Layoffs rise as firms find it's profitable 523,000 are fired as of Oct., 200,000 more than in 1997

Pink slips in golden times

Study shows strategy may ultimately lower earnings, stock ZTC prices

November 30, 1998|By LOS ANGELES TIMES

At Applied Materials in California's Silicon Valley, laying off workers has become almost as routine as dumping old hardware.

The manufacturer of chip-making equipment fired 2,000 employees -- 15 percent of its work force -- in August, only three months after firing 1,500.

Applied Materials Inc. is hardly alone. U.S. companies announced in October plans to cut 91,500 jobs, the most in nearly three years.

In the first 10 months of this year, job cuts totaled 523,000, nearly all of them domestic. That's 200,000 more than the number of jobs eliminated in the same period last year, according to Challenger, Gray & Christmas, a Chicago outplacement firm that tracks job cuts.

The Challenger numbers show that downsizing continues unabated even though the unemployment rate has remained less than 5 percent for 16 consecutive months.

If the economy remains robust, why are hundreds of thousands of workers still losing their jobs?

For many corporations, downsizing has become a strategy that is used in good times and bad. Senior managers, under pressure from stockholders to increase profits, often take the easiest way by cutting employment costs.

"Because of pressures from Wall Street, companies are paying unprecedented attention to their bottom line," said Diane Swonk, deputy chief economist at Bank One in Chicago. "Companies are being asked to produce not just good profits but extraordinary profits."

Such was the case at Applied Materials, which reported a profit of "only" $70 million two weeks before the August job cuts. The third-quarter profit was down from the $145 million the company earned in the same period in 1997.

Record profits

Even in the best of times, the Santa Clara, Calif., company has sent workers home. In 1996, the company fired nearly 10 percent of its work force, despite posting a record profit of $600 million.

Applied's periodic layoffs are consistent with an industry that practices just-in-time employment, according to Jeffrey Pfeffer, a Stanford University management professor who has studied hirings and firings by semiconductor companies.

"There are some companies that wouldn't hold workers one minute more than they're needed," Pfeffer said. "They will hold inventories of goods for a long time, but they don't want to hold inventories of people."

The latest firings confirm what "workers already know: that there is little long-term job security, and your ability to retain your current job is beyond your control," said Peter Cappelli, head of the management program at the University of Pennsylvania's Wharton School.

A poll released in September by Shell Oil Co. found that more than half of all working Americans have been downsized, have worked for a company that has merged or been bought out, or have moved to a different city because of their job.

That might explain why workers' commitment to their employers is declining. More than half of U.S. workers -- 55 percent -- said they would switch their jobs for a pay increase of 20 percent or less, according to a survey of 2,020 workers conducted by Aon Consulting, a unit of Chicago insurance company Aon Corp.

And many workers are figuring out that the best defense to a layoff announcement is having another job lined up.

After several prominent U.S. companies announced layoffs last month, 140,000 workers submitted their resumes in a four-week period to a Web site operated by Korn/Ferry Futurestep Inc., an executive search firm that recruits middle managers.

For U.S. workers, layoffs have been a fact of working life ever since attacks from corporate raiders provoked companies to downsize in the 1970s and 1980s. Companies sought to assuage shareholders by arbitrarily shedding workers to improve short-term profits and to make their businesses appear financially healthy.

Tight job market

That strategy continued during the 1990s, especially by chief executives such as Albert J. "Chainsaw Al" Dunlap, who became the poster boy for the downsizing movement when he fired 11,000 workers from Scott Paper Ltd. and Sunbeam Corp.

When the firings at Sunbeam failed to cure the appliance maker's ills -- Dunlap himself was ousted earlier this year -- experts thought layoffs would taper off, especially in a tight job market.

But despite sustained economic growth, 3.6 million workers were laid off during the two-year period that ended in December 1997, from jobs they had held for at least three years, according to the Bureau of Labor Statistics.

Layoffs over the past several months have involved companies ranging from oil companies to pharmaceutical manufacturers to brokerage houses.

Among them are Callaway Golf Co. (700 jobs), Atlantic Richfield Co. (900), Texaco Inc. (1,000), Monsanto Co. (3,500), Merrill Lynch & Co. (3,400), Gillette Co. (4,700) and Raytheon Co. (14,000).

Executives of recently downsized companies say they need the flexibility to cut and rearrange their work forces -- especially in the face of mergers, the global economic crisis and routine company reorganization.

Patrick Cleary of the National Association of Manufacturers said that while layoffs are painful, the fired workers are being quickly hired by other employers.

"This is a big country. You can have downsizings and [hirings] going on at the same time," said Cleary, vice president of human resources policy for the Washington trade group.

Experts surprised

Experts say they're surprised that so many companies are using layoffs as a first resort, especially since studies have shown that downsizing alone doesn't achieve the desired financial results.

Companies in the Standard & Poor's 500 that merely eliminated jobs from 1980 to 1994 suffered long-term losses in profits and in their stock prices, according to research conducted by Wayne F. Cascio, a University of Colorado management professor.

The same research revealed that the most profitable companies were the ones that produced new revenue by increasing staff and other assets, developing new products and entering new markets.

Pub Date: 11/30/98

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