New wave of job cuts could worsen downturn

November 5, 2008 12:00:00 AM PST
Steven Ridenhour knows how to build a car. But after the Chrysler plant where he worked for 15 years shut down last week, Ridenhour has little else to show on his resume. With four kids, a wife and a mortgage, Ridenhour is scrambling to replace his $28-an-hour pay. He isn't optimistic. He knows thousands of others are being thrown out of work every month, making his job hunt a worsening struggle.

"I don't have any proof I have skills in any other area," he said. "So I'm competing with a lot of other people, and there aren't a lot of jobs around."

Workers across the country are stuck in similar straits. Even before the financial crisis hit the economy hard in late summer, companies had shed tens of thousands of jobs every month this year. Then the credit crisis aggravated the misery.

Many job seekers and employers had been awaiting the presidential election, hoping it would lend some certainty to the economy. But few expect Barack Obama's victory to produce any immediate gains.

On Friday, the government will report the unemployment rate for October, and economists surveyed by Thomson/IFR on average expect a drop of 200,000 jobs.

The current wave of layoffs is unusual because it seems to be coming fairly early in the downturn, noted David Card, an economics professor at the University of California-Berkeley. No one is quite sure why, Card said. A possible reason is companies now are more adept at monitoring inventory and projecting sales.

"Firms are more aware of how sales are going and cutting employees right away," he said.

In October, several major companies announced a flurry of layoffs. PepsiCo. Inc. cut 3,300 jobs. Goldman Sachs Group Inc. slashed 3,260. Xerox Corp. laid off 3,000. Chrysler LLC announced it would cut 18,500 white-collar management jobs. Time Inc. shed 600. This week, Circuit City said it will cut about 17 percent of its domestic work force, or about 7,300 people.

Economists say the surge in layoffs is just starting, with some saying the unemployment rate could reach 8 percent or higher, nearing the highest level since the deep downturn of 1982 left 10.8 percent of workers unable to find jobs.

The collapse of the housing and credit markets has led thousands of companies to rein in spending and lay off workers. The cuts have dealt a spiraling blow that threatens to produce more job losses: As families have lost income, they've cut back on spending and hurt companies that depend on their consumption.

"It's like you're down and getting a kick in the pants," said Lawrence Mishel, president of the Economic Policy Institute think tank in Washington.

Job losses were already dragging down family incomes and spending, Mishel said. The latest cuts could delay any recovery by at least a year, he said.

Mishel expects the jobless rate to rise from the current 6.1 percent to 8 percent or more. Before the credit meltdown, he thought the rate would peak at about 7 percent.

Job losses tend to deliver an outsized blow to the economy, under a theory known as Okun's Law. Each 1 percentage point rise in unemployment triggers a 2 percent to 3 percent drop in economic activity as gauged by the gross domestic product.

For laid off workers such as Ridenhour, it's easy to see why. Even with his layoff benefits from Chrysler and state unemployment checks, Ridenhour's income is down 20 percent to 25 percent. The Chrysler benefits last 48 weeks, he said. He and his wife are seeking ways to cut the family budget. Dining out was the first to go. Other nonessentials are next.

"It'll be a pretty slim Christmas," he said.

Ridenhour's union sponsored a job fair at the Chrysler plant last month, and he heard from friends that local utility Ameren Corp. is hiring line workers. But he's been drawn instead to the local Vatterot College, which specializes in trade-related degrees such as court reporting and culinary work. He decided to sign up for night classes, in hopes a degree can enhance his resume.

Ridenhour plans to take classes in building maintenance because he had done some landscaping work before joining Chrysler. Still, he thinks he'll eventually earn only about half as much as he did building cars. Yet he sees little alternative.

"I've got mouths to feed," he said. "Thinking about going to a four year college -- those days are over. It's not like I can pack up and go away to college for four years and get a good job making good money."

For the unemployed, it's getting harder to feel optimism. Job cuts have grown steadily each month this year, culminating with the loss of 159,000 in September. When the government reports the October unemployment rate Friday, it will give the fullest glimpse of the job market since the global credit crisis roiled world economies and sent stock markets plunging.

If the rate eventually exceeds 8 percent, it would surpass the jobless rates for the most recent slowdowns. During the downturn of 2003, the unemployment rate never sank below 6.1 percent. During the downturn in 1992, it reached 7.8 percent.

The jobless rate still would be far below the peaks reached during the Great Depression. Labor Department figures record the rate in 1933 as being 24.9 percent, though the government didn't track unemployment in a way that can be compared directly to data kept since 1948.

Still, the rising layoffs so far this year have been spreading pain. Sheri Griffiths has seen the consequences as manager of a job recruitment office in Santa Barbara, Calif.

More job seekers have been calling the AppleOne Inc. employment agency, she said. It's taking longer to find jobs, and workers are settling for those they would have spurned a year or two ago. In recent years, employers often had to dangle concessions to hire the best workers, she said.

Now, "employers have time to be picky," Griffiths said. "They have time to screen the candidates. They can interview 10 candidates or 15 candidates and get away with it."

Griffiths tells job seekers to be flexible, to consider pay that's lower and commutes that are longer than they prefer.

AppleOne, with branches nationwide, is so concerned about layoffs that it launched a drive to urge employers not to panic and cut jobs heedlessly. On its Web site, it posted a calculator to estimate the long-term cost of laying off a worker.

"We're doing our best to let people know ... that cutting people right now is not going to be a solution. It's a Band-Aid," said spokeswoman Christine Duque.

The job market tends to correct itself once rising unemployment pushes down wages and creates a big pool of job seekers. That makes workers something like an undervalued stock, and companies eventually snap up the bargains, said Daniel Mitchell, an economist at the Cato Institute in Washington, D.C.

"Nobody likes to see resources go to waste," Mitchell said. Still, as with the stock market, no one knows where the bottom is or when the downturn might start to reverse, he said.

But the accelerating job cuts mean it likely won't be soon, said Mishel of the Economic Policy Institute.

"We're going to be seeing job losses and rising unemployment over the next year, and it will probably be a number of years before we even get back to a 5 percent unemployment rate," he said.



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