Layoffs at Large And Small Firms Sap Confidence

Cuts by major employers like IBM hit hard; retrenchment by small businesses hurts, too. US JOBS OUTLOOK

EACH week, economist Edward Hyman, chairman of the International Strategy and Investment Group Inc., publishes a list of large American companies that have recently laid off workers.According to Mr. Hyman's latest count, 156 firms - from Citicorp to Chrysler - have terminated employees since July 15. The most stunning announcement came two weeks ago from International Business Machines Corporation (IBM), which will cut 20,000 workers, in addition to earlier layoffs, in an effort to reduce costs. While these high-profile payrolls make the headlines, state employment offices point out that small and medium-sized businesses are also making employee cuts - or simply shutting down. Small businesses have been widely regarded as generators of jobs and economic growth. "Job layoff reports, like Ed Hyman's, which fill an entire page with small print, show there is a real impact on the people who work for those companies. But they also influence public confidence," says Raymond Worseck, chief economist of A. G. Edwards & Sons Inc., a St. Louis-based securities firm. Mr. Worseck says: "It's one thing if a person knows the plumber or the electrician down the street who's out of work, [and] he thinks it's because of the recession. But when IBM announces tens of thousands of layoffs, then he thinks in more drastic terms: 'Well, if IBM is having problems, everyone must be in bad shape. More than 50 percent of America's jobless are at high school education level or below. They face the toughest market for reemployment, says Wayne Vroman, a labor economist with the Urban Institute. That grim statistic is reflected in November's consumer confidence index. Published by the Conference Board, the index plunged to its lowest level in more than a decade. Fear of unemployment is the chief concern. "For every person who's laid off, there are 20 more who fear that their jobs may be next," says Robert Reich, a professor of political economy at Harvard University's John F. Kennedy School of Government. "Nothing inhibits consumer purchases [some two-thirds of the country's economic activity] like that fear. It has a very depressive effect on the economy." Mr. Reich calls massive layoffs "irrational" decisions for US companies that are trying to stay competitive, because job cuts jeopardize worker loyalty. "It makes sense for companies to hold onto their workers," he says. "Companies can't be flexible and innovative without the full commitment of workers." The labor pool is "the one unique aspect of a firm," he says; all the other components of a business - machinery and other tools of the trade - are physical elements that can be copied by any competitor. "With their skills, insights, and commitment, workers become more valuable because they are ready to solve the next, more-complex problem. Layoffs deplete know-how and drive, leaving only the machinery." On balance, firms like IBM are making a mistake, Reich says. "Companies with cash-flow problems should use the time they don't ordinarily have [when business is booming] to train and educate their employees; they should reduce their salaries and promise them a share of future earnings." He says this would preserve worker loyalty, upgrade labor skills, and trim costs. A company passively waiting for business to improve and pushing workers out during tough times will have to spend more money and time rebuilding the same caliber of work force later, if the firm can still compete, says Reich. Early retirements - a popular method of paring down the payroll rid firms of their most experienced workers," he says. "Many of the most valuable workers will take their severance pay and start up new firms." Sharon Canter, strategic information director at Wisconsin-based Manpower Inc., sees a lot of those unemployed middle managers, with honed skills, opening their own businesses. But the failure rate of start-up firms is high during this recession; borrowing is tight, cost exposure is broad, and the market is uncertain. Manpower Inc., a temporary labor supplier, does quarterly employment outlook surveys of 15,000 public and private employers from all sectors of the economy in 474 cities across the US. The number of jobs lost over the next three months will be matched by job creations, resulting in "a zero gain," according to the latest survey, released Dec. 2. Worseck says economic growth won't mean "a big jump in employment. Companies will try to squeeze more blood out of a turnip" by employing workers overtime rather than by hiring additional labor. Ms. Canter says: "Downsizing companies are looking for short-term gains. They will have to find different ways to increase productivity, such as on-site training."