The Good News On Lost Factory Jobs

Anyone who’s been laid off the last few years could easily want to take it out on Richard McKenzie. After all, he says, many had it coming.

Higher pay in many industries offsets the risk of being laid off; says McKenzie, a professor at the Graduate School or Management at the University of California, Irvine. So when pink slips come, “Those workers are just suffering the downside of the bargain they struck,” he says.

Corporate layoffs are likely to reach a decade high, reports Challenger, Gray & Christmas, an international outplacement firm. But with joblessness at only 4.4%, things certainly could be worse.

And many economists say this “turnover” is a sign the job market is vibrant, not in trouble.

Take Boeing, which will lay off 48,000 over the next two years. “Boeing remains an attractive employment venue because it still pays high wages … it has to because of its cyclical business,” McKenzie says.

McKenzie isn’t indifferent to displaced workers’ woes. It’s just that he, and many others tracking the economy, think there’s too much doom and gloom over corporate layoffs.

“If layoffs were coming about from what the Keynesians called ‘insufficient aggregate demand,’ or just not enough people out there to buy products, then I’d be worried the layoffs were reflecting a weakness in the economy,” explains Ohio University economist and labor market historian Richard Vedder.

But that’s not what this consumer-primed economy is saying. “A lot of these layoffs are supply-side layoffs; firms are trying to cut costs to be more competitive,” Vedder says.

As a result, remaining workers will become more productive, and consumers will enjoy even lower prices.

And it’s not as if displaced workers are going destitute. They’re finding work fast and enjoying low inflation and prices especially for basics like food and gas, and for many consumer goods like personal computers.

“The share of unemployed for less than 15 weeks is up pretty strong from a year ago,” says Ken Deavers, chief economist for the Employment Policy Foundation, a Washington, D.C., labor-issues think tank. “That suggests people are making relatively smooth transitions.”

What’s more, many between jobs can afford to be picky. “A lot of the displacement in large firms is in middle management,” Deavers says. “Many of those people with tenure may be taking away as much as a year’s compensation, and job counseling and placement services.”

And “About 60% of full-time workers who were displaced and re-employed are making as much or more as they did before,” Deavers adds, “About half of those make 20% more.”

If this year’s corporate layoffs top 600,000, it’ll be “symbolically very important,” Vedder concedes. But they’re unavoidable in a dynamic economy and mean “We’re moving resources around better this year,” he says.

Herbert Northrup, professor emeritus at the Wharton School at the University of Pennsylvania, has a similar view. He used to tell cocky MBA students it would do them good to lose a job. “There are a lot of opportunities out there that they don’t pay attention to unless they have to,” he says.

They’d learn a lot burning up shoe leather in this labor market. “We simply have an abundance of opportunities,” McKenzie says.

And hard times for some now will pay benefits for many later, McKenzie adds. “We had all this angst in the early ‘80s about the ‘deindustrialization of America,’ but it caused people to put their shoulders to the plow and caused a mini-industrial revolution,” he says.

That’s expected again. Manufacturing is sinking due to exports. But better production efficiency, which usually means layoffs, will leave goods producers even more competitive when Asia rebounds. Leaner and meaner goods makers will see profits soar.

At the same time, the services sector keeps growing. Vedder says that from ‘79 to ‘97, goods makers shed 2.5 million jobs while 34.1 million service-sector jobs were added.

Just as important, many “jobs in services now pay about as well as what manufacturing jobs we’ve been losing did,” Deavers adds.

Service-sector jobs also seem more secure. In contrast, in manufacturing “What you see are companies constantly ratcheting their work forces up and down,” says John Challenger, CEO of Challenger, Gray & Christmas.

In the past, there would be cries for federal job-training programs. But now, even unions are silent. “We know from the evaluations of government training programs the payoffs to them were close to zero,” Deavers says.

“It’s always made more sense to do the skills upgrading on the job,” he adds. “We’ve sort of admitted that with the block grants of federal jobs-training programs to the states.”

Will they work? Yes, if they keep the needs of growing knowledge-based industries in mind, says Mark Wilson, a Heritage Foundation labor economist.

“The primary focus has to be on K-12 (education), and improving the quality of students coming out of high school,” Wilson says.

Others say leave training to the private vocational schools. They’re better suited to the task because they “need to make a buck to survive, so they focus on training for jobs that are needed,” Vedder says.

Real-world demands develop too quickly in labor markets for government to process, McKenzie adds. “I don’t mean that as a disparagement, but in a rapidly changing world, it just makes it very difficult for the people doing the retraining to figure out what training people need,” he says.