to blunt the salary demands of their current work forces, experts say.

“It shakes up the rest of your company,” said Kristi Nygaard, managing director of Spherion Corp., a Fort Lauderdale, Fla.-based outplacement and recruiting firm. “[Employees] are not going to come in and ask for increases for a while.”

Though the employment picture now is far from bleak for most people, analysts warn that much depends on the Federal Reserve’s ability to fuel an economic rebound with interest rate cuts.

If the economy slows further--or begins to contract--layoffs that may now be relatively gentle in scope will become harsher, experts say.

Some economists also worry that the extent of “labor hoarding” by companies may not be fully appreciated. They say firms have stockpiled workers the same way they often do raw materials, and worry that the extent of layoffs could be magnified if the economy fails to turn around later this year.

“Not only will you see the normal layoffs, but you will bring an end to labor hoarding [that will] accelerate the process of layoffs,” said Brian Wesbury, chief economist at the Chicago-based investment firm Griffin, Kubik, Stephens & Thompson.

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Planned Job Cuts

A number of prominent companies have announced job cuts since the start of the year, though in some cases the cuts represent no more than normal annual attrition rates at the firms. Here are some of the largest planned cuts:

DaimlerChrysler: 26,000

Lucent Technologies*: 16,000

Sara Lee: 7,000

J.C. Penney: 5,300

Xerox: 4,000

Nortel Networks: 4,000

Textron: 3,600

Gateway: 3,000

Motorola: 2,500

AOL Time Warner: 2,400

Standard Register: 2,400

Hewlett-Packard: 1,700