Downsizing's Painful Effects

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.

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