Every day seems to bring news of another company laying off thousands of workers.
The onslaught of pink slips is beginning to take its toll: Polls show many Americans are concerned about their jobs. The national mood, with further implications for the economy, is turning darker.
Yet, underneath the gloom, not all may be as bad as it seems on America's factory floors and in its high-tech cubicles. Several factors are at work ameliorating the impact of what seem to be pervasive layoffs:
*Many companies are announcing downsizing, but plan to accomplish it over several years and through attrition.
*Some of the cutbacks are conditional: Companies won't follow through if business begins to turn around.
*While many firms are letting workers go, others are hiring - an event that usually doesn't make the nightly news.
The result: Economists who follow layoffs say the actual numbers so far are not out of the ordinary. Over the past six years, the Bureau of Labor Statistics (BLS) has found that the economy averages about 1 million to 1.2 million permanent layoffs (at least 50 people let go for 30 days or more) per year. So far, there has been only a minor uptick in the unemployment rate. "I haven't seen any signs of the bottom dropping out - it's too soon to reach that conclusion," says Lewis Siegel, senior BLS economist.
Ed Potter agrees. "In an economy of 140 million working people, if you tote up all the layoffs and think of spreading them over months, it's definitely under 1 percent of all the jobs that we are talking about," says the president of the Employment Policy Institute in Washington. "This is not catastrophic."
Well, not all is a mirage
To be sure, the economy has slowed - perhaps even stopped. Federal Reserve Board Chairman Alan Greenspan no longer complains about the stock market's irrational exuberance but warns about its risks to the economy.
Most economists believe the manufacturing sector is in a recession. And experts expect this down cycle of the economy to eventually affect the unemployment rate, currently at 4.2 percent. By midyear it might hit 4.5 percent, still reasonable by historical standards.
Some of the announced layoffs last week will probably contribute to an increase in the jobless rate. They included: Nortel (10,000 layoffs), Goodyear (7,200), Dell Computer (1,700), and Alltel (1,000).
Yet the headlines can be deceptive. Most of Goodyear's layoffs, for example, will take place outside the US. Earlier this year, the company offered about 500 white-collar workers early retirement packages. According to spokesman Keith Price, that's about all the cutbacks that will occur in the US.
Some companies, in fact, plan on implementing the downsizing over a relatively long period. That's the case at DaimlerChrysler, which on Jan. 29 announced it would eliminate 26,000 jobs in the US and Canada. "We hope to get 75 percent accomplished in 2001," says Megan Giles, a spokeswoman.
But, once again, not all those workers will be let go. Instead, to entice older workers to retire, the company has offered special packages to some eligible employees. These include cash, vouchers for Chrysler cars, and the bridging of health benefits.
Some 3,600 white-collar and 23,700 blue-collar workers will be eligible for some kind of package. "We're hoping to maximize those who retire versus those we have to layoff," says Ms. Giles.
Many companies hope to achieve part of their cuts through attrition. At Chrysler, for example, there is usually a 3 to 5 percent employee turnover at each plant. Plus, the company has a white-collar hiring freeze.
Attrition used to be a relatively slow way for companies to downsize. Yet today turnover is much higher. John Challenger of Challenger, Gray & Christmas, a Chicago outplacement firm, estimates it to be as high as 15 percent of a company's workforce. "We've had a kind of a free agency," says Mr. Challenger.
Last month, despite the layoffs and talk about the economy on the skids, BLS statistics show that 100,000 people voluntarily left their jobs. "People still feel they can throw in the towel without something new," says Mr. Potter.
Some of those people, however, may not have left willingly. Their employers may have moved them aside. "I can tell you that people sometimes feel like they have gotten pushed out - the circumstances make them leave," says Craig Dickinson, an employment attorney in Connecticut.
In fact, downsizing does usually involve more than attrition and early retirements: Most companies layoff people as well. Sometimes it's done by seniority. Or every department is told to reduce its head count, with each manager given discretion. "It's a very complex process and involves intense loyalties," says Challenger. "Managers usually want to keep people they know."
Cutting is often based on performance, too. "Senior management says, 'take the bottom 10 percent and let them go,' " says Sally Haver, vice president of the Ayers Group, a New York-based human-resources consultant.
First out: 'overhires'
But even this move can be misleading. Recently, EMC Corp. in Hopkintown, Mass., let a few hundred employees go, but did not call it a layoff. Instead, company spokesman Mark Frederickson calls it a case of "routine performance management."
Like many high-tech companies, EMC admits it may have overhired. "In a tight labor situation, there is always the tendency to stretch the definitions," says Mr. Frederickson. Despite the recent pruning, the firm expects to add 7,000 new workers this year.
Plenty of businesses announce downsizing plans that don't materialize. Potter studied major companies that announced layoffs in 1999. By year's end he found that, collectively, they had the same number of jobs as before. "They were upsizing and downsizing at the same time," he says.
BLS's Siegel agrees "there is still hiring going on. The economy has a lot of churn."
(c) Copyright 2001. The Christian Science Publishing Society