Last Resort?

May 5, 2003
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Heads rolled last year in American factories. According to Labor Department reports, U.S. manufacturing lost 1.3 million jobs in 2001. Many of those losses came when large manufacturers decided that mass layoffs of factory workers were needed to deal with the effects of the manufacturing slowdown.

Now, thank goodness, the worst of the bloodletting may be over. Leading indicators, including new factory orders and average manufacturing workweek, were turning up by late last year, pointing to a near-term end to the recession in 2002.

But that's not to say that large numbers of manufacturing jobs aren't still on the bubble. The U.S. unemployment rate, which rose to a 51┬┐year high of 5.8% in December, tends to lag other indicators. And even if the economic recovery has already begun, as some economists believe, many predict that the jobless rate will continue to rise this year--perhaps topping out at around 6.5% by June or July.

That means that in coming months, more mass layoffs are likely in the manufacturing sector. In some cases, this kind of "downsizing" may be necessary for the survival of a company. But for most firms, there are other ways to cut costs that will do less long-term harm.

While many manufacturers have chopped jobs, many are also turning to alternative measures as a way to save as many jobs as possible. Some firms are cutting back on worker benefits. Others are freezing or delaying raises, reducing hours and even imposing temporary wage cuts across their white collar workforces.

Such moves can pay off when business does turn up. The Wall Street Journal reported recently, for example, that Behlen Manufacturing Co. (Columbus, NE), a metal fabricator, avoided mass layoffs in 2001 by reducing hours for factory workers and asking salaried employees to take a 10% pay cut. Then, when orders picked up late last year, the firm was able to restore hours and wage levels, and moved to meet the demand with its experienced workforce intact.

When the economy does turn up, companies that have lopped off large numbers of workers may be unable to respond quickly enough to meet growing demand, resulting in lost sales and market share. That's one big reason that across-the-board job cuts should be avoided, if possible. But it is far from the only reason.

As noted by John Di Frances, a Wales, WI-based management consultant, massive layoffs carry hidden costs that are never fully assessed. Di Frances cites declining morale and disrupted customer relations among those costs, as well as the frustration of remaining employees who often can't absorb all of the responsibilities of their departed coworkers. The result is that workers cut corners wherever possible. And in a manufacturing environment, of course, corner cutting can quickly lead to reduced product quality, among other ills.

Di Frances, for one, believes that the short-term savings produced by large-scale layoffs is almost always outweighed by the long-term costs and disadvantages of such moves. He makes the case in an article, "10 Compelling Reasons Not To Downsize," published on his company's Web site (www.difrances.com).

Like Di Frances and others, we urge manufacturing executives and managers to think twice before instigating mass layoffs. In the interests of long-term U.S. industrial competitiveness, such moves should be made only as a last resort.

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