To minimize layoffs, employers cut worker hours

The practice is spreading as the US unemployment rate hits 7.6 percent.

Faced with a downturn in orders, Hardinge Inc. is laying off workers, cutting executive salaries, and freezing hiring. But the machine toolmaker in Elmira, N.Y., is also doing something else – something that hasn’t happened much in other downturns: Most of its workforce is now only getting paid for four workdays a week.

“The alternative was to lay off 20 more people,” says Rick Simons, Hardinge’s president. “This way, we get to keep those people employed, and they get to keep their benefits going.”

From coffee shops to machine shops, employers are trying to mitigate the effects of the downturn by reducing employees’ hours or overtime. California Gov. Arnold Schwarzenegger, for one, has ordered some 200,000 state workers to take a two-day furlough every month in an effort to close a $42 billion budget gap. Even some of the legislation in the economic stimulus package would reward states that use “innovative benefits” – such as giving unemployment insurance to workers who have had their hours reduced.

“Shrinking the hours everyone works helps reduce the extremes of how hard people are hit and maybe makes it a bit easier,” says Nigel Gault, chief US economist at IHS Global Insight in Lexington, Mass. “It also may be more helpful for morale, perhaps.”

The attempt by companies like Hardinge comes during one of the worst job markets in decades. Last Friday, the Department of Labor reported that the US unemployment rate climbed to 7.6 percent in January, up from 7.2 percent in December. And the economy shed 598,000 jobs, the worst performance since the end of 1974. Over the past two months, more than 1 million people have lost their jobs.

“This is about as bad as it gets,” says Daniel Meckstroth, chief economist at Manufacturers Alliance/MAPI in Arlington, Va. “There is no good way to spin this as anything good.”

Since October, the US unemployment rate has climbed by one full percentage point, a pace of layoffs not seen since at least the 1980s. Given the number of recently announced layoffs and the rising number of new claims for unemployment, the February job losses could be even worse, some economists say.

“If there is any silver lining to the news, we are seeing job cuts so widespread and massive [that] it may mean everyone is making all their job cuts all at once,” says Joel Naroff of Naroff Economic Advisors in Holland, Pa. “We are compacting an adjustment process that might have taken two years into 12 months, so we may get through it sooner.”

Reducing workers’ hours may help keep the unemployment numbers from soaring yet higher, says labor economist Della Lee Sue of Marist College in Poughkeepsie, N.Y. “If the unemployment rate keeps going up, it makes a lot of people feel worse about the economy,” she says. “And that becomes a self-fulfilling prophecy.”

But some work experts wonder if cutting hours is such a good idea. “It’s hard to get a team of people giving it their all when you’ve reduced their pay,” says Roberta Chinsky Matuson, president of Human Resource Solutions in Northampton, Mass. “This is particularly true if you have asked them to do more work than they have been required to do before.”

She worries that many people will be forced to get a second job. “They may like the other job better or be so exhausted [that] they may not be rested.”

In Elmira, Mr. Simons says his workforce seems to have accepted the cut in hours, considering the alternatives. “They read the paper and see what’s going on,” he says. “We have another company, Corning, up here, and they have announced a layoff of 3,500, and most people know that.”

Under New York State law, the Hardinge workers are eligible for unemployment payments for the loss of a paid day of work each week.

According to Oakland, Calif.-based Maurice Emsellem, a lawyer at the National Employment Law Project, the states are “all over the place” on paying for reduced hours.

Thirty states require an unemployed worker to seek full-time employment while receiving benefits. The federal Unemployment Insurance Modernization Act under consideration in Congress, part of the Obama economic stimulus plan, would offer states incentives to improve benefits coverage for part-time workers.

Another thing that could help workers is if they anticipate that a work reduction is temporary. That’s the case for Katie Corrigan, who had her hours cut in half at a Boston recruiting firm last month. She envisions that the business will pick up once the economy recovers.

“They will be calling on us. They will have to beef up their ranks,” she says. “We will be well positioned.”

It helps, Ms. Corrigan says, that she likes the company. “What it comes down to is if it’s a company that you want to stay with, you will make the sacrifices over the short term to get the job back,” she says.

For those who have had their hours sliced, however, there are adjustments. In Tacoma, Wash., waitress Kristen Olson has seen her hours at a local coffee shop cut from 35 hours a week to 20. Next month, she plans to move in with a roommate since she can’t afford rent by herself. And, she says, she either “sticks to happy hours” for dinner or makes a big pot of spaghetti that will last the week.

The reduction in overtime at some companies can also be difficult for workers. In Jackson, Tenn., Bodine Aluminum has eliminated overtime for much of its workforce. “Some people bought houses and vehicles based on a 40-hour-plus workweek,” says Thaddessus Watford, a quality-control employee. “I’ve heard a few are in danger of losing their homes, and everyone is feeling the effects of it.”