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Layoffs: A Company's Strategy of First Resort

Labor: As employers become increasingly reliant on downsizing to boost the bottom line, workers are trading in loyalty for self-interest.


At Applied Materials in Silicon Valley, laying off workers has become almost as routine as dumping old hardware.

The manufacturer of chip-making equipment fired 2,000 employees--15% of its work force--in August, only three months after firing 1,500.

Applied Materials is hardly alone. U.S. firms announced in October plans to cut 91,500 jobs, the most in nearly three years. In the first 10 months of this year, job cuts totaled 523,000, nearly all of them domestic. That's 200,000 more than the number of jobs eliminated in the same period last year, according to Challenger, Gray & Christmas, a Chicago outplacement firm that tracks job cuts.

The Challenger numbers show that downsizing continues unabated even though the unemployment rate has remained under 5% for 16 consecutive months.

If the economy remains robust, why are hundreds of thousands of workers still losing their jobs?

For many corporations, downsizing has become a strategy that is used in good times and bad. Senior managers, under considerable pressure from stockholders to increase profits, often take the easiest way by cutting employment costs.

"Because of pressures from Wall Street, companies are paying unprecedented attention to their bottom line," said Diane Swonk, deputy chief economist at Bank One in Chicago. "Companies are being asked to produce not just good profits but extraordinary profits."

Like at Applied Materials, which--two weeks before the August job cuts--reported profit of "only" $70 million for its third quarter this year, down from $145 million for the same period in 1997. Even in the best of times, the Santa Clara, Calif., firm has sent workers home. In 1996, the company fired nearly 10% of its work force, despite posting a record profit of $600 million.

Applied's periodic layoffs are consistent with an industry that practices just-in-time employment, according to Jeffrey Pfeffer, a Stanford University management professor who has studied hirings and firings by semiconductor companies.

"There are some companies that wouldn't hold workers one minute more than they're needed," Pfeffer said. "They will hold inventories of goods for a long time, but they don't want to hold inventories of people."

The latest firings confirm what "workers already know: that there is little long-term job security, and your ability to retain your current job is beyond your control," said Peter Cappelli, head of the management program at the University of Pennsylvania's Wharton School.

A poll released in September by Shell Oil Co. found that more than half of all working Americans have been downsized, have worked for a company that has merged or been bought out, or have moved to a different city because of their job.

That might explain why workers' commitment to their employers is declining. More than half of U.S. workers--55%--said they would switch their jobs for a pay increase of 20% or less, according to a survey of 2,020 workers conducted by Aon Consulting, a unit of Chicago insurance company Aon Corp.

And many workers are figuring out that the best defense to a layoff announcement is having another job lined up.

After several prominent U.S. firms announced layoffs last month, 140,000 workers submitted their resumes in a four-week period to a Web site operated by Korn/Ferry Futurestep Inc., an executive search firm that recruits middle managers.

"Many workers are feeling exposed and are looking out for themselves," said Man Jit Singh, who heads the Los Angeles-based search firm. "That is all part of working in the '90s. You have to look out for yourself or you get run over."

For American workers, layoffs have been a fact of working life ever since attacks from corporate raiders provoked companies to downsize in the '70s and '80s. Companies tried to assuage shareholders by arbitrarily shedding workers to improve short-term profits and to make their businesses appear financially healthy.

That strategy continued during the '90s, especially by CEOs such as Albert J. "Chainsaw Al" Dunlap, who became the poster boy for the downsizing movement when he fired 11,000 workers from both Scott Paper Ltd. and Sunbeam Corp.

When the firings at Sunbeam failed to cure the appliance maker's ills--Dunlap himself was ousted earlier this year--experts thought layoffs would taper off, especially in a tight job market.

But despite sustained economic growth, 3.6 million workers were laid off during the two years ended December 1997, from jobs they had held for at least three years, according to the Bureau of Labor Statistics.

The layoffs over the last several months have involved firms ranging from oil companies to pharmaceutical manufacturers to brokerage houses. Among them are Callaway Golf Co. (700 jobs), Atlantic Richfield Co. (900), Texaco Inc. (1,000), Monsanto Co. (3,500), Merrill Lynch & Co. (3,400), Gillette Co. (4,700) and Raytheon Co. (14,000).

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