Some of the major companies that have recently been at the forefront of the downsizing movement are now actually hiring new employees. Sears, Roebuck and Co., IBM, AT&T Corp., Boeing Co. and Xerox Corp. together laid off nearly 250,000 people over the past three years. This year they, they expect to hire 46,000 employees, or about one-fifth of the number laid off, according to a survey released last week by the placement firm Challenger, Gray & Christmas Inc. (The Washington Post (6/2/96) p. H4) The downsized employees, who are usually older and at the high-end of the pay-scale, are being replaced by new college graduates because they’re cheaper. James E. Challenger, president of job search firm Challenger, Gray & Christmas Inc. says companies that have downsized might once have had three people doing jobs. They’ve cut two people, given another person two jobs and are hiring college graduates to do the third, less difficult job…and in the long run, they save money that way. (Cliff Edwards, The Washington Post (5/12/96) p. H4)

For Charles Handy that is the future. More and more of us are going to realize as we approach that terrible age of 50 that the organization does not have much role for us any more: too old, too tired, too rich, too expensive. So organizations tell us to get out and have a nice time out there. And it is nice if you are prepared for it. (Charles Handy, London Business School Business Strategy Review (Spring 1996) p. 7)

Some economists are arguing that labor is disappearing as a key factor of production, and thus, you are seeing an increase in unemployment in Europe and downward pressure on wages in the United States. The theory implies that labor has been replaced by machines in agriculture, manufacturing, and now the service sector and the government sector are under assault. The introduction of more sophisticated technologies, with the accompanying gains in productivity, means that the global economy can produce more and more goods and services employing an ever smaller percentage of the available workforce. (Rifkin, p. 11) Others are arguing that all we are really seeing is a new trend in employment were companies will keep employees for a few years until they get too expensive and then let them go. Then it is up to the employee to make a living on their own, which requires marketable skills.

Robert Reich counters that contrary to the views of some neo-Luddites, the result (of the current economic changes) is not fewer jobs, there are many new ones, but the good ones lie on the other side of the divide. (The Financial Times (3/6/96) p. 11) Reich believes that advanced economies like the US will continue to generate sizable numbers of new (service sector) jobs…For every bank teller who loses her job to an automated teller, three new jobs open for aerobic instructors. (Reich, p. 217) For Reich, this is why it is critical that companies provide employees with opportunities for improving their skills when they work for them. Reich argues that nations as a whole are better off when employers teach their workers basic or industry-wide skills beyond what is required to function effectively in their current job. (The Financial Times (3/6/96) p. 11)

For some policymakers and business-leaders, capitalism must destroy some jobs in order to create new ones. President Clinton’s Council of Economic Advisors last month issued a report that expressed this logic by saying granted, job losses have caused pain, and this must somehow be addressed. But ultimately it cannot be helped…a dynamic labor market inevitably destroys some jobs while creating others. (Editorial, The Financial Times (5/20/96) p. 8) George Gilder, a fellow at the Discovery Institute in Seattle who wrote the bible of the Reagan revolution, Wealth and Poverty, argues that the destructive/constructive economy is a positive. He says the fact is, layoffs are crucial to growth. The more layoffs in a particular area, the more business starts and the more long-term economic growth. An economy with layoffs is an economy that can create jobs and opportunities. (George Gilder, Harper’sMagazine, (May 1996) p. 41)

The Washington Post recently published an article that supports Gilder’stheory. The article reported the experience of Buffalo, New York, in loosing its General Dynamics’ plant in 1971. When General Dynamics announced the 1,800 layoffs a collective gloom descended upon the city that was summarized by the local Congressman at the time, Frank Horton, who called the closing the most severe blow to Rochester since before World War II…But today, a quarter-century after the Goodman plant was mothballed, it is not difficult to find refugees from the old General Dynamics’ plant who think that the most severe blow to Rochester since before World War II was actually a blessing in-disguise. (Malcolm Gladwell, The Washington Post (5/30/96) p. A16) The story relates how in the past 25 years the individuals who lost their jobs have since started their own businesses and within 15 years, some 17 separate companies in Rochester had sprung from the ashes of General Dynamics, collectively employing three times as many workers as had been laid off from the Goodman plant in 1971. (Ibid.)

The engineers and managers turned entrepreneurs were able to take advantage of a bad situation, and turn it into a positive for themselves and their community, because they were well-educated and understood they had control over their own destinies. The success of the former General Dynamics’ employees in Buffalo is evidence that people who are able to learn and continually adapt to changing situations can be successful regardless of how uncertain the economic future. The problem is that more and more people are discovering that they do not have the skills and training necessary to take advantage of these new opportunities. Edward Luttwak counters the view that destructive/constructive capitalism is positive by arguing that anybody who has a job is penalized whereas anybody who has a highly mobile set of skills is rewarded. It rewards acrobats at the expense of working stiffs, who also happen to be fathers and stable members of the community. (Luttwak, Harper’sMagazine (May 1996) p. 38)

It’s clear that in the 1990’s, the white-collar middle-class worker has been facing increased competition and job insecurity, but it is also important to remember that the message on job insecurity in the UK and the US is the same. Whatever the woes of core white-collar workers, they are dwarfed by the deterioration in the labor market outside these professions. Relative to these others, the middle classes have never had it so good. (The Financial Times (4/29/96), p. 15)

In summary, when looking at the role of foreign competition and new technologies it seems reasonable to argue that economists are wrong to treat trade and technology as competing explanations. A share of new technology, for example, has been induced by foreign competition. Indeed, when one looks at those industries that have suffered great job losses on the one hand and enjoyed significant investment in new technology on the other, they are concentrated in sectors, like steel and automobiles, that have faced tremendous pressure from imports. Still, the widespread introduction of technology across many sectors suggests that domestic competition spurred much of this investment. Additionally, as a general explanation, technology is unsatisfactory…there is no reason that its introduction must in principle reduce the wages of the unskilled. Technology is for economists the residual that accounts for everything their theories cannot. (Kapstein, p. 25) Whatever the causes it seems that in the face of intense competition, mangers may simply have pared the largest chunk of their bloated costs – worker compensation, which represents 70 percent of corporate production expenses. (Stephen Roach, The Financial Times (5/24/96) p. 12)