Forty-three million jobs have been eliminated in the United States since 1979. Many of these downsized workers cannot find other jobs and, when they do, find them at lower wages than they had before. According to Pat Buchanan, as well as such arbiters of the conventional wisdom as Newsweek, Nightline and the New York Times, job elimination is proof that in the 1990s, ruthless corporations are dumping workers in order to increase their profit margins.
Fortunately, there is another side to this story. A dynamic economy always creates and destroys jobs, a process that Joseph Schumpeter called "creative destruction." Without continual adjustments to technological innovation and obsolescence, our economy would stagnate. This can be difficult for individuals, but not as tough as the absence of such adjustments would be. Since 1979, the American economy has created 70 million jobs, a net increase of 27 million. Many of the best new jobs, in computer manufacturing and programming and in telecommunications, would have been unimaginable 20 years ago.
While downsizing can lead to short-term stock increases, companies that downsize often face real economic difficulties. IBM, which Fortune highlighted as a corporate "dinosaur" in 1993, cut back 122,000 jobs and is now more competitive as a result. Downsizing can be like surgery, cutting open part of a patient to ensure that the patient survives. A 120,000-employee company that downsizes 20,000 workers to stay afloat is securing jobs for the remaining 100,000.
Corporate mathematics aside, the picture is not necessarily bleak for the downsized workers. According to the New York Times, only 35 percent of downsized employees find new work at their pre-downsized wages. This figure, however, does not give the full picture of what happens to a downsized worker. Thirteen percent do not even re-enter the labor force. While some may stay out in despair, others retire or choose to become stay-at-home parents. For example, only 20 percent of downsized workers over age 65 were employed. This is largely because 65 percent of them opted for retirement, often taking advantage of e arly retirement severance packages. Another type of opting out of the labor force is full-time parenting. Women were over 50 percent more likely than men to drop out of the labor force, indicating that some of these women may have been second earners.
Of those displaced workers who remain in the labor force, 219,000, or 8 percent of re-employed individuals, become self-employed. The ranks of the self-employed are a rather diverse group. The number of black-owned businesses is increasing at a faster rate than white-owned businesses. Women are getting into the act as well, as women-owned businesses now employ more people than the companies of the Fortune 500. Of course, most laid-off workers do not start their own businesses, but they are increasingly more likely to do so.
Among displaced workers who do accept full-time re-employment, 27 percent found jobs with 20 percent or higher wages. Another 43 percent earned within 20 percent of their pre-displacement wages, with more earning above their previous wages than below. This means that 70 percent of re-employed, downsized workers earn wages comparable to, or higher than, their old salaries.
Most important, the structure of unemployment in the United States has not changed. Historically, unemployment duration has grown during a recession and has shrunk following a recession. There is no evidence that this trend has changed. Periods of unemployment lasted 2.3 weeks at the end of 1995, shorter than any annual period in the 1990s. Unemployment duration is considerably lower than it was in earlier periods of "corporate paternalism" in the 1950s and 1960s, meaning that it is now easier to find a job after losing one.
The reason that it now takes less time to find a job is that the U.S. unemployment rate is a low 5.4 percent. Experienced workers should remain in demand throughout the next decade, in large part because of job growth in younger firms, which attracts less attention than a layoff by IBM. Contrary to fears of a lack of jobs, without improved education and worker training, America will be unable to meet the demands of its employers.
Finally, the actual number of corporate layoffs reached a five-year low in 1995 - 440,000 people in a 125 million-person labor force, less than two-fifths of 1 percent. This decline in downsizing raises a question: Why has there been renewed interest in the subject. One theory is that downsizing is more noticeable in the 1990s because it is now more likely to hit white collar workers. This is true, in part, because there are more white collar workers. Overall, however, an increase in the total percentage of white collar jobs bodes well for U.S. workers.
Downsizing, while jarring for individuals, represents a minor adjustment for the economy as a whole, one that benefits most individuals in terms of cheaper products, new opportunities and economic growth. The lifetime job may be a phenomenon of the past, but economic opportunities still remain.