Growing Layoffs in Supposedly Tight Labor Market

Julianne Malveaux On The Economy 19nov00

WITH THE national unemployment rate remaining at 3.9 percent for the second month in a row, little attention is focused on those who have difficulty finding employment. Instead, the Federal Reserve Board has focused on the `tight' labor market, where supposed worker shortages may well lead to higher wages and, thus, inflation.

When the Federal Reserve Board meet this week, it demurred on an interest rate increase but issued its standard warning about inflation. Given recent reports that labor costs rose in the third quarter, the Fed may feel that inflation worries are founded. But isn't it about time workers demanded more money for their contributions? After all, for all this talk of expansion, workers only began to see their wages rise in late 1998.

What the Fed didn't say, and what many of the headlines miss, is that thousands of employees are thrust into economic uncertainty because of the pace of layoffs that characterizes our tight labor market economy.

According to the Bureau of Labor Statistics, 936 companies laid off workers this September. Each action involved at least 50 people for a single establishment. Over 106,000 workers were involved. This number was higher than for any month since the BLS began collecting this data in April 1995. Most of those involved in mass layoffs came from the manufacturing or service industries.

You don't need BLS data t make the point about layoffs. Perusing the headlines from this week, there have been layoffs a Coca-Cola (part of a plan to reduce the work force there by 5,000 this year), layoffs at Bethlehem Steel, a 40 percent staff reduction at Discovery.com, and a 1,700 person layoff because of a merger o the Arkansas-based Energy Corporation with a Florida utility. MarchFirst, a Chicago-based Internet company, laid off 1,000 workers, 10 percent of its work force, this week. Go back a month, and find some of our nation's blue-chip companies struggling with layoffs.

Xerox announced it would lay off 8,000 workers. The AT&T breakup is likely to generate some layoffs. And thousands of layoffs have been recorded in the faltering dot-com sector, with more than 5,000 people losing jobs in October alone.

There have been slowdowns along with the layoffs. DaimlerChrysler had a weeklong plant closing on October 30. The company needed to slow production because it sold 14 percent fewer cars than projected during the third quarter. The cost-cutting, inventory-reducing slowdown may have been fiscally prudent, but meant a pay cut for 20,000 workers. Two years ago, automakers were involved in labor disputes for forcing overtime. Now, they are forcing workers to take time off.

While the volume of layoffs seems high, the September number represents less than 1 percent of total employment, at 135.4 million workers. Some consider these layoffs a minor problem and point out that most people who are laid off find new jobs within the quarter. They might also note that, thanks to our tight labor market, fewer and fewer workers experience unemployment. But while the unemployment rate is low at 3.9 percent, more than 13 million people, or nearly 9 percent of us, experienced unemployment in 1999. The numbers were higher for African Americans, at 12.6 percent, and Hispanics, at 11.3 percent. Since few workers recover effortlessly from unemployment, and since many move on to jobs that pay less than their previous job, economic hardship is more extensive than the unemployment rate would suggest.

With a sluggish stock market, many companies have responded to their stockholders' demands for higher profits by reorganizing or merging. They haven't created new value but they hope that new organizational structures will increase productivity and profits. Time will tell whether new organization can increase profits, but, generally, organizational restructuring causes the possibility of layoffs. September's pace will probably continue, regardless of the labor market.

The celebrated low unemployment rate, then, does not adequately reflect the condition of t the nation's workers. Record layoffs, along with high unemployment rates among African Americans, Hispanics, youth and those who live in inner cities, should remain matters of concern. We have heard warnings about the possibility of inflation, but where are the warnings about the weakness in our supposedly tight labor market? All the hype about worker shortages must make those who don't have jobs feel as if their unemployed status is a personal problem, not a structural one. Yet the record pace of layoffs suggests that the unemployment rate will begin to rise soon. After all this economic expansion, can we handle the hardship that comes from higher unemployment rates?

Economist Julianne Malveaux welcomes readers' comments and questions at lastwordprod@aol.com ©2000, Julianne Malveaux.