Firms expand without hiring

Investment in technology, efficiencies boost output

Companies becoming cash-heavy

But job growth is forecast as productivity gains slow

February 27, 2005|By Nicholas Riccardi | Nicholas Riccardi,LOS ANGELES TIMES

Carlton Guthrie sees bright times ahead. After weathering the 2001 recession, his manufacturing company has made enough money to pay off some debts and position itself to expand.

But he's not planning to add jobs.

"I don't see us hiring anytime soon," said Guthrie, co-chairman of Detroit Chassis, which makes chassis for motor homes. "I see a tremendous amount of room for us becoming more efficient."

Guthrie's ability to expand his business without enlarging the payroll helps explain why job creation continues to be sluggish while the economy appears to be booming.

The U.S. economy grew at a 4.4 percent clip last year, but the number of jobs didn't return to the level of early 2001 until last month. Today's job growth is less than half what it was after the 1990-1991 recession and is slower than during any recovery since World War II, analysts say.

The disparity is fueling a growing debate about whether such low employment growth is a harbinger of a world in which businesses can rake in increasing profits without much of it trickling down to workers.

"Until now, this recovery has been all about businesses," said economist Mark Zandi of Economy.com, a research firm in West Chester, Pa. "Businesses are in about as good a financial shape as I've seen them."

Instead of adding workers, corporations have been buying labor-saving equipment, banking cash, distributing record dividends, buying back stock or undertaking mergers that often lead to job losses.

The reasons for these choices are many. Manufacturers such as Guthrie are pinched by price competition and required to continually cut costs. Other executives are wary about expanding payrolls at a time of ballooning health care premiums. Companies are leery of bloating their staffs, remembering the excesses of the late 1990s. And "offshoring" still looks cheaper than paying American salaries.

The high level of corporate profits and cash leads many analysts to forecast that more jobs will inevitably be created. History shows, they argue, that excess cash is eventually spent, creating opportunities for workers. The last time the country fretted about a "jobless recovery" was during the early 1990s, just before an avalanche of employment stemming from the technology boom.

Another important factor that could soon lead to more job growth is slowing gains in productivity. Companies have squeezed just about all they can out of their workers through labor-saving technology and efficient management practices, analysts say

Skeptics note that wages remain relatively unchanged, growing more slowly last year than the rate of inflation, which translated into a cut in take-home pay for many workers. That stagnation indicates to skeptics that the traditional business cycle - in which growth leads to a tight labor market that bids up wages - might be a thing of the past.

"The big question is: Has there been some structural change, in that what we're seeing in the rearview mirror doesn't apply to what's in front of us?" asked Jared Bernstein of the liberal Economic Policy Institute in Washington.

Drew Brosseau, managing director of investment company S.G. Cowen, thinks the answer is that money is increasingly being invested in high-technology sectors that do not require as many people as factory jobs do.

"A lot of the information industries that are drivers of growth these days are not as person-intensive as manufacturing," Brosseau said.

Even though it is a manufacturer, Detroit Chassis also has required fewer workers.

After the September 2001 terrorist attacks, the recreational vehicle market collapsed. With orders plummeting, Guthrie laid off about 50 employees and cut salaries 30 percent across the board, including management. He since has revamped the way his plant assembles RV frames to squeeze every ounce of efficiency out of his staff, boosting output by about 30 percent.

Revenues have improved enough for him to bring pay levels back to where they were before the terrorist attacks. And he has retired about 30 percent of his company's $8 million debt.

"We're doing well," he said.

Now, Guthrie said, workers are finding new efficiencies every day. In return, he's not cutting jobs but is redeploying employees to new ventures, such as creating safety products for RVs and trucks. "We're running at warp speed right now," he said.

Those new endeavors will not require more employees yet, Guthrie said. He said he might hire more people by year's end if the ventures do well, but for now, improvements in technology and organization will allow him to make new products with the same staff.

Other businesses are doing the same thing. Some have increased productivity mightily in the past three years, with gains of 4 percent or more annually, the highest since World War II, economists say. That, coupled with persistent consumer demand for their products, has allowed companies to turn profits without adding many jobs.

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