Pink Slips Persist - and Perplex
LOS ANGELES — Just when the economy looked rosy, with wages rising and jobs more plentiful than job seekers, corporate America has again reached for the ax.
Another round of layoffs has arrived, and more are expected.
Despite the most robust economy and tightest labor market in years, such corporate giants as AT&T - which recently announced layoffs of some 18,000 workers over several years - Raytheon, Whirlpool, and others are typing up pink slips.
The squeeze spreads across every sector of the business community - retailers, satellite companies, appliancemakers, and financial-service firms.
In January alone, major US businesses cut 72,193 jobs, the most for any month since January 1996, according to outplacement firm Challenger, Gray & Christmas in Chicago.
But experts note that downsizing is not making a return. It simply never went away.
And it's probably here to stay.
"Don't assume this was just a phase companies were going through, and it's over now," says Wayne Cascio, management professor at the graduate business school at the University of Colorado, Denver. "It's not over."
Since 1989, major US companies have announced 4 million job cuts, according to Challenger, Gray & Christmas, a trend that peaked in 1993 with 615,186 layoffs.
But cuts have been steady since then, at roughly 450,000 jobs each year, Challenger reports. And economists warn that even a moderate slowdown in the economy - now in a record expansion - could accelerate corporate trimming.
Even without a slowdown, Challenger predicts another 1 million job cuts between now and the end of the decade.
In the meantime, experts say, companies have practically institutionalized downsizing, which debuted back in the 1970s as a way to restructure, reposition, and reduce.
"It used to be if you were a CEO and you downsized, people said, 'What's wrong with you?' " explains Kim Cameron, a management professor at Brigham Young University in Provo, Utah. "Today, downsizing has become equated with improvement and efficiency and shareholder value."
The culprit is competition. It's stiffer than a decade ago, regardless of prosperous times. Companies can no longer pass even temporary costs of inefficiency along to consumers.
Skinny profit margins mean pressure to produce more, spend less, and still maintain quality.
"We are in a price-sensitive market," Mr. Cameron contends.
Building-materials maker Owens Corning, for example, last month announced 2,200 job cuts - 9 percent of its work force - because of falling insulation prices.
"Despite our attempts to increase prices in certain insulation markets through the elimination of rebates and other actions, we have been unable to stop our selling price from eroding," chairman and chief executive officer Glen Hiner said in a statement.
And when the giants like Corning signal an inability to maintain employment roles, they start a corporate bandwagon.
"It only takes a few visible organizations announcing big layoffs to ... to put pressure on other companies to do the same," Cameron says.
Wall Street generally adds to the pressure. Investors cheer layoff announcements, sending the firm's stock price higher. Layoffs create at least the appearance of more money for the bottom line.
And the stock market's stunning rise, say management experts, has intensified investor demand for bottom-line attention, especially with slower profit growth expected this year.
"Unfortunately our whole corporate world is influenced by stock prices, and stock prices are influenced by short-term results," says Bala Balachandran, of Northwestern University's J.L. Kellogg School of Management in Evanston, Ill.
"As long as you have short-term gains, he says, "downsizing is attractive."
In an ongoing study of 150 companies (small, medium, and large) that have downsized, Mr. Balachandran found that 70 percent saw higher stock prices the day after they announced cuts.
Eighteen months later, however, those stock prices had lost more than their initial gains.
Curiously, many companies downsize with one hand and hire with the other.
"Companies have two doors open. The front door and the back door," says Cascio. "Out the back door go the people who don't have the [needed] skills." But the front door swings wide open for people with the right skills, especially high-tech.
Some 28 percent of firms eliminating jobs in 1997 were also hiring in other parts of the company, according to an American Management Association (AMA) survey of 1,168 companies.
"The real story at AT&T isn't who they fire but who they hire," says the AMA's Eric Greenberg.