Who Has Edge In Economic Recovery?

A slew of economic data indicate a recovery is looming, as consumer spending and manufacturing output and compensation increase. Major companies have announced hiring plans, including 12,000 from Starwood Hotels, 1,200 from Ford Motor Company and 600 from CarMax. However, with hundreds of thousands of workers in competition for jobs, job seekers will need every advantage to impress potential employers.

Hiring managers receive thousands of resumes for open positions. With the talent pool so large, employers use any method possible to weed out potential candidates. These range from credit checks to drug and health screenings. Some use these as character references; other methods indicate whether the candidate will be a potential liability.

It may seem controversial, as one’s credit score and health generally have little to do with most job functions. However, with the sheer number of job seekers applying, employers can afford to be picky.

According to a 2006 Society for Human Resource Management poll, 43 percent of employers conducted credit checks on potential employees, up from 25 percent in 1998. While employers may legally conduct credit checks on potential hires, under the Fair Credit Reporting Act, companies must secure the candidates consent to do so. Further, if an employer decides not to hire an applicant because of information gleaned from the report, that employer must divulge this to the candidate.

Job seekers certainly do not need to discuss their credit during the interview process; however, they should take care to know everything listed on these reports. If the decision comes down to two equally qualified candidates, the employer may take the person with the better credit. Knowing where you stand will help you combat that decision, whether through logical explanations or examples of how you are the better choice despite what the credit check says.

In addition to credit checks, due to proposed health care legislation and rising costs to employers, some organizations are immediately eliminating candidates with unhealthy habits. Memorial Hospital in Chattanooga, TN will no longer hire new employees who use any kind of tobacco products, on or off duty. In addition to their usual drug screenings, hires will also be tested for nicotine. The company cited employee well-being and the health of patients as the primary reason.

This practice is nothing new. Medical benefits administration company Weyco and Scotts Miracle Grow companies stopped hiring smokers in 2006. Weyco fired four workers who opted out of their mandatory nicotine screening. In 2005, Wal-Mart’s executive vice president of benefits distributed an internal memo discussing ways to hire and retain healthier workers, according to the New York Times. Through education benefits, the company hoped to draw younger, presumably healthier employees.

There has been a trend for years to cultivate a healthier workforce. Only recently does candidate health seem to be a consideration in hiring practices.

Colleen Madden
Research Associate

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Issues of the Week: Reverse Migration, White-Collar Workers

REVERSE MIGRATION COULD HURT RECOVERY

Over the next five years, 200,000 immigrants from India and China are expected to return to their home countries, according to research by Duke University professor Vivek Wadhwa, who studies reverse immigration. The exodus of talent, reported in Monday’s USA Today, could have profound consequences for the economy as it tries to recover from the worst recession in decades. About one-quarter of American tech companies are founded in part or entirely by foreigners. Research by Wadhwa reveals that 52 percent of Silicon Valley startups were founded or co-founded by people born outside of the United States. Reverse migration could dramatically alter the rate of entrepreneurial activity, which will be essential to job creation and future economic growth. What is prompting some of the nation’s best and brightest minds to return to their home countries? Is there anything the U.S. can do slow the exodus?

WHITE-COLLAR WORKERS WRESTLE WEAK ECONOMY

While the impact of the recession on manufacturing and construction workers has been well documented, the nation’s white-collar workers have not escaped unscathed. According to the latest data from the Bureau of Labor Statistics, 44 percent of the 5.1 million Americans unemployed 27 weeks and longer came from management and professional occupations and from sales and office occupations. Prolonged unemployment among these higher-income professionals and office workers could further slow the recovery in retail and housing and keep the economy mired in a state of low or no growth. When and where will these professionals and office workers most likely see hiring begin to recover? What are some ways these job seekers might find positions faster?

Issues of the Week: Back-To-School Season, Worker Morale Sinks

SINKING CONFIDENCE WILL FURTHER DAMAGE RETAILERS

With back-to-school sales well underway, retailers were undoubtedly disheartened to see that consumer confidence declined for the second consecutive month, according to the most recent report. The back-to-school period is crucial to retailers, second only to the holiday season in terms of sales volume. Entering this year’s back-to-school/college season, the National Retail Federation was already projecting a 7.6 percent drop in sales. Certainly, the apparent lack of confidence could threaten sales even more. Parents and students will limit their purchases to only what is absolutely necessary, and they will spend the least amount possible on those items. What impact will lower back-to-school sales have on retailers? Will we see more job cuts from struggling retailers in the wake of a dire back-to-school period? What does this foretell, if anything, for the all-important holiday selling season?

RECOVERY COULD BRING EXODUS OF UNHAPPY WORKERS

While monthly job-cut announcements have fallen significantly since the beginning of the year, there have been very few signs of turnaround in job creation. Most experts agree that the unemployment rate will continue to rise in the coming months, exceeding 10 percent before finally reversing course. However, it can be assured that the first inkling of a job market turnaround will probably bring a rapid surge in turnover at organizations throughout the country. Many employers are already expecting as much, according to a new survey by consultancy firm Deloitte, which found that nearly two-thirds of those managers were highly or very highly concerned about losing high-potential talent in the year after the recession ended. In addition to layoffs, many employers have decreased workers’ hours, instituted pay cuts, forced employees to take unpaid vacations and halted matching 401(k) contributions. While some of these measures have saved jobs, they undoubtedly left many workers disgruntled, frustrated and ready to move on as soon as the market improves. Which industries could see the highest turnover as the job market recovers? When is the best time for workers to stick their toe in the job market?

Jobless Recovery IS Coming! Just A Question of When.

The recent uptick in unemployment was seen by many as evidence that the economy is still far from entering recovery. However, one employment authority contends that we may be months, if not years, into a recovery before job creation really begins to accelerate and the unemployment rate begins to decline.

In each of the last two recessions, the job market was the last area to recover. There is no reason to think that we won’t see another jobless recovery in the wake of this prolonged recession. In fact, this recession in particular, combined with fundamental changes over the last 20 years in the way companies operate, virtually guarantee that job creation will lag behind all other aspects of economic recovery.

Following the eight-month recession that ended in November 2001, the unemployment rate continued to climb for 19 months, finally reaching a peak of 6.3 percent in June 2003, according to historical data from the Bureau of Labor Statistics (BLS).

Similarly, the recession that lasted from July 1990 through March 1991 experienced a jobless recovery that lasted 15 months, as unemployment continued to rise from a recession-ending level of 6.8 percent to a peak of 7.8 percent in June 1992.

Historical data Bureau of Labor Statistics show that prior to the 1990-1991 recession the economy really did not have these periods of jobless recovery. In the wake of the recession ended with an unemployment rate of 10.8 percent in November 1982, the rate remained unchanged in December and began to fall in January 1983. The decline in unemployment occurred just as quickly following recessions that ended in 1980, 1975, 1970 and 1958.

A lot has changed since these earlier recessions. For one, companies are less likely to use temporary layoffs today. They are also more likely to use part-time employees whose status can move to full-time as the economy improves. Unfortunately, the movement from part-time to full-time does not impact the unemployment rate.

Indeed, a review of BLS data shows a major shift in the utilization of temporary layoffs. According to the latest data from June, 12 percent of unemployed workers are on temporary layoffs. During the 2001 recession, the percentage of temporarily laid off workers ranged between 15 percent and 17 percent. During the early 1990s recession, those on temporary layoffs accounted for 14 percent to 17.5 percent of unemployed.

In contrast, as the 1982 recession neared its end, the percentage of unemployed on temporary layoffs peaked at 22.2 percent. By the end of the recession that ended in March 1975, nearly one in four unemployed Americans was on a temporary layoff.

These earlier recessions occurred at a time when our economy was dominated by manufacturing. It was common practice for plants to temporarily shutter operations, only to call back workers when business conditions improved. Today, while manufacturing jobs are still being hammered by the downturn, this sector now represents a very small percentage of the overall economy. The service sector, where today’s employment is concentrated, is less likely to make temporary cuts.

This is not to say that companies are not attempting to avoid layoffs. We have seen a lot of anecdotal evidence that indicate employers increasingly utilize alternatives to job cuts, such as pay cuts and furloughs, which differ from temporary layoffs in that companies will cease operations for a week or two, but employees technically are not discharged, so they do not appear in the unemployment figures.

Companies are also turning increasingly to part-time workers during these slowdowns. There are about nine million people currently working part-time for economic reasons. That is the largest number of economy-related part-timers in government records going back to 1955. As the economy improves employers are likely to move these workers to full-time status. However, the unemployment rate will not reflect the improving conditions since these part-timers are currently counted as employed.

Many Americans simply have given up on the job search. Even though they want a job, they are not counted as unemployed if they did not actively look for a job during the month. Currently, there are over six million people not in the labor force who want a job. When they begin to actively seek employment during the recovery, they will once again be counted among the unemployed, thus sending the unemployment rate higher.

Another factor that almost ensures a jobless recovery is the length and depth of this particular recession. This is the worst economic downturn in decades and it has resulted in especially long periods of unemployment. The longer people are unemployed, the longer it takes to get back into a position. Prolonged joblessness greatly increases the number of emotional and financial roadblocks to reemployment, not to mention the fact that many employers have doubts about the viability of candidates who have been out of work for so long.

Nearly 4.4 million, or 29 percent of all unemployed Americans, have been jobless for 27 weeks or longer. That is the highest level of long-term unemployment since the Bureau of Labor Statistics began this tracking in 1948.

Making it even more difficult for these long-time job seekers and anyone else hoping to find employment once the recovery begins, is the fact that employers are typically slow to hire in the wake of a recession. Productivity-enhancing technology allows employers to be more cautious and selective when it comes to hiring.

Now more than ever, companies are seem more concerned with finding the best fit for the position. Regardless of the industry, today’s jobs require more technical know-how and skills to succeed. The era of hiring any warm body is officially over.

Cost-Cutting Survey: UPDATED RESULTS

While some signs point to stabilization in the economy, including a steady decline in monthly job-cut announcements, cost-containment remains the primary objective for many companies. In fact, a newly updated survey shows that the percentage of employers cutting or freezing wages and salaries has nearly doubled since January.


More than half (52.4 percent) of human resource executives surveyed in May said their companies had instituted salary cuts or freezes in an effort to cut costs. That was up from 27.2 percent in the same survey last January, according to Challenger, Gray & Christmas, Inc., the global outplacement consultancy that conducted both polls.


The good news is that cuts in salaries and benefits appear to be reducing the need to make permanent job cuts. The percentage of employers making permanent cuts fell from 56 percent in January to 43 percent in the new survey.


Overall, 86 percent of respondents said that their companies have been forced to initiate cost-cutting measures due to the weakened economy. That is a slight improvement from January, when 92 percent of companies were cutting costs.


In addition to the increased use of salary cuts, the latest survey revealed increases in the percentages of companies cutting workers’ hours, reducing or eliminating tuition reimbursement, instituting furlough programs or forced vacations, and making temporary layoffs.


“There are some signs that the economy has hit the bottom, but we are still a long way from seeing the light at the end of the tunnel. Increased consumer and business confidence notwithstanding, until there is significant improvement in spending by these two camps, companies will remain in cost-cutting mode,” said John A. Challenger, chief executive officer of Challenger, Gray & Christmas.


Most companies are taking a multi-pronged approach to budget cuts, initiating an average of five cost-containment measures. The highest number of cost-cutting measures enacted was 13, while a very small percentage of companies relied on just one.


Interestingly, the latest Challenger survey indicates that employers announcing job cuts have initiated more cost-cutting measures than employers that have not cut payrolls. Companies that made permanent job cuts averaged an additional six cost-cutting measures. Meanwhile, companies that have avoided layoffs averaged less than three cost-cutting measures.


“There is a perception out there that some companies have not made sufficient efforts to avoid layoffs by making cutbacks in other areas. This perception is fueled, in part, by a handful of examples of companies announcing job cuts while, at the same time, rewarding top executives with large salaries, bonuses and extravagant perks. However, these examples represent the exception,” said Challenger.


“It would also be a mistake to assume that companies avoiding layoffs are doing so out of kindness. While forging good will is certainly part of the decision for some companies, many have simply cut to the bone already or never fully ramped up after the last downturn. Other companies may have more workers than they need for current business levels but are reluctant to enact widespread layoffs, knowing that a recovery will mean recruiting and training all new workers.


“This may be why we have seen an increase in the number of companies cutting salaries and other perks. It is a lot easier to restore compensation and benefits than it is to re-hire and re-train workers when the economy improves,” said Challenger.


There are other positive benefits to certain cost-cutting initiatives, beside the job-saving aspects. Companies that can manage their budgets while maintaining employee morale and productivity will have a leg up when an expansion begins. They will see lower turnover among disgruntled workers and be in a good position to recruit new talent. There is no telling how long this recession will last. However, when it ends, the hiring could be fast and furious.

Has your company had to cut costs in light of the current economic situation?

January

May

Yes

91.8%

85.7%

No

8.2%

14.3%


What measures has your company taken to reduce costs?

January

May

Reduced Travel Expenses

66.7%

66.7%

Hiring Freeze/Reduction

57.8%

61.9%

Permanent Layoffs

55.6%

42.9%

Cancelled Employee Holiday Party

32.0%

9.5%

Other

31.0%

14.3%

Reduced Or Eliminated Other Perks

29.0%

38.1%

Salary Freeze/Reduction

27.2%

52.4%

Reduced Year-End Bonus

26.7%

14.3%

Cut Workers’ Hours

24.4%

28.6%

Eliminated Year-End Bonus

22.2%

26.0%

Temporary Layoffs

15.6%

19.0%

Cancelled Customer Holiday Party

11.0%

0.0%

Cutback Tuition Reimbursement

10.8%

23.8%

Reduced Or Eliminated Matching Contributions To Employees 401(k) Plans

11.0%

19.0%

Forced Vacation

8.9%

9.5%

Four-Day Work Weeks

7.0%

4.8%

Instituted Furlough Program

6.7%

23.8%

Cut Office Space Through Increased Telecommuting

6.7%

4.8%

IBM, Agilent Slash Jobs; Tech Sector Struggles Under Economy

Santa Clara-based Agilent Technologies announced today they were cutting 2,700 jobs in an effort to restructure during the downturn. This comes a day after rumors of 5,000 job cuts from IBM surfaced, bringing the computer company’s total layoff announcement to around 9,000 for the year.

Challenger has tracked 67,127 technology sector job cuts through February 2009, compared to 14,637 tech cuts through the same period last year. Tech cuts include the telecom, electronics and computer industry combined. Through part of March, we have seen over 15,000 tech cuts, bringing the quarterly total to somewhere near 82,000. This is already over half of what the yearly technology sector layoff total was for 2008 (155,570). Erik Sherman over at BNet offered some reasons why layoffs seem to be soaring at tech firms.

(Our official monthly job cut report for March will be issued Wednesday, April 1 at 7:30am ET.)

What Are Companies Doing To Cut Costs?


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With the economy sinking deeper into recession, a new survey reveals that companies are digging deeper into the cost-cutting toolbox. In many cases, they are using a creative combination of measures, from salary freezes to forced vacations, to achieve savings objectives. The most surprising result of this multifaceted approach to cost containment is the fact that nearly half of the companies surveyed have been able to avoid making permanent layoffs.

Few companies remain unscathed from the current economic crisis, with 92 percent initiating some type of cost-cutting action, according to the survey findings released Monday by global outplacement and business coaching firm Challenger, Gray & Christmas, Inc. The results are based on responses from approximately 100 human resource executives in a variety of industries nationwide.

While permanent layoffs are by no means fading, this was not the leading cost-cutting method in the survey. The most often-used cost-cutting initiative was reducing travel expenses, cited by 67 percent of survey respondents. It was followed by hiring freezes and reductions, which are being utilized by 58 percent of companies in the survey.

Permanent workforce reductions were made by 56 percent of the companies surveyed. Other leading cost-cutting measures included cancellations of holiday parties, salary freezes, cuts in workers’ hours, reductions in or the elimination of year-end bonuses, and cutbacks in various perks.


According to the survey, 82 percent of companies have employed at least two cost-cutting methods. The average number of cost-cutting actions initiated among companies taking a multi-tiered approach was 5.3. One Midwest manufacturing firm in the survey had enacted 15 of the 17 cost-cutting measures provided in the survey.


Only two percent of companies used permanent layoffs as their sole cost-containment initiative. The 56 percent of companies making permanent layoffs have utilized an average of five additional cost-cutting initiatives.


In order to stave off layoffs, one consulting firm in the Southwest cut its travel budget, reduced year-end bonuses, trimmed or eliminated some perks and indefinitely postponed salary increases for management. A healthcare association in the northeast has ratcheted down on all expenses, including travel, is cutting back its tuition reimbursement program and not filling open positions.


One interesting trend we have seen in this downturn is the increased use of across-the-board salary reductions. In the past, companies were more inclined to cut jobs than reduce wages, reasoning that productivity would drop and turnover increase among high-performing workers. However, we are seeing a reversal in that line of thinking, due to the severity of this downturn and the idea that everyone, including the top executives, will have to make sacrifices to ensure the company’s survival.


Nearly 30 percent of companies in the Challenger survey have instituted a salary freeze or reduction because of the downturn. While respondents to the Challenger survey were anonymous, several employers have publicly announced salary freezes, including President Barack Obama, who enacted salary freezes for White House aides earning $100,000 or more.


Yahoo Inc. announced that its employees would not be receiving annual salary increases this year. Pay freezes have also been announced by Starbucks, Avis, the Tropicana Resort in Atlantic City and engine-maker Cummins Inc.


Other companies are not stopping at simply freezing salaries. Steep pay cuts were announced for top executives at Advanced Micro Devices (AMD). Thousands of executives at Seagate Technology also face pay cuts ranging from 15 percent to 25 percent, while professionals at the technology firm will see their salaries decline by 10 percent. Both AMD and Seagate have also announced permanent layoffs.

In December, Agilent Technologies Inc. trimmed salaries by 10 percent, and Brandeis University in Massachusetts recently introduced a 1.0 percent across-the-board salary cut to avoid cutting jobs.


Meanwhile, FedEx Corp., which has been adept over the years at avoiding large-scale workforce reductions, announced a 20 percent base pay cut for its CEO Frederick Smith and a cut of 5 percent to 10 percent for its approximately 35,000 senior executives and non-union salaried employees in the United States. FedEx will also take a one-year hiatus from contributing to the accounts of the 140,000 workers who participate in the company’s 401(k) plan.


Other companies announcing pay cuts in recent weeks include Motorola, Caterpillar, and Eastman Chemical. Automotive parts supplier Visteon Corporation. not only will cut workers’ wages by 20 percent, but it will also eliminate a full day of work, joining the 7 percent of companies surveyed by Challenger that instituted four-day workweeks to cut labor and operational costs.


Additionally, companies are cutting operational expenses by instituting forced vacations and furlough programs, which allow companies to temporarily shut down operations without resorting to permanent layoffs. In the Challenger survey, about 9 percent of companies have used forced vacations to cut costs and 6.7 percent have instituted furlough programs.


It was reported that the state of Maryland will institute unpaid temporary furloughs to 67,000 of its 80,000 employees. Other companies forcing employees to take unpaid leave include chemical manufacturer 3M and RV manufacturer Winnebago Industries.


Many companies are finding creative ways to cut expenses that not only eliminate or delay the need for job cuts, but also provide valuable benefits to employees. For example, about 7 percent of companies in the survey have increased the number of employees working remotely, which is cutting real-estate costs and providing enhanced work-life balance.

This downturn could provide the tipping point for widespread telecommuting, due in part to the significant cost savings these programs can generate. Sun Microsystems estimates that it saved $400 million in real estate costs over a six-year period by liberating employees from the traditional confines of the corporate office.


Meanwhile, Cisco Systems cut its travel expenses by 65 percent by investing in new video and teleconferencing technologies that allow its engineers to meet with clients remotely. In addition to reducing travel costs, the move increases productivity by eliminating travel time and will likely lead to improved morale among workers who no longer have to be away from friends and family.