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Downsizing's Painful Effects

Economic Trends


Many workers don't bounce back

With corporate layoff announcements up 38% over year-ago levels, it seems that downsizing is becoming a permanent aspect of U.S. labor markets. So the fate of affected workers is of more than passing interest.

The latest biennial Labor Dept. survey of displaced workers, which was conducted in early 1996, five full years after the current recovery began, illuminates the issue. Focusing on adults with permanent jobs (held at least three years) in 1993 and 1994, the survey found that about 3.2% of such workers were laid off in those years.

Further, more industries and occupations were being hit with sizable job cuts. Whereas manufacturing and blue-collar workers suffered the most in the early '80s, the share of layoffs affecting goods-producing industries fell to less than 40% by the mid-'90s, with white-collar workers accounting for 60% of layoffs.

The good news is that by early 1996, 79% of workers displaced a few years earlier were back at work. An additional 7% were unemployed, and 14% had dropped out of the labor force. The least likely to be reemployed were displaced workers over 54, many of whom appear to have given up looking for work and/or opted for early retirement.

The bad news is that the trend toward downward mobility noted in earlier surveys hasn't abated. Of 2.2 million full-time workers laid off in 1993 and 1994, only two-thirds had full-time jobs again in early 1996. What's more, over half of this group were earning less than at their former jobs, and over a third suffered pay cuts of 20% or more (chart). Another sixth of former full-timers were either employed part-time or working at home, usually with sharply reduced earnings.

On average, median weekly earnings of full-time reemployed workers in the survey declined by about 14%--about the same as they did in a prior survey in 1994. Full-timers in their late 50s and early 60s who found new jobs, however, were particularly hard hit with pay declines averaging 37%.

To be sure, 47% of full-timers did as well or better in their new jobs, and 22% reaped pay gains of 20% or more. But the message of the latest survey results seems to be not only that downsizing in a modern dynamic economy is here to stay, but that it will continue to involve sizable and persistent earnings losses for many workers.BY GENE KORETZReturn to top

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A liberal-conservative debate rages

As a current spat between the conservative Tax Foundation and the liberal Center on Budget & Policy Priorities illustrates, taxes are a red-hot topic in the nation's capital these days. Piqued by recent statements by leading Republicans that taxes rose last year to more than 38% of the typical U.S. family's income, the center attacked the source of the figure--a Tax Foundation report on median income families.

In a 15-page analysis, the center criticizes the Tax Foundation's approach--particularly its stress on dual-earner families, which purportedly faced a total tax bite (all taxes at federal, state, and local levels) of 38.2% last year. Noting that the median income of such families came to $54,910 last year, more than the incomes of two-thirds of all families, the center argues that it's more appropriate to focus on median-income families of all types.

According to the Congressional Budget Office, such families had an average income of $36,942 last year and faced a federal tax rate of about 19.7%, compared with the 26.1% the Tax Foundation says two-earner families paid. So focusing on median-income families regardless of type would reduce the total tax burden faced by "typical" families by several percentage points, the center observes.

The center also quarrels with the treatment of corporate taxes. Rather than allocating such taxes to families based on their ownership of stock and other corporate assets, as the CBO does, the Tax Foundation assumes that all families pay the same percentage of income as do wealthy families who have huge corporate holdings.

In its response, the Tax Foundation points out that it focuses on dual-earner families because that is the most common reporting type, and that it also includes single-earner families in its analysis. And it justifies its treatment of corporate taxes at federal and state levels by noting that some economists argue that corporate taxes are ultimately paid by workers through lower wages--so even workers who own no corporate stock are socked with corporate taxes.

As the debate goes on, the center seems to have scored a modest victory. In its rebuttal, the Tax Foundation reduced its estimate of the tax rate faced by dual-earner families last year by 0.6%, to 37.6%--the same as in 1995.BY GENE KORETZReturn to top

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