U.S. Economy in Worst Hiring Slump in 20 Years

[Dave Farber <dave () farber net>]

U.S. Economy in Worst Hiring Slump in 20 Years

February 5, 2003
By DAVID LEONHARDT 




 

The American economy has fallen into its worst hiring slump
in almost 20 years, and many business executives say they
remain unsure when it will end.

With economic growth having slowed to less than 1 percent
in recent months, about one million people appear to have
dropped out of the labor force, neither working nor looking
for a job, according to government figures.

The surge in discouraged workers is the most significant
since the months immediately following the Sept. 11
terrorist attacks, and it suggests that the pain of
joblessness is worsening even though the nation's official
unemployment rate, which counts only people looking for
work, held steady at 6 percent in December.

The lack of jobs has also slowed wage growth, so that only
workers in the most affluent group are still gaining ground
on inflation, ending a six-year streak of increases in
buying power across the board.

"Last year, I heard a lot of people say, `Come back after
the first of the year; if the economy picks up, we might
hire some people,' " said Tom Koehn, 50, who lost his job
in May at a manufacturer of heavy machinery in South Bend,
Ind. "But so far, I haven't found anybody who's hiring."

In the last two months of 2002, the employment decline
became even worse than it had been at a comparable point in
the so-called jobless recovery of the early 1990's,
according to recently revised statistics from the
Department of Labor. The economy has lost more than two
million jobs, a drop of 1.5 percent, since the recent
recession began in March 2001, as layoffs have continued
despite the resumption of economic growth more than a year
ago. The decline was 1.3 percent at the same point in the
business cycle a decade ago.

Executives are now saying they have been disappointed too
many times already by the halting growth of the past year
to begin hiring workers in significant numbers. Although
the government is likely to report on Friday that the
economy added some jobs in January, many executives are
still waiting to be convinced that business has regained a
solid footing after the collapse of the late-90's economic
bubble. 

The possibility of a war in Iraq and an increase in oil
prices offers another reason for hesitation, they say. Many
companies have also used new technologies and management
techniques to produce more with the same number of
employees. 

"This is what I call the new reality," said Robert M.
Dutkowsky, the chief executive of J.D. Edwards, a software
maker in Denver that has kept its work force at 5,000
people for the last few years. "The environment we're
operating in is what it's going to be like for a while."

In his State of the Union address last week, President Bush
called the improvement of the job market his "first goal"
for the coming year and asked Congress to pass a $670
billion, 10-year tax cut.

"We must have an economy that grows fast enough to employ
every man and woman who seeks a job," Mr. Bush said. "With
unemployment rising, our nation needs more small businesses
to open, more companies to invest and expand, more
employers to put up the sign that says, `Help Wanted.' "

Most economists say the tax plan and another $4 billion in
help for the jobless would have only a small effect on the
economy this year. 

The number of companies cutting jobs has spiked since
November, with AOL Time Warner, Boeing, Dow Jones, Eastman
Kodak, Goodyear, J.C. Penney, McDonald's, Merrill Lynch,
Sara Lee, and Verizon all announcing new layoffs. Barring a
sustained rise in oil prices, however, the cuts appear
likely to taper off in the coming months as the economy
continues its slow recovery, most forecasters say.

The bigger problem seems to be companies' unwillingness to
hire new workers. In December, the number of help-wanted
advertisements in newspapers across the country fell to the
lowest level in almost 40 years, according to the
Conference Board, a research group in New York.

"There isn't the confidence level in business today that we
need for growth," said Cinda Hallman, chief executive of
the Spherion Corporation, a staffing company based in Fort
Lauderdale, Fla., that places almost 400,000 people in
jobs, down from 600,000 three years ago. "There's
uncertainty. Companies are being much more cautious than
they used to be." 

The labor market began this recession tighter than it had
been in 30 years, with the unemployment rate falling below
4 percent in late 2000. Even at 6 percent - its level in
December, the most recent reading - the jobless rate
remains lower than it was during the aftermath of most
recent recessions. 

But companies' reluctance to hire is causing pain in ways
that the jobless rate does not measure.

An unusually large number of today's unemployed have been
out of work for months, including Mr. Koehn, the South Bend
manufacturing worker, who lost his job last spring. Almost
1.9 million people still looking for work have been
unemployed for at least six months, triple the number of
two years ago. 

"There are a lot of people out there who aren't used to
asking for help who need some help," said Mr. Koehn, who
plans on applying to convenience stores if he has not found
other work before his jobless benefits expire in
mid-February. "It's a tough pill to swallow when people
say, `Oh, you still haven't found work,' and you know
you've been looking."

Many other people seem to have stopped looking. Since June,
the number of adults not in the labor force has jumped by
more than one million, to 72.4 million, according to the
Labor Department. Many are retired, still in school or
raising children, but the sharp change suggests that a
growing number have become too frustrated to continue
applying for jobs. 

"I went out and pounded the pavement faithfully," said
Theresa H. Washington, who lost her $60,000-a-year
electrician's job more than a year ago at a Cleveland steel
mill closed by the LTV Corporation. "I did the whole nine
yards in terms of looking for work, and I never had an
interview." 

"There is no job market right now," Ms. Washington, 47,
added. She estimated that she had applied to more than 50
companies. 

In May, she enrolled in a community college and is studying
to become a counselor to people addicted to alcohol or
drugs, a job that will pay about $40,000 a year. Until she
finishes the program in May 2004, she and her two children
will rely on extended jobless benefits of about $370 a
week, a local health-care clinic, a food bank and help from
friends and family, she said.

"It's been a complete change in lifestyle," she said.

The
prolonged jobs slump has also taken away much of the
bargaining power that workers had in the 1990's.

Qualcomm Inc., the technology company based in San Diego,
receives 200 resumés a day, up almost 25 percent from a
year ago, and the applicants are generally more qualified
than in the past, said Daniel Sullivan, executive vice
president for human resources.

At 7-11 stores, employee turnover remains high, but it has
fallen in the last year. "One of our biggest challenges was
getting people," said James W. Keyes, 7-11's chief
executive. Now, he said, "it's much, much easier to both
recruit and retain employees."

With little need for companies to compete for workers, wage
growth has ground almost to a halt, after inflation takes
its bite, for people in the bottom of the income
distribution. That is a sharp change from the late 90's,
when low unemployment and increases in the minimum wage
allowed low-income workers to receive bigger proportional
raises than those in the middle.

Workers at the 20th percentile of earners made $8.31 an
hour at the end of last year, up only 1.1 percent from a
year earlier, according to an analysis of government data
by the Economic Policy Institute, a liberal group in
Washington. Over the same span, inflation was about 2.2
percent. 

The median worker - the one falling squarely in the middle
of the distribution - received a 2.1 percent raise over the
same span, to $13.36 an hour. The top third of earners
received increases of about 2.7 percent.

In the late 1990's and 2000, workers near the bottom were
receiving annual raises of more than 4 percent, slightly
better than the increases for those at the median or for
most of those near the top.

The economy has shown signs of picking up in recent weeks,
including a survey of service-sector managers released
today that showed their business picking up in January. But
the signs are difficult to distinguish from the hints of
recovery that proved false in the last year or so,
executives say. Many companies still have more stores and
factories than they can profitably use, and little need to
add new workers. 

The effects of the late-90's bubble in the stock market and
business investment will eventually wear off, but the
recent increases in corporate efficiency appear to have
created a long-term change in the level of economic growth
needed for an improving job market. The economy advanced
2.8 percent from the end of 2001 to the end of last year,
which was once a growth rate capable of generating demand
for tens of thousands of new workers a month. Yet payrolls
still declined significantly, as companies used both new
technologies and strategies forced on them by an
increasingly competitive economy to produce more goods and
services with fewer people.

In the last few years, for example, Applebee's, the
restaurant chain based in Overland Park, Kan., has
centralized its purchasing of food to save costs and begun
varying the pay of its workers more than it had been, in
order to retain the most productive ones. The steps have
allowed its sales to grow faster than its employment, said
Lloyd L. Hill, the chief executive.

"It's not brain surgery," Mr. Hill said. "We just
recognized we had to do better."

Meanwhile, BASF, the world's largest chemical company,
spent $4 billion investing in new plants and equipment in
the United States in the last five years. Like many
companies, it will turn to its new machines to increase its
production before it turns to new workers.

"Now," said Klaus Peter Löbbe, who runs BASF's North
American operations, "comes the time to make the assets
sweat." 

http://www.nytimes.com/2003/02/05/business/05CND-JOBS.html?ex=1045476368&ei=
1&en=8ff44de0b4fe271b



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