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An Update On Downsizing...

Economic Trends


Job-cutters turn into job-creators

The bad news for U.S. workers, at least on the surface, is that the huge wave of corporate restructuring and downsizing that first roiled labor markets in the 1980s still shows no sign of losing steam this year. The good news: It is being accompanied by a rising tide of job creation--not only in the overall economy but also among many of the same companies that have been eliminating positions.

Outplacement firm Challenger, Gray & Christmas Inc., which tracks layoff announcements by U.S. employers, reports 47,911 job cuts in October--up 62% from September and 16% from October, 1995. With a total of 410,208 so far this year, announced cuts are running 20% above last year's pace.

To many observers, the persistent strength of such cuts is something of a surprise--particularly in light of the low unemployment rate and reports of spot labor shortages around the nation. Indeed, according to the American Management Assn.'s latest survey of major U.S. companies, about 49% eliminated jobs in the 12 months ended last June, slightly above the levels in most years of the current economic expansion.

The new AMA survey does indicate, however, that the degree of job elimination within companies has diminished a bit--averaging only 7.1% of workforces, the lowest number in six years. And nearly two-thirds of companies cutting jobs also added positions in other areas, so that 27% realized a net gain in employees, and 15% reported no net change in workforces.

The dramatic upswing in job creation, in fact, is the most encouraging aspect of the latest survey. The average workforce of all companies grew by a healthy 6% during the survey period. And with the average net decline among job-cutters down to 0.7%, "downsizing has become something of a misnomer," says Eric Rolfe Greenberg, AMA's director of management studies.

"Rather than simply cutting jobs," he says, "companies are increasingly redistributing their workforces to meet today's complex and rapidly shifting market demands."BY GENE KORETZReturn to top

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Profit and productivity gains lag

While staff cutbacks continue to be a way of life for Corporate America, there is still no evidence that such actions are highly likely to pay off in rising worker productivity or profits in future years. Based on an analysis of its annual surveys, the AMA finds that only 30% of companies implementing job cuts since 1990 reported an increase in worker productivity over the next year, and only 40% report an increase in subsequent years.

Similarly, just 45% of job-cutters experienced a rise in operating profits in either the year following a workforce reduction or over the longer term. And though those that lowered their operating expenses often reported an immediate rise in profits, they fared no better over the long term than companies whose expenses rose in later years.

Is there a way to buck these negative odds? The AMA reports that companies that raised their long-term training budgets after job cuts were 75% more likely to show increased earnings and nearly twice as likely to improve worker productivity as those that shaved training outlays. Unfortunately, just 32% of job-cutting companies saw fit to boost such investments in human capital.BY GENE KORETZReturn to top

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