Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, January 16, 1994 TAG: 9401110259
SECTION: BUSINESS PAGE: F-3 EDITION: METRO
SOURCE: BY R.C. LONGWORTH CHICAGO TRIBUNE
DATELINE: CHICAGO LENGTH: Long
"I don't know how long it's going to go on," said jobs expert James Challenger, "but it shows no sign of abating at present."
This is bad news for hundreds of thousands, even millions, of workers, most of them employed by some of the nation's biggest companies. Already, many of these workers fear for their jobs. In 1994, some of those fears will become reality.
"I don't think it's going to slow up much," said economist David Birch, president of Cognetics Inc. in Cambridge, Mass. "The turmoil is even worse now. The [biggest companies] have dropped 400,000 people every year since 1980. This year it's [going to be] 600,000 to 700,000."
But despite this bloodletting, unemployment is down and the total number of jobs is up and expected to keep rising. This paradox sums up the American economy today: a growing economy, no longer in recession, but one in which many Americans fear for their livelihoods.
As Birch said, "unemployment is dropping like a rock" - down to 6.4 percent in December. "Yet there is this enormous sense of insecurity," he said.
"The economy as a whole is functioning pretty well, but the people within it are getting killed," Birch said.
There are many reasons. Leaner, meaner companies mean higher profits for shareholders. Jobs done by low-wage workers overseas mean lower prices for consumers. Higher productivity - doing more with fewer workers - means a more efficient economy.
But the worker - from the executive suite to the salesroom floor - pays the price for all this progress.
Another reason, Birch said, is turmoil on an unprecedented scale, with no job safe and few companies truly healthy.
On the one hand, he said, the "elephants" - behemoths such as Sears, Xerox and General Motors - have been clobbered by huge debt, rising costs, international competition and the stock market's demand for maximum profit.
One way to cope: Replace people with machines. Another: Move jobs overseas. Another: Just cut costs by cutting jobs.
These big companies have shed nearly 2 million jobs over the last four years. Another 2 million jobs have vanished at smaller firms.
But at the same time, Birch said, the "gazelles" - small, fast-growing firms latching on to narrow, even faddish, markets like health care or cookies - are growing faster than the elephants shrink. Over the same period, these gazelles added 8 million jobs to the economy.
The result: a net increase of 4 million jobs. This should feel better than it does.
The panicked worker can't just quit a job with a big company, go to work for a small and growing company and ride the wave to prosperity. It's not that simple:
Only about 70 percent of those fired by big firms find jobs at the smaller firms, Challenger said, and it takes each employee an average of 3.3 months to find a new place.
Many of the lost jobs required their holders, whether workers or management, to carry out highly skilled but narrow and specialized tasks. The new jobs in the small companies are broader, require more skills - and often harder work.
Of all the American firms with 100 employees or less, only about 4 percent of them are the fast-growing gazelles, Birch said, and they are accounting for 70 percent of all the new jobs. Most are in services; only 2 percent are so-called "high-tech" companies. Because there are so few of them, it's hard to spot the ones that will take off.
In addition, the gazelles are inherently unstable, Birch added. The faster they grow now, the quicker they decline later. And when they stop growing, they die. Job security is not their strong point.
Challenger's firm, Challenger, Gray & Christmas Inc. of Chicago, helps fired workers find new jobs. It also keeps a running account of downsizing. That account, now complete through the first 11 months of 1993, makes dismal reading.
From the 50,000 workers axed by Sears, Roebuck and Co. in January to the 14,000 cut by Philip Morris Cos. in late November, there were no fewer than 583,797 jobs eliminated by American corporations. That's more than the 555,292 job cuts in all of 1991, a recession year.
This is an average of about 2,600 jobs lost for every business day. But by year's end, the daily body count was up to 3,221.
The figure for the year has topped 600,000, Challenger said, although final figures aren't in yet.
Workers in aerospace, retail and computers suffered most in 1993.
Retailing was hard-hit by the loss of consumer confidence, which was a side effect of the job fears. Most computer losses came from overstuffed companies like IBM.
The aerospace losses are the downside of the peace dividend and the defense industry cutback. Even so, Challenger said, two-thirds of the job losses in defense industries are yet to come, not to mention the losses in supplier industries that rely on defense for orders.
These are not layoffs, or temporary cuts, or firing a bad worker in hopes of finding a better one. Some companies do go overboard and find they must rehire workers. But for the most part, downsizing means jobs are lost forever.
Almost all the companies that downsized in 1993 gave "restructuring" or "cost-cutting" as the reason. The reason this restructuring or cost-cutting suddenly became necessary was that these companies had become fat, overstaffed and expensive during the easy-money Reagan years and had picked up too much debt either to expand or to finance their operations.
"There's no advantage in being IBM anymore," Birch said. "There's no economies of scale.
"In the old days, it took so much capital just to get started," he said. "Now there's a much greater access to knowledge and a much lower cost to accessing it. These days, I can start and grow a company off my credit card."
Coupled with foreign competition, he said, "This makes it much harder to hold a monopoly position. A Sam Walton can come in and take huge chunks of market share away from Sears."
Once this happens, a company like Sears, itself frightened for its future, responds by slashing workers.
Challenger, like many economists, said this turmoil "is a very healthy thing for the economy," even though it spreads panic and pain among workers.
The birth-and-death cycle always has been the key to a dynamic and healthy capitalist economy. Several things now are different.
First, as Birch noted, there is simply more turmoil now than before.
In the 1950s and '60s, he said, about one-third of the Fortune 500 companies - the nation's biggest companies - disappeared from the list every 20 years. In the '70s, it took only 11 years for one-third of the Fortune 500 to turn over. By the '80s, it was only five years.
by CNB