Mass-Layoff Reports May Exaggerate Damage to U.S. Workforce

David Leonhardt / New York Times 20feb01

Goodyear Tire and Rubber, Dell Computer and Nortel have become the latest companies to announce plans to lay off thousands of employees, joining companies like Lucent Technologies, Sara Lee, DaimlerChrysler and Whirlpool.

But in many cases, only a fraction as many Americans will soon find themselves unemployed.

For all the genuine fears that these announcements generate, the reality behind each company's move is often more complicated than a single headline number suggests.

More than half of the 7,000 cuts planned at Sara Lee, for instance, will occur in other countries, the company says. Of the 26,000 layoffs that DaimlerChrysler announced last month, the 12,000 hourly Chrysler workers subject to layoffs in the United States will continue to receive 95 percent of their pay because of a clause in the company's contract with the United Auto Workers. At least a third of the 16,000 jobs to be eliminated at Lucent will still exist as parts of other companies.

"When a company announces 5,000 layoffs," said Patrick Carey, an economist at the Bureau of Labor Statistics in Washington who studies job cuts, "sometimes 5,000 people aren't being laid off."

Even in difficult times, many analyst say, a torrent of layoff announcements can overstate the economy's problems. Despite the attention companies attracted last month with their announcements of plans to eliminate about 140,000 jobs, American businesses actually managed to add a net total of more than 200,000 employees in January, according to the Labor Department's payroll survey. The unemployment rate therefore rose slightly, to 4.2 percent, during the month, up from 4 percent in December.

As the economy's growth has slowed, Wall Street investors expect hard-nosed managers to restore profit gains quickly, and cheer the announcement of major cost cuts and layoffs. Many companies have recently decided that

moderate cuts in overtime or a reduction in the number of part-time employees are no longer enough. With each layoff announcement, thousands of workers face the prospect of having to look for new jobs.

But over the last seven years there has been little apparent relationship between the number of announced layoffs across corporate America and the unemployment rate, a recent study by Lehman Bros. found. When the number of layoffs - as tracked since 1993 by Challenger Gray & Christmas, a job placement firm in Chicago -rose, unemployment actually tended to decline, though the relationship was not strong enough to be significant, Lehman said.

To be sure, the number of job losses has risen in recent weeks, based on government data on unemployment insurance claims. And some of the recent job cuts. have consisted almost entirely of mass layoffs.

J.C. Penney said last month that it will close 47 stores and quickly eliminate 5,000 jobs. Hewlett-Packard plans to cut 1,700 jobs by the end of April. Gateway has already notified most of the 3,000 people who will lose their jobs as part of a cost-cutting campaign.

Week in and week out, in boom times or recessions, anywhere from 250,000 to 400,000 Americans a week typically file new claims for unemployment insurance after involuntarily losing their jobs. Yet nearly every week, even more people than that are hired by companies across the country.