Out the door. Hit the road. Finis. As storm clouds darken the economic landscape for the first time in eight years, the pink slips are blowing. Military contractor McDonnell Douglas has announced it will eliminate as many as 17,000 jobs; Chase Manhattan, 5,000. Aetna Life and Casualty said last Friday it would eliminate 2,600 jobs. Even tony Saks Fifth Avenue will pare away 700 positions. In all, U.S. job cutbacks could nearly triple this year, from 111,285 in 1989 to about 300,000 by the end of 1990, according to Workplace Trends newsletter. And so far in the fourth quarter of this year, announcements of corporate-staff cuts have come at a rate of more than one each business day. Whether we are already in a true recession is still a matter of technical debate, but as economist Alexander Paris, president of Illinois-based Barrington Research Associates, wrote recently, ““If it walks and talks like a duck, it is a cluck,’ it really doesn’t matter what we call it, the economy has been hurting for some time.”
This slump is bringing down a lot of people who-didn’t think it could happen to them: white-collar workers, whose ranks swelled in the service-oriented 1980s. Of the nearly 81,000 positions eliminated in 1,219 U.S. corporations between July 1989 and June 1990, 44.6 percent were managerial or professional–up from roughly 34 percent a year before, according to a study released last week by the American Management Association. It could get much worse: Workplace Trends editor Dan Lacey estimates that as announced layoffs take effect, as many as 70 percent will strike white-collar workers. Suddenly, professionals like Scanlon are finding that good credentials and hard work aren’t enough to keep them off the unemployment rolls.
Not everyone is convinced that the “white-collar recession” label is justified: Stephen Roach, an economist with Morgan Stanley, calls such talk “fearmongering.” As he points out, “Manufacturing lost more jobs in the last two months than Wall Street did in a year. And yet, this gets billed as a white-collar recession. It makes you wonder.” Still, as they read the headlines about “down-sizing” and hear dinner-table stories about Yuppie layoffs, the perception is growing among whitecollar workers that something has gone badly awry (page 48).
If you’re starting to pick at your cuticles, you’re not the only one. Of those polled for NEWSWEEK, more than half know someone who has been laid off or fired recently–and l 20 percent believe that they could be next (page 46). But it’s possible to eliminate some of the uncertainty. The business cycle creates both losers and winners, and the more you know about how recessions work, I the easier it is to figure out whether your I company is in trouble or not–and whether or not your own job is safe. A guide to calculating the odds:
One way to gauge your job security is I to look at the health of your industry. Of ’ the fields in trouble, the biggest damage is | being done to those that boomed in the 1980s. It is the job of recessions, after all, to wring excess from the economy–and I nowhere has excess been so wretched as on Wall Street, which has seen staffing I drop from a peak of about 265,000 before the October 1987 crash to an estimated 215,000 by the end of this year, according to analyst Michael Goldstein of Sanford C. Bernstein & Co. Real estate, a high flier in the past decade, also fell hard. The industries that rode the Wall Street and real estate booms, like banking, insurance and law, are riding back down with the bust. So are retailers, who overextended themselves trying to fill the surplus shopping malls that developers flung up. Such consumer-dependent businesses as hotels and restaurants will also take a hit.
Yet even in industries that are hurting, not all companies are created equal. “It is the company that is the employer, not the industry,” says Oscar Ornati, professor of management at New York University’s Stern School of Business. A badly run company will have problems in a recession whether it’s supposed to be recession-resistant or not; the best-run companies will survive and enjoy the spoils from the fallen. Cathleen W. Mackey, a financial analyst for Gruntal & Co., says retailer Wal-Mart has the right stuff for the long haul: a healthy balance sheet and low prices. “Even in the Northeast,” says Mackey, “men still need to shave and women will still wear deodorant.”
How your company will fare might also depend on where it is: the nation isn’t feeling the recession evenly. Rolling recessions began in the early 1980s when the high dollar stung heavy manufacturing, particularly steel and automobiles. Next came agriculture, then energy, then real estate and now financial services. Says Mark Drabenstott, an economist at the Federal Reserve Bank of Kansas City: “The stories I see today in New York newspapers resemble the stories I read in Des Moines and Dallas papers a few years ago.” New York is in pain, but Boston is the real epicenter of the recession. The Northeast’s ’80s prosperity, based on defense, minicomputers, financial services and real estate, has come back to earth with a sickening thud. Frederick Breimyer, a bank economist and president of New England Economic Project, foresees unemployment rising to 10 percent in Massachusetts in 1992–and even higher if the nation enters a serious slide.
The recession is not felt nearly so much where healthier industries like agriculture rule. Even rust-belt states stand to fare well. Until 10 years ago, Detroit was a basket case in any recession. Now the economy has diversified with service-industry jobs, from engineering to health care. That makes the region better able to handle the cycles, but the jobs don’t pay as well as the old manufacturing positions. “We might be less cyclically sensitive as kind of the consolation prize for getting poorer,” says George Fulton, an economist at the University of Michigan Institute of Labor and Industrial Relations.
Debt could be the real company killer. These days roughly 26 percent of the cash flow in business goes to debt payments, up from 18 percent when the 1982 recession began. Many mergers, acquisitions and leveraged buyouts of the 1980s assumed a strong economy; with less cash coming in, many companies will be crippled by their debt payments. Already, retailing mogul Robert Campeau has fallen, and developer Donald Trump has slipped off the Forbes list of 400 richest Americans. Southland, parent of 7-Eleven stores, filed for bankruptcy last week after nearly three years of struggling under the debt load of its LBO.
No matter how bad things get, big profits won’t be limited to bankruptcy lawyers and outplacement firms. A number of other industries are bucking the textbook description of the business cycle. Manufacturing, which usually does poorly in tough times, was slimmed down in ’80s restructuring and toughened by global competition. Now it appears to be easing out of the trough of the recent past, aided by strong exports and a soft dollar that makes American goods look inexpensive. Thanks to more efficient inventory management, many companies won’t be dragged down by huge buildups of goods that slowed recovery in past recessions.
On the other hand, industries that economists consider recession-resistant might have some problems. One executive of a Northeastern medical-supply firm says that his supposedly slump-resistant sector is hurting-in part because financially strapped patients are putting off elective surgeries. “There’s no such thing as a recession-proof industry,” he says. “When business is bad, some people may suffer less than other people, but everybody suffers.”
If layoffs come at your company, will your job be safe? Your title might make a difference. The safest workers are those who contribute directly to the bottom line, like salespeople. The farther you get away from the customer, the more difficult to justify your salary in a crunch. DRI/McGraw-Hill economist David Wyss says cuts often come in the ranks of those people whose main responsibility is to filter information-the role of most middle managers. The margin for error narrows, and mediocre managers who muddle through the good times could find themselves pushed out in the bad, says NYU’s Ornati.
Management often puts the squeeze on advertising and public relations, as well as personnel. And research and development is a common target, though Massachusetts Institute of Technology professor Lisa Lynch says that R&D might provide the company with a new product or direction that could help it get going again. “You can’t afford the luxury of thinking long term,” she admits, “but you can’t afford not to think long term.” And as if you weren’t under enough pressure, some experts say that, like recession itself, worrying about getting fired can be a self-fulfilling prophecy. William Morin, CEO of Drake Beam Morin, a New York-based executive-outplacement firm, says, “If you’ve been running around with a long face and saying, ‘This is a doomsday place to work,’ you’ll be on the travel list yourself.”
There are more specific warning signs for your company–and for yourself. If the company has already tried nonlayoff alter natives like hiring freezes and early-retirement programs and is still in trouble, it shouldn’t be too surprising that layoffs could be next. If your expense checks and/or commissions aren’t being paid as quickly as usual, it’s a fair sign that cash is tight. Is the company not paying its bills, or advertising less? More signs of shrinkage. Outplacement execs suggest several signs that should put you on red alert: you may notice that another department is doing much of the work that yours used to do, or that your superiors are getting the ax. And look out if you’re not being invited to meetings that you used to attend or getting all the memos you’d expect–or, for that matter, if building services stops watering your plants.
And now, take a deep breath. Some economists say recession fears are overblown. “There’s more anxiety per square inch of space in the newspapers than there is softness in the economy,” says one top Bush administration economist. “I think some of the gloom is a product of the historic eight-year-long expansion–people haven’t had a chance to be pessimistic for an historically long interval. Now they’ve got the chance, they’re wallowing.” In the Midwest, where less of the chill has been felt, critics call this a “media recession,” overplayed by myopic New Yorkers–especially financial journalists, who are seeing their profession weaken and the value of their own assets drop. Yet, as much as it might rankle the rest of the nation, there’s little doubt that when New York gets a chill, the rest of the country shivers along with it. If a company’s headquarters is in Boston or New York, it scarcely matters that the Omaha branch is doing well-the whole company will feel the squeeze.
Like all cycles, the business cycle turns up as well as down, and the economy ought to head up again–possibly within a few months, but potentially years from now if instability in the banking industry and other nations dries up the capital that would let business expand again. But another hidden cost could present itself once the economy heads upward. Just as thousands are losing their jobs, their businesses are losing them, and their expertise. “That loss of talent can’t be good for the country,” says a former banker who speaks five languages and is now working as a temp. The next crisis–the expertise gap–awaits us.
Barbara Corbine, 47, a former Air New Zealand employee, says she was fired from the only division in the company where sales were up. “It came as a total shock,” she says.
David Johnson, 30, earned more than $100,000 as a Wall Street mutual-fund manager. When he was fired, his wife, Cindy, was on maternity leave and their son, Zachary, was 2 months old.
Broker Jo Heaton, 43, heard a rumor that Stadler Associates of Coral Gables was about to go under. The buzz proved correct. Stadler went bankrupt on payday, owing her $2,700.
E.J. Kahn III was editor of SportsBoston, a start-up magazine, until it folded in September. He has been out of work before, but says this time “the pressures are more real and more sustained.’
U.S. firms cut twice as many jobs in the last nine months as in all of 1989–and it could be three times as many by the year-end. ..CN.-1989 In all, 55 companies cut a total of 111,285 permanent staff positions. 1990 So far, 139 companies have slashed 246,942 positions. That number could rise as high as 300,000 by the end of the year–or roughly triple the 1989 total.
SOURCE: WORKPLACE TRENDS
Although few respondents have been laid off so far, 20 percent worry they might be soon–and more than half say they know someone who has been fired. Few of those surveyed, including white-collar workers, have enough savings to last more than a matter of months.
How worried are you that you will lose your job or be laid off over the next 12 months?
All employed White Collar Very worried 7% 6% Somewhat worried 13% 8% Not too worried 17% 18% Not at all worried 62% 68%
Which of the following apply to you?
Yes No I have been recently laid off or fired 7% 92% People in my company have been 28% 69% A member of my family has been 17% 83% I know people outside of my family who have been 50% 49% Recent layoffs by other companies have hurt my company’s business 22% 73%
If you lost your job, how long do you think you could afford to go without work while you looked for a new job?
37% One month 20% Three months 17% Six months 8% A year 14% More than a year
If you were to lose your job, would you be likely to take the following steps or not? (Answers from chief wage earners)
Yes No Move to a new location 42% 58% Change your line of work 62% 36% Sell your car 17% 80% Sell you home 19% 73% Ask your spouse to get a job or second job 28% 62% Seek financial aid from your parents 20% 77% Live with your parents 14% 83%
CARTOON
WHITE COLLAR CRUNCH
Already, there are sings this downturn will hit professionals and office workers much harder than the recession of the early 1980s. ..CN.-1983 27% of all unemployed were white collar
1990 33% of all unemployed have been white collar; 37% in September. SOURCE: BUREAU OF LABOR STATISTICS
title: “How Safe Is Your Job " ShowToc: true date: “2023-01-23” author: “Alice Graham”
It’s a grim scene playing out in too many offices as America’s smooth-running economic engine suddenly sputters. Pink-slip parties are already old hat for dot-comers, whose jobs have been vaporizing for months. Now invitations are spreading across the Old Economy. Last week a new list of employers–AOL, JCPenney, Lucent Technologies and Sara Lee–announced massive cutbacks, which may lift January’s layoff tally ahead of December’s, which was already the highest in eight years. Half of all Americans now expect unemployment to rise in 2001, according to the University of Michigan consumer survey, double the number in November. And when the new consumer-confidence numbers come out this week, they’ll likely show the sharpest two-month decline since the last recession. A remarkably frank Alan Greenspan worried to Congress last week that in the echo chamber of our wired economy, this drumbeat of bad news could discourage spending, undermining the Fed’s efforts to finesse a soft landing. In lunchrooms and on e-mail, workers who once bragged about fat job offers are asking anxious questions. How safe is my job? Could I be next? Says Mark Oldman, cofounder of Vault.com, a job-research site where employees trade gossip: “There’s almost a layoff panic.”
Grizzled veterans who’ve ridden over the crest of past business cycles find this unsurprising. Booms always end, and workers lose their jobs. But there are numerous signs that the new shakeout signals a more dramatic shift in employment trends. Witness the stunning speed with which companies are pre-emptively jettisoning workers, before it’s even clear the slowdown will be that long or deep. Another new twist: as so many Internet start-ups implode simultaneously, a younger generation accustomed to employers’ begging for their services is catching its first glimpse of a normal job market, where not every worker is pursued like Alex Rodriguez. The final striking feature is just how matter-of-factly–even happily–many elite workers are taking their “reduction in force” notices. That’s partly because they’ve become resolutely optimistic after growing up in a strong job market. It’s also because after years of near-continuous downsizings (many due to mergers), many workers have come to accept the risk of layoff as the price of admission to the New Economy. “It’s almost a rite of passage,” says Dale Klamfoth, a VP at the outplacement firm Drake Beam Morin. “If you haven’t lost at least one job in your career today, you haven’t taken enough risk.”
Let’s be clear: despite all the dour headlines, today’s job market remains remarkably strong. Unemployment still hovers near a 30-year low, and recruiters say most laid-off workers are finding new jobs quickly. Even with dot-coms evaporating daily, people with computer know-how remain in high demand. And while some businesses, like retailers and auto-parts suppliers, are cutting jobs, other sectors such as health care, insurance and education remain desperate for workers. And despite all the scary talk about a downturn, most experts expect sharp interest-rate cuts to cure the anemic economy before it suffers two quarters of contraction, the classic definition of a recession. Hardly anyone expects the jobless rate to rise much above 5 percent this year, far below normal recessionary levels.
Still, even that 1 percent rise in the jobless rate would sting, translating into more than 1 million new job hunters pounding the pavement. Says economist Allen Sinai of Primark Decision Economics: “Five percent is a low rate historically, but tell that to the unemployed–to them it’s going to feel just as bad as it’s always felt.” Jackie Chase is painfully aware of his point. The 33-year-old single mom earned $35,000 a year laboring at Cleveland’s LTV Steel plant until her November layoff. On a recent morning she sat at her kitchen table, trying to conjure a way to buy food after using her $261 weekly unemployment check for rent and car payments. She’s agonizing over whether to take a sub-$10-an-hour job, the only kind she can find. Her family is so distraught that daughter Melody, 8, took $10 of her Christmas money, put it in an envelope and crayoned a note to LTV execs suggesting they use the money to rehire workers. “When times are good, you think they’ll stay good forever,” Chase says, staring at bills. “Then suddenly you’re one of those people they’re talking about on the news.”
As sad as it is, there’s a timeless element to her plight. Blue-collar workers are always hit hardest when business slows, says Princeton economist Henry Farber. What’s changed in the last decade is how high up the job ladder that danger now extends. As the economy began its slow recovery from the 1991 recession, companies accelerated the “downsizing” of middle managers, who became expendable as computers reduced paper-pushing. During the mid-1990s the trend garnered tons of attention, mostly because the media elite had never seen so many peers suffer joblessness. Since then, white-collar layoffs have been a year-in, year-out routine, and as we face the first slowdown in a decade, these workers face bigger risks of job loss than ever before.
The upside is that white-collar folks traditionally find new jobs more quickly, and with less earnings decline, than lesser-skilled workers. Until last month David Leone, 53, was a purchasing agent at air-bag manufacturer TRW. Then his boss led him to HR for a little chat. “All I remember hearing was, ‘How many boxes do you need?’ " says Leone, who packed up his desk and was home by lunchtime. But the good news is that even in Detroit, hit hard by slowing auto sales, Leone could start work at a new job next week.
Rosy stories like his abound in part because so many layoffs are coming so early in the slowdown. In the past many companies waited until the depth of a recession to cut staff, which left victims job hunting when unemployment was high and positions scarce. During the 1991 recession, for example, General Motors CEO Robert Stemple waited until GM was submerged by red ink before cutting 74,000 jobs; as a result, GM’s board axed Stemple, too. Today more companies cut jobs pre-emptively. So last December, after just two months of subpar sales, GM announced plans to cut 15,000 workers–despite having its second most-profitable year in history. This time, says GM vice chairman Harry Pearce: “We want to get ahead of the curve and anticipate the downturn instead of being surprised by it.”
That swiftness has several causes. Blame some of it on new technology, which gives managers better information faster. “Firms know exactly what their inventories and sales are moment by moment, so they’ll act faster to lay off workers,” says economist Marvin Kosters of the American Enterprise Institute. Outplacement expert John Challenger calls that practice “just-in-time employment.” Wall Street gets some of the blame for demanding that bosses take quick action when earnings fall short (although, contrary to populist rhetoric, the average company’s stock price doesn’t jump on layoff news). Blame another part on the public’s growing acceptance of job cuts as an everyday management tool. CEOs used to face scorn for cutting jobs; today many Americans own stock, watch CNBC and idolize CEOs even as they downsize. “The sense of vilification isn’t there anymore,” says Jeffrey Sonnenfeld of the Chief Executive Leadership Institute.
Still, there’s risk in putting workers on the chopping block so soon. Wasn’t it only yesterday that desperate companies were doling out back massages and BMWs to attract and retain employees? If the current slowdown proves short-lived, companies laying off today could end up spending more to hire tomorrow. Not to worry, bosses say. Now that the old seniority-driven practice of “last hired, first fired” has died off, companies say they’re handling layoffs with new sophistication. Today managers seek to carve out deadwood while holding on to MVPs. “The good performers are not at risk,” says GM’s Pearce. Outplacement pros refer to this Darwinian downsizing as “deselection.” Yet despite managers’ alleged growing skill in choosing layoff victims, some could still use some training in communications. Consider Curt Christensen’s last day at EmployeeService.com. “I have some good news and some bad news,” he says a boss told him. “Which do you want to hear first?” Christensen chose the good news. “You’ll be doing a lot of skiing this winter,” the boss said.
Even when executed more deftly than that, many big-company layoffs will backfire. The reason: workers who keep their jobs are often overworked and bitter. At money-losing DaimlerChrysler, where rumors began flying in December that as many as 20,000 layoffs may come in February, employees have been paralyzed. “People say ‘Why do I care? I’ll probably get fired in two months anyway’,” says one middle manager. (DaimlerChrysler declined to comment on layoff rumors.) Even those likely to survive the purge are job hunting to avoid insane postlayoff workloads. “We’re already running our asses off,” says this boss, who’s urged her department to send out resumes. Experts hear similar complaints across the country. “Survivors are working harder–that’s feeding the whole work frenzy,” says former Labor secretary Robert Reich.
Even when companies don’t telegraph upcoming layoffs, today many employees are savvy enough to see them coming. In a survey by Lee Hecht Harrison, 78 percent of layoff victims say they anticipated cutbacks. At Internet firms decimated by Nasdaq’s plummet, only idiots wouldn’t worry. When Hunter Boyle, a Web worker at the media company The Industry Standard, strolled to his office last month, he spotted a trail of colleagues’ business cards on the street. He recognized it as debris from an impromptu ticker-tape parade after their firing. “As I got closer to the building, I was well prepared for my talk,” says Boyle, who was swiftly sacked. One result of this newfound awareness of layoff risks is that large swaths of the work force are becoming networked and resume-ready in what pros call a never-ending “passive job hunt.” At Monster.com, an online job board, CEO Jeff Taylor expects to have 10 million resumes on file by March, many of them posted by folks who have jobs but know it’s smart business to keep a baited hook in the water.
When the bad news comes, some workers put on a remarkably happy face. David Weiner, a techie laid off by Merrill Lynch last July, paid $15,000 to attend trade school and learn to install the newest Cisco routers. “I’m probably entering my most productive years, I’ve got good credentials and I’m ready to go,” he enthuses. When Roberta Peterman, senior VP at ad agency FCB Worldwide, became one of 500 workers laid off after the firm’s biggest account jumped ship, she declined a great job offer from a rival firm. “When else will I have an opportunity like this?” asks Peterman, 47, whose savings and husband’s solid income will let her spend time contemplating a career in landscape design. Pamela Gross, who’s been downsized three times in her 17-year Wall Street career, gets anxious every time it happens, as it did last fall after her employer, DLJ, merged with CS First Boston. But she usually networks her way to multiple offers; now she’s at Banc of America Securities. “Wall Street is high risk, high reward–you’re always planning for these down times,” she says. Even some college grads who’ve lost their first jobs boast of a silver lining. Michelle Tsai, 22, laid off from Vault.com last month, admits she’s a little anxious because–as a non-U.S. citizen–she must find an employer willing to sponsor her for a work visa. But mostly she sees an opportunity to find a great new job. “There’s a sense of freedom–I can start all over again,” she says.
Diehard optimism isn’t universal. Victor Ozols, laid off as an analyst at Xceed, a Web consulting firm, sees nothing to be happy about: he’s borrowing from his parents to stay afloat. Many recent downsizees, especially former dot-comers, say the experience will make them do more due diligence as they job hunt. In interviews, “one of my questions is, ‘You might not be laying off now, but will you be in six months?’ " says Richard Brodsky, laid off in November. And some still feel ashamed by the experience. After losing his market-research sales job in August, Rich Deeter, 52, spent three months dreading a simple cocktail-party question: “What do you do for a living?” “It takes a hell of a lot to say ‘I’m between jobs’,” Deeter says. “People look at you funny.” Eventually Deeter landed at eFunds Corp., a financial-services firm. “This changed my life,” he says. “Until you’re in a position to resell yourself, you take everything for granted.”
The layoffs are also a wake-up call to workers who’ve grown a bit too comfy with the notion that every employer is dying to hire them. “One college student actually put his feet up on the desk during an interview,” says William T. Wilson, senior economist at Ernst & Young. Students at the University of Michigan business school already sense “a more sobering landscape,” says Al Cotrone, who oversees M.B.A. placement. Even a slight decline in demand for workers will mean a new equilibrium of less lavish pay packages. But it may bring other shifts, too. “There’s worry now we’re going to return to the dark old days where it’s an employers’ ball game, where the quality of life is diminished,” says Oldman of Vault.com. If those fears prove valid, say goodbye to perks like free latte, casual dress, bring-your-iguana-to-work and rampant telecommuting.
If the slowdown lingers, some regions will fare worse than others. The job market remains unusually tight in some cities, including Los Angeles, New York, Chicago and Houston. Fed research highlights Philadelphia as the hardest-hit region so far. But as layoffs spread, smaller company towns will suffer more. In 1994 Harvard, Ill., celebrated Motorola’s decision to build a $100 million cell-phone plant on the town’s north side. This month the company announced it will lay off half the plant’s 5,000 workers by July. “There’s some bitterness,” says Robb Hogan, bartender at Windy’s Lounge, a nearby hangout. Others are sanguine. “Motorola was supposed to make us rich, and for five years it did,” says Greg Morris, 27, a machine operator. “Now me and 2,500 other people have to figure out where we’re going to go.” Even after the cuts, the town’s fortunes will still ride largely on Motorola, which will remain the county’s biggest employer.
For now, layoff victims like Sara Proman, the downsized consultant, still have much to be thankful for. Out of work since Jan. 5, she’s spent more time cooking and at the gym. Last week, as her four weeks of severance pay dwindled, she walked by her old office in downtown Boston, her backpack filled with job-hunting books. Upon reaching her new office–cubicle 629 at Right Management, an outplacement center–she looked over her resume, then surfed the Internet, discovering a company that’s hiring health-care consultants. “That would be cool,” she mused, reading the job description. Whether her tale has a happy ending will depend partly on luck, partly on skill and partly on whether the Fed’s maestro finds a way to get this economy back to the right tempo.
