Echo

Mass layoffs set to explode

Sunday, November 16, 2008

More bad news: the 2008/2009 recession will be worse than the 2001 recession as measured by the number of firms that are cutting jobs in bulk, 50 or more employees. Headlines suggest that this labor contraction will be marked by widespread mass layoffs.
The chart illustrates monthly mass layoffs of private nonfarm payroll as a percentage of the total payroll reported by the Bureau of Labor Statistics for the period April 1995-September 2008 (the full series). Mass layoffs are job cuts of 50 or more workers during the month.

Since 1995, there has only been one recession, March 2001-November 2001, and although the labor contraction was prolonged until 2003 (the period of jobless recovery), the peak of mass layoffs occurred within the recession on September 2001, where 1.7% of the payroll loss their jobs on a mass scale (50 or more job cuts at a time). In September 2008, the number of mass layoffs as a percentage of the payroll, 1.5%, is just 0.2% shy of the 2001 peak, and anecdotal evidence suggests that mass layoffs are expected to rise markedly in 2008 and 2009. Here are few headlines since just November 12:

This list of expected labor loss is quite daunting. Anectodal evidence suggests that layoffs into 2009 will be big (mass in scale), broad-based (across all industries), and thus add up quickly. And with credit markets on red alert week after week, there doesn’t seem to be anywhere for the labor market to go but down even further.

This is going to be a very difficult time for unemployed workers, and according to the Herald Tribune (the global edition of the NY Times), the U.S. welfare infrastructure is not equipped to handle the oncoming severe contraction in the labor force. I hope that I am wrong, but after the very dismal October labor report, it seems that things have worsened substantially for the labor market.

Rebecca Wilder

9 comments:

peterthepainter November 16, 2008 at 10:24 AM  

when someone as level headed as you says it...we believe it...i mean...i may think it...but wadda i know?

thanx.p

Rebecca Wilder November 16, 2008 at 10:30 AM  

Hi Peter,

I think that my husband would disagree with you about me being level headed.

Thanks for reading! R

Janie November 16, 2008 at 1:11 PM  

It is hard to be upbeat about jobs with a list like you cited. For every worker laid off, someone in the service sector will lose their job, too. You don't here about layoffs at Mickey D's, BK, etc. but there is a Taco Bell here that has closed. Never seen one do that before without opening another, newer one. You go right ahead calling it like you see it. We need to hear the facts. Thanks, aj

Anonymous November 16, 2008 at 4:04 PM  

Just one thought:

Generally a flexible labour market is considered good for competitiveness, which in turn will increase employment.

But will we not see a situation now that rewards more inflexible labour-markets? That lay-offs are now coming in the countries where labour unions and job protection measrues are weak?

I don't know too much about this, but it appears to me that frims, like UBS, are now cutting their labout costs primarily in the US and certain other countries, and far less so in Europe, where labout markets are more rigid.

Do you have any thoughts about this?

Rebecca Wilder November 16, 2008 at 6:41 PM  

Hi Anonymous,

Thank you for reading and commenting!

You said, “But will we not see a situation now that rewards more inflexible labour-markets? That lay-offs are now coming in the countries where labour unions and job protection measures are weak?

It is my opinion that workers are better off in the European economies where labor is less flexible because those who are employed may keep their jobs for longer. However, the aggregate is worse off (are you in the U.K. because you said labour, rather than labor?) because productivity – production per worker hour – drops precipitously with inflexible labor markets, and growth suffers.

Your point is certainly a good one. It is very likely that UBS is making decisions to fire based on country limitations in the labor market – fire first in the Sates because there is less regulation.

Thank you for your insight; it is definitely welcome!

Rebecca

Ben Wright November 17, 2008 at 11:08 AM  

Rebecca: The business world is very different today compared to the past. Technology opens the potential for a smaller workforce to do virtually as much as the larger workforce did. As white collar employees are handed pink slips, an employer like a bank or a brokerage may be prudent to retain their e-mail records. The records are a valuable asset to the employer, relating to intellectual property, project management, customer relationships and more. They enable the business to go on and possibly thrive. --Ben http://legal-beagle.typepad.com/wrights_legal_beagle/2008/10/retain-e-mail-of-former-employees.html

Farrar Richardson November 17, 2008 at 6:04 PM  

This idea seems to be widespread among conservative American economists -
"the aggregate is worse off ... because productivity – production per worker hour – drops precipitously with inflexible labor markets, and growth suffers."

This is not always true, however, as you will find if you look more closely at French labor productivity, which has been higher on a worker hour basis than US American in the recent past.

I doubt that you meant this to sound like some unvarying rule of economics, because you surely know there are many other factors that enter into labor productivity.

Rebecca Wilder November 17, 2008 at 8:07 PM  

Hi Farrar,

Thank you for your comment and for reading.

To be sure, productivity is a function of many different moving parts, including capital inputs, the design of the workforce, management structure, technology availability, etc. I do actually believe that flexible labor markets are better off because the labor is forced to move in accordance with the above list of economic factors that affect productivity. Furthermore, just as it is easy to layoff workers when times are bad, it is easy to hire them back when times are good, and enjoy vigorous growth in the meantime.

As for French productivity, you are right – I do not follow it too very closely. However “French labor productivity, which has been higher on a worker hour basis than US American in the recent past” must be very recent because in 2007, U.S. productivity, 4.1%, far surpassed French productivity, 2.6% (http://www.bls.gov/news.release/prod4.nr0.htm). I imagine that the pickup in productivity in 2008 can be explained by a structural change in the French labor market that made it more flexible than before.

Rebecca

fajensen November 18, 2008 at 6:09 AM  

I.M.O. The US will even suffer extraordinarily because of the low bargaining power of it's workers and mass immigration: People will be out of work and on top there will always be a ready supply of Mexicans ready to work harder for less.

This will not go down well, I think.

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