The Disposable American Layoffs and Their Consequences

by Louis Uchitelle Copyright © 2006 by Louis Uchitelle Used by arrangement with Alfred A. Knopf, a division of Random House, Inc. 304 pages

Focus Leadership & Mgt. Strategy Sales & Marketing Finance Human Resources IT, Production & Logistics Career Development Small Business Economics & Politics Industries Regions Concepts & Trends

Take-Aways • Job security began to be a normal American expectation shortly after WW I. For decades, corporations and workers mutually cared about job security and stability. • In the mid-1950s, management guru Peter Drucker emphasized that stable and secure employment helped build a highly motivated, committed work force. • The national job security consensus began to unravel in the 1970s; by the 1990s, it was gone. • Although Senator Hubert Humphrey co-sponsored the Humphrey-Hawkins Act, he attenuated his support for it. Carter and Clinton did not make job security a priority. • Layoffs accelerated as companies responded to imports, the strengthening dollar and, later, the shareholder value ideology that drove industry consolidations. • Americans began to see layoffs as the workers' problem, not business' or society's. • Laid-off people seldom find work that pays as well as the jobs they lost. • Downward mobility is now a growing problem among educated, white-collar workers. • Layoffs exact a severe mental and emotional toll: depression, distrust and diffidence. • America can stop the layoffs. First, end the competition among states and cities that spend $30 billion a year to lure companies to relocate, causing layoffs at the old site.

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Relevance What You Will Learn In this Abstract, you will learn: 1) How layoffs became a pervasive, corrosive fact of American work life; and 2) What the United States can and should do about them. Recommendation This excellent book examines the phenomenon of job insecurity in America. Author and newspaper reporter Louis Uchitelle traces the development and decline of the American expectation of stable, remunerative, virtually lifetime employment. Republicans may have taken the boldest steps in rolling back the expectation of job security (Ronald Reagan’s firing of the air traffic controllers spoke eloquently for the new order), but they did not do so alone or unopposed. Democratic presidents and politicians did not make preventing layoffs a major campaign issue or administrative priority. Uchitelle writes smoothly and evocatively, particularly about the individual experiences of laid-off workers, for whom the surviving avenues of American opportunity were dead ends. getAbstract recommends this book to anyone who wants to know what killed the historic American trust between workers and employers, and how to staunch the bleeding caused by layoffs.

Abstract “Layoffs became the measure of our national retreat from the dignity that had been gradually bestowed on American workers over the previous 90 years.”

“Core workers… perform the essential, profitmaking functions – (like) design and engineering at an aircraft manufacturer – while peripheral employees did support functions: human resources, accounting, clerical work, customer service…They were disposable.”

From Security to Insecurity Layoffs have become such a large part of American economic life that it is hard to recall when they were rare. During most of the twentieth century, job stability was the norm. Peter F. Drucker’s 1950s classic, The Practice of Management, outlined a tradeoff: management built a dedicated workforce by being loyal to its workers. He saw job stability as essential to corporate success. But 40 years later, Drucker is writing about “knowledge workers” adrift in an unstable economy where no one expects a permanent job. They rent out their intellects for short-term assignments, moving along as their needs – and their employers’ needs – change. The shift from enjoying stable, lifelong employment to facing ongoing job insecurity has taken a severe, usually uncalculated toll on the American worker’s economic and psychological well-being. Laid-off people rarely secure employment that pays as well as the jobs they lost. Although the layoffs usually are not their fault, they still suffer severe psychological and emotional pain. When employers tell them that the work they took seriously and did well for many years is of no consequence, is unnecessary, and is even a distraction to their firms, they lose their dignity – a difficult wound to repair. Commonly, layoffs spur strong psychological reactions, including distrust, depression and diffidence, scarcely suppressed anger and fear of future layoffs. The idea of having a permanent job started after WWI. In the 1800s, the norm was mobility. People who lost or left one job could move along and easily find another. The frontier promised opportunity. Immigrants from Europe expected to find work, but did not expect to spend their entire working lives at one job. As the frontier closed, the jobless wanderers who once had been “pioneers” became “tramps.” Immigrants’ children built new communities around the factories that employed their parents, and went to work in the same factories, as did their own children. Attitudes toward jobs changed. If you lost The Disposable American

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“While America’s best engineers and scientists had put much of their energy into the nation’s military industries, their counterparts in Europe and Japan… concentrated on becoming masters of production for civilian purposes.”

“Each layoff became the victim’s problem, not society’s, or the victim’s fault, and once people shifted to this view, their employers were free to incorporate layoffs into their tactics and operations.”

“Everything you think is important and do for your life’s work, isn’t. To have someone senior in the company say that so bluntly in public is terrible.”

“When you sever the connection to a long-held job, you are destroying something that you can’t restore, not quickly.” [ – economist Louis S. Jacobs]

a job, finding new work was not so easy. Labor unions contributed to the demand for security and dependable employment. Job stability was a cause worth fighting for, but it also worked in favor of growing mass-market corporations. They needed employees who understood their inner workings, norms, practices and culture, which take time to learn. Knowing that productivity requires a loyal, stable workforce and that loyalty must be mutual, companies favored long-term employment. Labor, management and society reached a consensus that job security and stability were valuable. Employees could count on pensions, retirement funds, medical benefits and other perquisites of job security, based on years of service. Layoffs were rare, not unthinkable, but shocking. How times have changed. While U.S. innovation and creativity focused on Cold War military industries, European and Japanese competitors applied their ingenuity to civilian products and technologies. As their economies recovered and their companies grew, they gained market share. Eventually they entered the American market, challenging U.S. corporations at home, and winning. Meanwhile, the Bretton Woods financial order collapsed, ushering in an era of financial deregulation. The oil price shocks boosted fuelefficient Japanese and European cars, an advantage multiplied by the currency markets. The devastatingly strong dollar of the early ‘80s took a serious toll on U.S. industry, making American products much more expensive than goods from elsewhere. Whole industries disappeared. The term “rust belt” emerged to describe ruined mill towns that had been built on the foundation of job stability. Corporate raiders targeted the twentieth century’s great companies. They attacked corporations to unlock shareholder value, extruding money by breaking up, selling off, downsizing and doing more with less. They demanded that managers justify every investment, expense and activity in value-to-shareholder terms. Few companies could. Prodded by capital market disciplinarians, managers came up with the idea of a core-andperiphery. The core business consisted of activities that created a company’s competitive advantage and market differentiation: design, new product differentiation and marketing. Everything outside the core – information technology, personnel services, bookkeeping, payroll – was peripheral, and best left to experts. Thus, spin-offs and outsourcing became new U.S. business strategies, bringing more layoffs, along with employee transfers and the use of temporary workers. A few decades earlier, an educated, productive worker could expect a job for life. Now, education and productivity were – if not irrelevant – no guarantee. Even formal guarantees, such as union contracts, became shaky. Right-to-work laws undermined the unions, especially in the South. Companies could violate some labor protection laws because no one enforced them. They could even fire strikers and replace them with new workers, once called “scabs.” Politicians who might have protected job security failed to do so. Rep. Augustus Hawkins, of Los Angeles’ Watts ghetto, wrote the “Humphrey-Hawkins Act” to mandate full employment. Sen. Hubert Humphrey co-sponsored the bill, which originally called for the government to act as employer of last resort. Hawkins faced serious challenges to his bill’s economic underpinning. In the 1970s, Humphrey cut back his support as he came to see inflation as a greater problem. Jimmy Carter, elected in 1976, was unenthusiastic about the legislation. The Disposable American

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“The trauma of dismissal – ‘the acuteness of the blow,’ as Dr. Theodore Jacobs…put it – unwinds lives in its own right, damaging selfesteem, undoing normal adaptive mechanisms.”

“In various small, peripheral ways layoffs can be reduced, or at least made less painful.”

“The growing presence of temps and contract workers…more than 10% of the nation’s workforce, up from two to three percent 30 years ago – is evidence of a reorganization of the workplace to accommodate layoffs without having to call them that.”

“Then there is the netherworld of jobs that are so poorly paid and so stripped of opportunity (no promotions, no raises, no training) that quitting them or being laid off are roughly the same.”

Some say this change happened because the American mood turned from communal to individualistic. Ronald Reagan’s victory in 1980 tolled the final knell for job security and anti-layoff sentiment. When aircraft controllers struck, Reagan fired them and hired permanent replacements. He set a precedent that companies quickly copied. Indeed, corporations were under severe competitive pressure, losing sales and market share domestically and abroad because of the strong dollar. They, arguably, had little alternative to closing and laying off workers – at least initially. But extensive layoffs bred anxiety in the electorate, and anxiety turned to anger when people saw clearly that Wall Street was profiting enormously from corporate restructuring. Junk bond mergers and acquisitions left many workers worse off as they made a few wellconnected executives enormously wealthy. In 1988, Congress finally acted, however meekly, by passing the Worker Adjustment and Retraining Notification Act. The act mandated 60 days warning before companies closed a facility or laid-off as many as 500 workers. Reagan signed the legislation with no enthusiasm – in fact, he disagreed with it. The law helped take layoffs out of the political limelight during the 1988 presidential campaign, in which Republican Vice President George H.W. Bush defeated Democrat Michael Dukakis. Subsequently, layoffs all but disappeared from political discourse. William Clinton’s 1992 election did nothing to protect jobs. Neither Clinton nor Treasury Secretary Robert Rubin paid much attention to layoffs. Indeed, they apparently saw employment as the employers’ concern, not the government’s. Nobel laureate Joseph E. Stiglitz, chairman of Clinton’s Council of Economic Advisers, often favored government intervention in the economy – but not to stop layoffs. He felt there was no way government intervention to prevent layoffs would improve the lot of everyone in the economy. Indeed, he believed that the only alternative to layoffs was protectionism, which was unacceptable. The administration professed to believe – contrary to evidence and experience – that education and retraining would be sufficient to address the problem of layoffs.

The Problem with Education and Retraining In the early 1990s, United Airlines took over a state-of-the-art aircraft maintenance facility in Indianapolis. Thanks in no small part to massive government subsidies, United used the facility to service its own planes and, eventually, began to service America West’s planes also. Although employment levels at the facility never reached the numbers United had spoken of when it negotiated its subsidies, thousands of unionized, skilled people worked there. During the early ‘90s, times were good. There was plenty of work for all. However, a labor dispute in 1999 resulted in a slowdown that sent the maintenance facility into a tailspin. America West looked elsewhere. United itself, leery of the union’s power at this facility, decided to diversify its maintenance arrangements. Then, United fell into financial straits, declared bankruptcy and laid off all the mechanics at the facility. Despite being highly trained, the overwhelming majority of these mechanics were unable to find new jobs paying anything close to what they had earned from United Airlines. Much of the airplane service business migrated to service providers in the South, where wages were as little as half of Indianapolis union wages. This sort of experience is not only a blue-collar phenomenon. Similar layoffs affected thousands of workers. Many white-collar workers ended up with sad stories to tell, including: • A Citibank human resources executive, laid off after decades of service, was unable to find employment at comparable pay. The Disposable American

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• A successful Connecticut bank executive in his 50s was replaced by a 22-year-old who worked for much lower pay. The executive wound up running a welcome station for tourists entering the state, a position much lower in pay and status than his bank job. • An information technology and human resource executive for Procter & Gamble who accepted an early retirement package in anticipation of a layoff, was never able to find employment even close to her P&G salary level. “Stable jobs and sufficient incomes and stable communities are powerful equalizers. Restore them – or begin to restore them – and the political influence that wealth now buys and that distorts democracy will be easier to unwind.”

“Each job saved is a victory and each victory brings people together in the mutual task of resurrecting the obstacles to layoffs that once protected us and lifted our dignity.”

The euphemism “income volatility” describes this downward mobility. Once, it applied mainly to workers who lost high-paying factory jobs and were unable to find similarly paid work. However, in recent years, white-collar workers have seen their incomes fall permanently for the same reason. This kind of income volatility is a big factor in the stagnation and decline of U.S. workers’ incomes. Training and re-education only solve the problem when they lead to other jobs offering equivalent pay. That is seldom the case. Moreover, the consequences of layoffs and unemployment are not entirely financial. They take a severe emotional and psychological toll. Unemployment is clearly associated with depression, which may be exacerbated by the loss of social networks and self-esteem. People who are laid-off carry the wounds and pain of the job loss experience for years, and are often unable to pick up the pieces and put their lives together again.

What Is to Be Done America must address the problem of layoffs and job loss in a broader context. Without job stability, income security and community stability, wealth can seize possession of the democratic political process – as it has in recent years. America does not have to tolerate the wave of layoffs. One good first step would be to end the competition among municipal and state governments that spend $30 billion a year subsidizing companies to locate or relocate into their jurisdictions. These expenditures increase layoffs, because many companies lay off workers in their old locations when they move. A revitalized labor movement and additional public investment to create jobs would increase employment security, but both are unlikely to happen. To solve the problem of layoffs, first consider its magnitude. Current unemployment statistics undercount the actual number of unemployed by ignoring those who have given up looking for jobs. Everyone unemployed should be counted, and all layoffs should be reported. The census refers to layoffs, but people who were laid off twice or more in three years are only counted as being laid-off once. The U.S. doesn’t count early retirements as layoffs, although they often are. It doesn’t count outsourcing that transfers a company’s employees and outside units, although such arrangements are tantamount to layoffs because lower pay and benefits at the new units lead many people to quit. Companies should be required to file audited employment reports similar to their financial reports, specifying how many people left during each period, why, and whether the departures were voluntary or involuntary. Such measures would improve the available data, enabling policies to be developed to confront the problem of layoffs in America.

About The Author Louis Uchitelle has covered economics for The New York Times since 1987, focusing on labor and business issues. He shared a major award for its 1996 series “The Downsizing of America.” He also taught journalism at Columbia University’s School of General Studies. The Disposable American

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