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To minimize layoffs, employers cut worker hours

The practice is spreading as the US unemployment rate hits 7.6 percent.

By Ron SchererStaff writer / February 8, 2009

Protest: Shelia Byars (l.) and other workers at a Department of Motor Vehicles office in Los Angeles rally against a required furlough.

Nick Ut/AP

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New York

Faced with a downturn in orders, Hardinge Inc. is laying off workers, cutting executive salaries, and freezing hiring. But the machine toolmaker in Elmira, N.Y., is also doing something else – something that hasn’t happened much in other downturns: Most of its workforce is now only getting paid for four workdays a week.

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“The alternative was to lay off 20 more people,” says Rick Simons, Hardinge’s president. “This way, we get to keep those people employed, and they get to keep their benefits going.”

From coffee shops to machine shops, employers are trying to mitigate the effects of the downturn by reducing employees’ hours or overtime. California Gov. Arnold Schwarzenegger, for one, has ordered some 200,000 state workers to take a two-day furlough every month in an effort to close a $42 billion budget gap. Even some of the legislation in the economic stimulus package would reward states that use “innovative benefits” – such as giving unemployment insurance to workers who have had their hours reduced.

“Shrinking the hours everyone works helps reduce the extremes of how hard people are hit and maybe makes it a bit easier,” says Nigel Gault, chief US economist at IHS Global Insight in Lexington, Mass. “It also may be more helpful for morale, perhaps.”

The attempt by companies like Hardinge comes during one of the worst job markets in decades. Last Friday, the Department of Labor reported that the US unemployment rate climbed to 7.6 percent in January, up from 7.2 percent in December. And the economy shed 598,000 jobs, the worst performance since the end of 1974. Over the past two months, more than 1 million people have lost their jobs.

“This is about as bad as it gets,” says Daniel Meckstroth, chief economist at Manufacturers Alliance/MAPI in Arlington, Va. “There is no good way to spin this as anything good.”

Since October, the US unemployment rate has climbed by one full percentage point, a pace of layoffs not seen since at least the 1980s. Given the number of recently announced layoffs and the rising number of new claims for unemployment, the February job losses could be even worse, some economists say.

“If there is any silver lining to the news, we are seeing job cuts so widespread and massive [that] it may mean everyone is making all their job cuts all at once,” says Joel Naroff of Naroff Economic Advisors in Holland, Pa. “We are compacting an adjustment process that might have taken two years into 12 months, so we may get through it sooner.”

Reducing workers’ hours may help keep the unemployment numbers from soaring yet higher, says labor economist Della Lee Sue of Marist College in Poughkeepsie, N.Y. “If the unemployment rate keeps going up, it makes a lot of people feel worse about the economy,” she says. “And that becomes a self-fulfilling prophecy.”

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