The New Job Reality

U.S. News & World Report - Money & Business 8/11/03
The New Job Reality
By Matthew Benjamin and Joellen Perry

As businesses cut costs and boost productivity, the labor market shrinks. Job seekers will have to fine-tune their skills and adjust expectations.
Last month the official arbiter of economic cycles, the National Bureau of Economic Research, declared that the 2001 recession lasted a mere eight months, one of the shallowest slumps since World War II. Tammy Swales begs to differ. In October, the 36-year-old lost her job when the Rochester, N.Y., nonprofit she ran reorganized. With a resume that also boasts a master's in education and eight years of teaching, Swales thought she'd have no problem finding another job, even if it paid less than the mid-$60,000 salary she once enjoyed. Despite sending out scads of resumes, Swales has managed to score only a handful of interviews--and no job offers. She strives to remain upbeat, but, she says, "it's getting hard to be positive."

Uh-oh. With an election on the horizon, that's not what President Bush wants to hear. Thus he dispatched three of his disciples on a bus tour of the Midwest last week to preach the gospel of jobs and growth. "Right now we have the best set of economic conditions we've had in decades," Commerce Secretary Don Evans repeatedly told workers, business owners, and investors across Wisconsin and Minnesota, citing low interest rates, controlled inflation, and recent tax cuts. On a plush motor coach next scheduled to ferry the rock bands Aerosmith and KISS, Evans, Labor Secretary Elaine Chao, and Treasury Secretary John Snow chatted up the reviving labor market while touring a Harley-Davidson factory, savoring frozen custard at a Culver's Restaurant, and munching a Wisconsin delicacy, cheese curds, at a forklift dealer. "Right now there are employers looking for employees with the right skills," Chao told staffers at the Mayo Clinic in Rochester, Minn.

That optimism flies in the face of hard numbers. The U.S. economy has lost nearly 1 million jobs since the recovery began in November 2001. That's in addition to the 1.6 million jobs that vanished during the brief recession. Unemployment remains above 6 percent, and the economy continues to shed jobs. Last month, an additional 44,000 jobs vanished, making July the sixth straight month of losses. Just last week, Pillowtex, a manufacturer of sheets and towels, filed for Chapter 11 bankruptcy, leaving 6,450 workers jobless; May Department Stores said it will close 32 Lord & Taylor stores, putting 3,700 workers out on the street. "This has been the worst recovery we've had in terms of employment since the 1950s," says Scott Schuh, an economist at the Federal Reserve Bank of Boston.

To be sure, the recovery's sluggish pace--the economy grew at a rate of 2.4 percent last year and has grown at a rate of just 1.9 percent so far this year, well below the 3.5 percent historical trend--has kept many of the unemployed from returning to work. In ordinary recessions, companies typically lay off workers on a temporary basis, rehiring them when demand revives. But some economists say there's something else going on this time. The dearth of jobs stems from factors signaling a sea change in today's business world: namely, higher productivity, altered management and hiring practices, and the flight of both blue- and white-collar jobs overseas. Many of the changes in the labor market are structural, not cyclical. "It's similar to what we saw 50 years ago when people began to leave farms," says Greg Mankiw, the president's top economist. "One of the ways economies grow is people moving from one sector to another." In short, the message to the nation's 9.1 million unemployed is: Don't hold your breath. Your old job may never return.

First off, blame productivity, says Merrill Lynch economist Dave Rosenberg. After decades of slow growth, it surged in the late 1990s and hit a 4.8 percent rate in 2002, thanks to the payoff from technology investments (one of the few benefits of the tech bubble). While businesses are humming along at a more efficient and profitable pace, many workers are left in the lurch. Robots are now filling pharmacy prescriptions, and McDonald's, known for its productivity prowess, is experimenting with letting customers order and pay for their supersize meals via a kiosk. "Don't forget," says Rosenberg, "you don't have to pay medical benefits to a computer. That certainly reduces the incentive to hire."

Lean enough. Many companies have adapted just-in-time inventory systems, which keep only enough product on hand to fill immediate orders, to manage human resources. They're using more part-time and temp workers, as well as asking full-time staff to work longer hours. "We've always used overtime to flex up," says Mike Richards, manager of a Hutchinson Technology plant in Eau Claire, Wis., that churns out millions of disk drive components each week. Slowing demand has forced the plant to lay off more than half its workers since 1999. Some 20 percent of its 900-person workforce is now provisional, up from zero in the 1990s. "To have a temporary workforce that makes us more flexible to the ups and downs of this industry, that works out well for us," says Richards.

Temporary hiring serves other purposes, too, much like courtship. "We're seeing a real increase in companies taking the try-before-you-buy attitude," says Allison Hemming, president of the Hired Guns, a New York firm that helps professional freelancers land gigs.

Firms that aren't playing the dating game may be entering into long-distance relationships. A rapidly growing number of firms are moving entire divisions to locales like India and China, where costs from wages to real estate are vastly below U.S. norms. "Managers are asking what permanent changes they need to make to stay competitive," says Erica Groshen, an economist at the Federal Reserve Bank of New York. Manufacturing workers are glumly familiar with the trend. Economist Rob Scott of the Economic Policy Institute estimates that 3 million jobs, most in manufacturing, have moved abroad since 1994.

In Wisconsin, which relies heavily on manufacturing, nearly 70,000 such jobs have disappeared since January 2001. Hardest hit: paper manufacturers, metal benders, and electronics and electrical equipment makers. That has spawned a lot of anger, much of it directed at the White House. Protesters, who shadowed the cabinet secretaries in their own bus, greeted the officials at several stops with the chant, "What do we want? Jobs. When do we want them? Now." One wore a T-shirt that read, "Chinese takeout doesn't mean our jobs."

Moving jobs overseas is no longer just a blue-collar or back-office phenomenon. Over the next five years, U.S. banks, insurers, and other financial services firms plan to ship more than 500,000 jobs abroad, according to consulting firm A. T. Kearney. The transfers will include financial analysis, research, and accounting positions. And tech researcher Gartner last week forecast that 1 out of 10 tech jobs could move overseas by the end of next year. Late last month, a leaked IBM conference call made public that the firm plans to move highly skilled jobs offshore. "Our competitors are going to do it, and we have to do it," said Tom Lynch, IBM's director for global relations, in the call.

Tug of world. The trend is especially galling to tech workers, a class that, less than five years ago, was the economy's darling. "When the leading technology companies are making decisions to create jobs overseas, it begs the question of how this economy is going to recover," says Marcus Courtney, president of the Washington Alliance of Technology Workers, a national organization lobbying against the exodus of high-tech jobs. To be fair, some firms are upping their head counts here. Microsoft said last month it plans to add up to 3,500 to its U.S. workforce. "Smart tag" maker Alien Technology decided to locate a new plant in Fargo, N.D., to be near the state university, which is a leader in nanotechnology.

Still, even the government is not holding out hope that lost jobs will reappear. From October 2001 through September 2002, nearly 350,000 people nationwide applied for trade adjustment assistance--government subsidies that help workers whose jobs have gone overseas learn new skills--about a third more than the previous year. The program's budget grew from $110 million in 2002 to $220 million this year. "These folks have to learn to do something else," says Jan Garrick, spokesperson for the Employment Security Commission in Mississippi, where about 50 plants have been shuttered so far this year.

David Fulton saw the light in 1997 when his employer, Weyerhaeuser, closed its Philadelphia, Miss., plywood plant. A 21-year manufacturing veteran--he's been a glove turner, a machine operator, and a utility man--Fulton, age 51, turned to trade adjustment assistance to study barbering. "My dad used to barber some," says Fulton. A local two-chair shop hired him; it became his when the owner died in 2000. His $5 haircuts draw a steady clientele, and he makes $24,000 a year--about what he made at the plant. He likes this better: "I'm my own boss. Until I get home, anyway."

Job training has its pluses, but it can't solve the larger problem of rising unemployment. "How many cosmetologists do you really need in a small town?" asks Thad Harrill, director of training and development at Isothermal Community College in Spindale, N.C. A state budget crunch means Isothermal can't address everyone's needs; 400 people were turned away from its nursing program in 2002, though a local charity will help pay for 40 new spots next year.

Yet as the global economy, technology, and demographics undergo dramatic shifts, new opportunities arise. Some jobs lost on the assembly line, for example, may be replaced by those at a nurses' station. A couple of hours away from where Hutchinson Technology laid off 1,600 workers, Ministry Health Care is building a hospital that will bring 600 new jobs to the central Wisconsin area. "We analyzed that market and saw a growing need for healthcare services," says Anita Clark, Ministry's vice president of marketing. According to the Bureau of Labor Statistics, 17 of the 30 fastest-growing occupations through 2010 will be health related. Near the Ministry facility, Wal-Mart plans a second "supercenter" in the Wausau area, creating another 450 to 500 jobs. The largest employer in the United States with 1.1 million employees, Wal-Mart plans to hire 800,000 new workers over the next five years.

Wanted. It's no surprise, then, that the service sector will generate almost all of America's job growth in the near future. A boon for some, but as Beth Shulman, author of The Betrayal of Work, points out, many service jobs are low-paid. "These people often don't make a living wage, don't have health insurance, don't have pension security, work the worst hours, and don't get sick leave or vacations," says Shulman.

If history is any guide, as yet undreamed of jobs will also arrive on the economic scene. "Half the jobs in the current Dictionary of Occupational Titles didn't exist in 1960," says Ken Goldstein, an economist at the Conference Board. Dave Robocker, a former shipyard worker and tool-and-die machinist in Bremerton, Wash., holds one of those newfangled jobs. When layoffs were rumored at the shipyard in the early '90s, Robocker left to build satellites, marrying his manufacturing and high-tech skills. Now Robocker is a "rapid production center manager" for Extrude Hone Corp., a high-tech manufacturer based outside Pittsburgh. Rather than cutting up huge hunks of metal, Extrude Hone builds parts by layering metal sheets according to a computer-generated design. "There are new jobs cropping up all the time," says Robocker, who now earns double his former shipyard salary. "You can't be afraid of change."

True enough. But to goose hiring, the economy will have to gain traction--and soon. "We need to get growth up over 3 percent to get unemployment back down," says Mankiw. "Economic signs are still mixed." Consumer confidence data released last week were weaker than expected. Second-quarter GDP growth was stronger, but most of it was due to government spending and consumer purchases of imports, which don't spur hiring by domestic firms.

Many managers, though optimistic, remain in wait-and-see mode. "The economy seems to be picking up," says Ken Kneen, president of waste and scrap processor Al-jon Inc. in Ottumwa, Iowa. "But we want to see a further increase in orders before we return to expansion plans or additional hiring."

Some folks say they see evidence of a rebound. For the past year and a half, only a quarter of the Five O'Clock Club's membership--it's a career coaching firm with 10,000 members nationwide--has been working. "In the last four weeks, the opposite has been true," says president Kate Wendleton. She recalls a similar statistical flip-flop in 1992, before most of the nation realized the worst of the recession was over. Candida Canfield may be a harbinger. A newspaper advertising executive in her 40s, Canfield had been job searching since September. In May, she had three different offers. "I went from whining and crying and wringing my hands" to "Oh sweet God, what do I do now?" Still, it's not all rosy; the offers were lateral moves. "I had to beg, borrow, and steal" to keep the salary in the low $100,000s, she says. But with a recovery still uncertain and jobs still scarce, Canfield's not complaining.

Maybe some of Canfield's good fortune will rub off on job seeker Swales, whose unemployment benefits expire this week. The divorced mother of an 11-year-old boy, Swales has cut every corner to save money, including refinancing her house. She has depleted her $10,000 savings, and now she's not sure what to do. "I haven't been able to bring myself to go down to the Home Depot yet," says Swales. "But it may just come to that."