Layoffs: cloud in silver economy?

Like rain drops while the sun shines, the remarkable economic expansion of the 1990s comes packaged with a dreary companion: a persistently high rate of layoffs.

And by at least one measure, job cuts this year are now on pace to reach their highest level nationally since the massive corporate downsizing of the early 1990s.

Firings are one of the seeming paradoxes of this era of prosperity because they're occurring even as the United States experiences healthy job growth and historically low unemployment rates.

The explanation appears to be in the changing economy - with mergers, restructuring, and deregulation - and shifts in employer-employee relationships as unions weaken and employers feel less obligated to use layoffs as a last resort.

While there is no consensus on whether these shifts are a net negative for American workers, there is general agreement that the impact of these changes will be felt most forcefully if the economy begins to sag.

For now, though, the crosscurrents are more a source of curiosity and surprise than immediate worry.

"It's just one of the ironies that in the face of this kind of economic climate there's still over 1 million people getting laid off" annually, says US Bureau of Labor Statistics economist Lewis Siegel.

The churning forces of today's labor market are illustrated dramatically in Silicon Valley, home of the technology revolution that has been a main engine of the economy's growth.

The last few months have been sprinkled with layoff announcements from some of technology's best-known players.

In June, IBM began cutting 1,100 jobs from its disk-drive operation in San Jose, Calif. Silicon Graphics, famous for its work on Jurassic Park several years ago, announced 1,500 layoffs in August. Raychem Corp. and Quantum also announced local job cuts last month.

At the same time, technology companies are crying out for more skilled labor and chances are good many of those laid off will find new work fairly rapidly.

The hiring and firing pattern of each sector of the economy is different. But mergers, restructuring, deregulation, and a changing competitive landscape seem to be exerting similar forces in the private sector that encourage high turnover, say analysts, who see no end to the pattern.

However, no one expects the economic expansion to continue indefinitely, and some worry about the toll of high layoffs without compensating job growth.

Eileen Applebaum, research director for the left-leaning Economic Policy Institute in Washington, says "the reason all this churn hasn't emerged as a huge social problem is because nearly everyone who loses a job is finding a job."

But she believes the net result of this turnover is a slow erosion of the "social contract" between employers and workers, which means in a recession, employees will have far less of a safety net.

Layoff data do not all agree nor have they been tracked consistently and long enough to provide clear-cut contrasts between this expansion and previous economic cycles.

But most evidence points to a rising number of layoffs in recent years, a trend that puzzles many at a time when the economy, by nearly all other measurements, is so robust.

Since 1993, Challenger, Gray and Christmas, a Chicago-based outplacement firm, has tracked monthly the number of announced job layoffs in the private sector. It draws its data from Securities and Exchange Commission filings, public announcements, and plant-closing notifications required by law.

Through the first eight months of this year, layoff announcements are running at their highest rate since Challenger began tracking the data in 1993.

Challenger's numbers are not comprehensive, but many analysts believe they provide an accurate snapshot of the pattern of job cuts over time.

The Bureau of Labor Statistics keeps track of actual layoffs, but has only done so with consistent methodology since mid-1995. Its latest numbers of so-called "mass layoffs," meaning at companies where at least 50 employees are let go, are for the first quarter of 1999. And for that period, layoffs were the highest in three years.

While some economists say the data are inconclusive, others say the rate of layoffs through this economic expansion is unique, and that a fundamentally different labor market is emerging.

Remarking on the rate of firing during such a strong economy, Stephen Levy, a director of the centrist Palo Alto-based Center for the Continuing Study of the California Economy says, "I think it is new and surprising."

Many see high layoffs as a result of a diminished social contract between workers and employers, whether because of weakened union influence or just the erosion of traditions that made employers turn to layoffs as a last resort.

Ms. Applebaum of the Economic Policy Institute says a growing share of the work force, about 30 percent currently, is working in part-time, temporary, and other forms of nonstandard, or so-called "continent" employment. Such work, she says, make employees more vulnerable to layoffs.

The practice of firing has become so routine that some companies are firing one month only to find themselves struggling to meet demand months later as sales rebound, Applebaum says.

For some sectors of the American work force, job tenure is clearly declining. Males in their 30s and 40s, for instance, are holding jobs for fewer years than their counterparts used to in the 1970s. And according to the Economic Policy Institute, the share of workers in long-term jobs of at least 10 years fell from 41 to 35 percent of the work force between 1979 and 1996.

But at the same time, the huge influx of women in the work force is producing a rise in that group's average job tenure.

On the questions of "contingent" work arrangements and job tenure, economists do not agree that these are clear-cut evidence of greater worker vulnerability.

But on one point there is little disagreement: that the American family is chalking up more hours on the job. According to data earlier this year from the Council of Economic Advisers, families are working about 300 hours more per year than 30 years ago. There is also considerable evidence that jobs today are less likely to offer health and pension benefits.

These two shifts in working America - declining benefits and longer hours - are for Mr. Levy the most compelling evidence of a weakened social contract between employer and employee: "These provide a clear-cut basis for a real debate in this country about the need for a new style social contract, particularly the impact of these trends on children."

Libby Pannwitt, a job counselor and founder of the Work-Life Design Group in Silicon Valley, says even in a prosperous region like this where unemployment is running below 4 percent, layoffs take their toll on adults too. "It kind of worries me because we're creating a climate of fear. I don't know what security is in this valley any more."

(c) Copyright 1999. The Christian Science Publishing Society