General Motors has set off big signal flares with its announcement of a massive retrenchment that will reduce its work force by 71,000 employees in the United States and Canada over the next four years.
In the immediate future, economists and employment experts say, it signals that the economic downturn could deepen and extend worldwide. "Companies in Germany and Japan and everywhere will see GM's cutback and realize that they have to cut back themselves," says Lester Korn, founder of an executive placement company.
"It signals a double-dip recession," warns David Lewin, head of the Institute of Industrial Relations at the University of California Los Angeles. "So many companies realize they must go further in their cutbacks."
A sense of profound change characterized many reactions to GM's announcement yesterday, which said the company would close 21 plants and reduce office and managerial staff by 20,000.
"It marks the end of the era when the paycheck-based middle-class could count on stable, long-term employment and rising income with a major corporation," says Dan Lacey, a Cleveland consultant who publishes "Workplace Trends," a newsletter.
GM's cutback came against a backdrop of announcements from scores of major corporations in recent weeks. International Business Machines Corp. announced a restructuring last month that may include unprecedented layoffs; Xerox, TRW, Tenneco, McDonnell Douglas and state governments around the nation are reducing staff.
Most of those job cuts are permanent -- jobs are being eliminated and employees terminated, not merely laid off pending an upturn in business. That is one reason, say analysts, that interest rate cuts have not revived the economy and cut-price sales have not spurred Christmas shopping.
Still to be faced are layoffs and cutbacks by all the smaller companies that depend on GM and IBM for business -- suppliers and dealers, metals and plastics producers, advertising agencies and media companies.
"We're in for a rough six months," says Korn, who sees the economy recovering by next summer. Nonetheless, he notes a ray of hope: "The entrepreneurial spirit of America will produce a host of cottage industries that in time will make us more productive."
Even though thousands of factory workers will lose their jobs, the GM cutback is seen as part of what is called the "white-collar" recession because jobs are being eliminated in service industries and among office staff. The banking industry, for example, has lost 25,000 jobs in the last year, 300,000 jobs since 1984, with more cutbacks to come as banks merge and consolidate.
Most analysts saw GM's cutback as confirmation that the American standard of living is declining as the United States comes to terms with a changing world. But that did not mean Americans were slipping behind other countries -- only coming back to their level.
Germany, for example, may retain lifetime employment in large corporations but it also supports large numbers of young jobless workers with a social welfare system financed by high income taxes on those who do work.
Japan rigorously stratifies its society and its work force. For example, Toyota employs fewer than 100,000 workers, compared with more than three times that number for GM. But that is because the workers who make essential parts for Toyota cars are employed by supplier companies that pay lower wages and benefits than the Toyota parent company. GM by contrast must pay higher United Auto Workers scale to more than 300,000 production workers. That's one reasonthe U.S. company has to cut back.