Big Payoffs From Layoffs

How the largest downsizers fared

As America's sixth year of expansion draws to an end, it's clear that corporate restructuring and downsizing are still in high gear. According to outplacement firm Challenger, Gray & Christmas Inc.'s tally of big companies' planned layoffs, some 43,595 cuts were announced in January. While that's 55% less than the total a year earlier--when AT&T unveiled plans to shed some 40,000 workers--it's up 12% from January, 1995, and is the second-largest figure in 12 months.

Meanwhile, downsizing remains a hot-button issue. American Management Assn. surveys, for example, indicate that many downsizers show scant improvement in profits and productivity (BW--Nov. 25). Yet as economist W. Michael Cox of the Federal Reserve Bank of Dallas notes in a recent study, although companies shed some 17.4 million workers from 1990 to 1995, the economy has managed to replace those jobs--and add 11 million more. "Employers must have been doing something right," he says.

As proof, Cox and Richard Alin of the Dallas Fed point to the track records of the 10 largest downsizers in the 1990-1995 period (table). Altogether, the group jettisoned almost 850,000 workers over that period, they report. And the group's collective output--measured by inflation-adjusted sales--declined by nearly 10%.

But the key point is that as the 10 companies shed some 29% of their workers, productivity or output (real sales) per worker surged by nearly 28%, or 5.6% a year. That compares with an annual per-worker productivity gain of only 1.5% for the economy as a whole.

The bottom line is that most downsizers--including Sears, Roebuck & Co. and Boeing Co., the two whose productivity lagged--posted hefty profit and stock-price hikes. "Although dismissed workers underwent hardships," says Cox, "most of the companies emerged from downsizing more competitive than before and thus able to provide greater security to their remaining workers."

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