Help Wanted. Really! Yes, the headlines about layoffs are chilling. But jobs aren't exactly scarce.
(FORTUNE Magazine) – We've all read the headlines: A blue-chip manufacturer announces 53,000 layoffs worldwide. A leading financial institution plans to shed 8,000 jobs. A Big Three automaker cuts 1,200 positions at a single plant. Pretty scary stuff, and no doubt an ominous sign of things to come. But consider this: The manufacturer in question was Boeing, the bank was Citigroup, and the carmaker was GM. And these headlines aren't from yesterday's paper or even the month before's. They're from the end of 1998, when the economy was at the height of the boom.
That's right. Even during the best years of this record-breaking, decadelong expansion, firms were announcing the kind of layoffs that would make Al "Chainsaw" Dunlap proud. And the number of people collecting unemployment benefits each week averaged 300,000--roughly the same level we're at now. Back then, you'll recall, we weren't all nervous about losing our jobs; most of us were too busy fielding calls from headhunters.
Yes, the labor market is different today. In the past six months even firms that haven't cut jobs have become more cautious about their hiring. Some managers have instituted freezes, others are scrutinizing the contribution of each and every employee, and those who are hiring are looking for good fits, not just warm bodies. Sorry, the days of free BMWs and huge signing bonuses are over, at least for the moment. But does that mean that we're all stuck in our current jobs? Or worse, that we'll find ourselves out of a job and unable to land another? The answer, thankfully, is no. What we're seeing is an extremely good labor market turning into merely a good labor market. And unless something goes disastrously wrong with the economy in the near term--insert your favorite doomsday scenario here--it will probably remain that way.
There are weak spots, of course. Jobs in the beleaguered manufacturing sector are declining sharply, by some 65,000 positions last month. Temporary workers across the country have been hit hard too. Instead of the 10%-plus growth rate in temp jobs during much of this expansion, that sector is now contracting. But what really has everyone spooked is the sharp jump in layoff announcements in January, following a particularly grim December. It feels as if we've been suddenly yanked back to the early '90s, when downsizing, right-sizing, or whatever you want to call it was the order of the day.
Look at the facts, though, and you'll see we're a long way from that gloomy era. At the time, the unemployment rate averaged over 7%, half a million people each week were filing for unemployment benefits, and the number of help-wanted ads plunged 40%. Today the unemployment rate remains a microscopic 4.2%, up slightly from 4% in December. Help-wanted ads dropped 13% between January and August 2000, but they have remained steady ever since. All told, 150,000 new jobs are being created each month now, on average. That's quite a bit lower than the 200,000 average we experienced at the end of the '90s, but chopped liver it's not. "If people are sitting at home in 2001 watching Jerry Springer," says Ken Goldstein, an economist with the Conference Board, "it's by choice."
And while the headlines on some recent layoff announcements are pretty shocking, a glance at the fine print should offer relief. Most reductions won't be achieved by wholesale sackings but will rely instead on attrition or early retirement, and they are being spread over a number of years. Jeffrey Joerres, CEO of staffing firm Manpower, calculates that out of the 142,208 job cuts announced in January, more than half are expected to be achieved through attrition.
If you're worried that all those layoff announcements signal more to come, economist Jason Benderly says to think again. "Those numbers are lagging indicators," he says. "Big companies have been the last ones to respond to the slowdown that started in the third quarter." If Benderly is right, then January's flurry of pink slips could mean we're actually at the end of the job-cutting cycle.
On top of that, the layoffs reflect various factors, not just a flagging economy. Some firms, such as Motorola, are responding to the slowdown, but a great many, like GE, are positioning themselves by expanding in new markets and pulling back in others. Then there are firms like DaimlerChrysler, for which restructuring was long overdue, and AOL Time Warner, which has just merged and is looking to eliminate redundancies. The dot-com sector also continues to, shall we say, evolve. And even though Web firms have taken on a larger-than-life presence in the news and capital markets, their actual impact on the labor market is quite small. By one estimate, 900,000 people are currently employed in the sector, which means that if every dot-com in the country disappeared overnight, the unemployment rate would jump to a mere 5%--still far below what was considered full employment only half a decade ago.
Sure, it's easy to throw numbers around when you're talking about the economy. But when it comes to a deterioration in the job market, even a minor one, you're talking about real people. And if you're looking for work, obviously it has gotten tougher. Just ask Michael Ashley Shulman, who has been out of work since the beginning of January. Armed with an MBA from MIT, he joined a Boston tech startup last year and six months later found himself out of a job as the firm "changed strategy." "I'm getting a lot of informational interviews," he says enthusiastically. "But it's clear people are being careful and are looking for an exact fit."
What's becoming a more competitive environment for job seekers, however, is turning into a big relief for employers. "Nine months ago we weren't seeing any suitable candidates," says Jay Sidhu, CEO of Sovereign Bancorp, who has been trying to fill a top bank executive position for some time. "Now we're seeing so much more talent out there." It's not because people have suddenly found themselves out of work, he believes, but because some top executives are looking around for a stable and reliable place to hang their hats in case the economy turns rough.
Despite the slowdown, recruiting agencies report that business is bustling. If there's a marked change, it's that job seekers and employers are less impulsive. "Both sides are taking a closer look at what they're doing," says Andrew Knox, managing director with Korn/Ferry International. "A year ago job candidates were jumping at the most extraordinary jobs and taking such big risks. Not now. There's a lot of due diligence going on." And according to Knox, a lot of foreign companies that couldn't compete for the best candidates during the boom are swooping in and hiring them away.
If you're in the job market, there are certain sectors you might want to avoid--such as manufacturing, automotive, and retailing. But even there, workers with the right skills shouldn't find it too difficult to land another job. It's those on the factory floor who, as usual, are expected to have the toughest time. Localized weakness could occur in the South, the Midwest, and parts of the Northeast.
When the labor market starts to deteriorate, wages usually come under pressure. That hasn't happened yet. Total wages and salaries per hour for private-industry workers have averaged a gain of about 5% in the past 12 months. That has shown no sign of changing in the past two months, even as layoffs have increased. According to the National Association of Colleges and Employers, their latest survey, released in February, finds that new college graduates are still seeing increases in starting-salary offers.
Could things get worse? The next few months will tell. Many companies have put plans on hold while judging whether the economy will pick up in the second half or slide further. But one thing is clear: Managers remember how tough recruiting was until recently, and they're not complacent about their staffs. "Businesses will work hard at holding on to their people," says Mark Zandi, chief economist at Economy.com. "Once they get through this downturn, they know they'll face the perennial problem of finding workers."
In the meantime, though, more jobs could be lost, and job creation might slow. But economists expect the worst-case scenario for the next 12 months to be that the unemployment rate rises to 5%. Most forecasters are calling for unemployment at 4.5% by year-end. And if firms are cutting back on labor costs in addition to reducing temp jobs, they may also cut hours worked, overtime, bonuses, and stock options.
For economists, all the focus on the job market of late has been to one end: to assess the likely impact of a weaker labor market on consumer confidence and spending. If consumers start worrying about their jobs, then the economy may be in real trouble. Consumer confidence is determined by three factors: the unemployment rate, real wage growth, and inflation. But unemployment, as we have seen, is still not a problem, wage growth is high, and inflation very low. You can't ask for better fundamentals.
If the economy does head south, we'll all be looking for the Federal Reserve to save us. The one factor that kept the Fed from lowering interest rates until this year was the tight labor market. But with the softening on the job front there's a lot more room for the Fed to lower interest rates, which could prevent a slowdown from turning into a prolonged recession.
And there's something else to consider. While layoff announcements at big firms have been making headlines, thousands of small and medium-sized firms across the country are still hiring. And it's those firms, not the GEs of the world, that have been responsible for the lion's share of job creation during the boom. Consider Permabit, a storage-software startup based in Cambridge, Mass. Permabit was launched last year by MIT researchers, and in its initial growth phase needed two things: capital and people. It recently acquired funding but still lacks crucial software engineers and marketing people. "Six months ago we were finding the search for good people time-consuming and frustrating," says its president, Stephen Ellis. Today the quality of job seekers is much higher, and he's more confident than ever about the firm's future. "We now believe we can put together a team that's good enough to win," says Ellis. If we're lucky, the U.S. economy will keep producing many more such wonders.