The Disposable American
Layoffs and Their Consequences
by Louis Uchitelle
Copyright © 2006 by Louis Uchitelle
Used by arrangement with Alfred A. Knopf, a division of Random House, Inc.
304 pages
Focus
Leadership & Mgt.
Strategy
Sales & Marketing
Finance
Human Resources
IT, Production & Logistics
Career Development
Small Business
Economics & Politics
Industries
Regions
Concepts & Trends
Take-Aways
• Job security began to be a normal American expectation shortly after WW I. For
decades, corporations and workers mutually cared about job security and stability.
• In the mid-1950s, management guru Peter Drucker emphasized that stable and
secure employment helped build a highly motivated, committed work force.
• The national job security consensus began to unravel in the 1970s; by the 1990s, it
was gone.
• Although Senator Hubert Humphrey co-sponsored the Humphrey-Hawkins Act, he
attenuated his support for it. Carter and Clinton did not make job security a priority.
• Layoffs accelerated as companies responded to imports, the strengthening dollar
and, later, the shareholder value ideology that drove industry consolidations.
• Americans began to see layoffs as the workers' problem, not business' or society's.
• Laid-off people seldom find work that pays as well as the jobs they lost.
• Downward mobility is now a growing problem among educated, white-collar workers.
• Layoffs exact a severe mental and emotional toll: depression, distrust and diffidence.
• America can stop the layoffs. First, end the competition among states and cities that
spend $30 billion a year to lure companies to relocate, causing layoffs at the old site.
Rating
(10 is best)
Overall
Applicability
Innovation
Style
9
8
10
10
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Relevance
What You Will Learn
In this Abstract, you will learn: 1) How layoffs became a pervasive, corrosive fact of
American work life; and 2) What the United States can and should do about them.
Recommendation
This excellent book examines the phenomenon of job insecurity in America. Author and
newspaper reporter Louis Uchitelle traces the development and decline of the American
expectation of stable, remunerative, virtually lifetime employment. Republicans may have
taken the boldest steps in rolling back the expectation of job security (Ronald Reagan’s
firing of the air traffic controllers spoke eloquently for the new order), but they did not do
so alone or unopposed. Democratic presidents and politicians did not make preventing
layoffs a major campaign issue or administrative priority. Uchitelle writes smoothly and
evocatively, particularly about the individual experiences of laid-off workers, for whom
the surviving avenues of American opportunity were dead ends. getAbstract recommends
this book to anyone who wants to know what killed the historic American trust between
workers and employers, and how to staunch the bleeding caused by layoffs.
Abstract
“Layoffs became
the measure
of our national
retreat from the
dignity that had
been gradually
bestowed on
American workers
over the previous
90 years.”
“Core workers…
perform the
essential, profitmaking functions
– (like) design
and engineering
at an aircraft
manufacturer
– while peripheral
employees did
support functions:
human resources,
accounting,
clerical work,
customer
service…They
were disposable.”
From Security to Insecurity
Layoffs have become such a large part of American economic life that it is hard to
recall when they were rare. During most of the twentieth century, job stability was the
norm. Peter F. Drucker’s 1950s classic, The Practice of Management, outlined a tradeoff: management built a dedicated workforce by being loyal to its workers. He saw job
stability as essential to corporate success. But 40 years later, Drucker is writing about
“knowledge workers” adrift in an unstable economy where no one expects a permanent
job. They rent out their intellects for short-term assignments, moving along as their needs
– and their employers’ needs – change.
The shift from enjoying stable, lifelong employment to facing ongoing job insecurity
has taken a severe, usually uncalculated toll on the American worker’s economic and
psychological well-being. Laid-off people rarely secure employment that pays as well as
the jobs they lost. Although the layoffs usually are not their fault, they still suffer severe
psychological and emotional pain. When employers tell them that the work they took
seriously and did well for many years is of no consequence, is unnecessary, and is even a
distraction to their firms, they lose their dignity – a difficult wound to repair. Commonly,
layoffs spur strong psychological reactions, including distrust, depression and diffidence,
scarcely suppressed anger and fear of future layoffs.
The idea of having a permanent job started after WWI. In the 1800s, the norm was
mobility. People who lost or left one job could move along and easily find another. The
frontier promised opportunity. Immigrants from Europe expected to find work, but did
not expect to spend their entire working lives at one job. As the frontier closed, the jobless
wanderers who once had been “pioneers” became “tramps.” Immigrants’ children built
new communities around the factories that employed their parents, and went to work in
the same factories, as did their own children. Attitudes toward jobs changed. If you lost
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“While America’s
best engineers
and scientists had
put much of their
energy into the
nation’s military
industries, their
counterparts
in Europe and
Japan…
concentrated on
becoming masters
of production for
civilian purposes.”
“Each layoff
became the
victim’s problem,
not society’s,
or the victim’s
fault, and once
people shifted to
this view, their
employers were
free to incorporate
layoffs into their
tactics and
operations.”
“Everything you
think is important
and do for your
life’s work, isn’t.
To have someone
senior in the
company say that
so bluntly in public
is terrible.”
“When you sever
the connection to
a long-held job,
you are destroying
something that
you can’t restore,
not quickly.”
[ – economist
Louis S. Jacobs]
a job, finding new work was not so easy. Labor unions contributed to the demand for
security and dependable employment. Job stability was a cause worth fighting for, but
it also worked in favor of growing mass-market corporations. They needed employees
who understood their inner workings, norms, practices and culture, which take time to
learn. Knowing that productivity requires a loyal, stable workforce and that loyalty must
be mutual, companies favored long-term employment.
Labor, management and society reached a consensus that job security and stability
were valuable. Employees could count on pensions, retirement funds, medical benefits
and other perquisites of job security, based on years of service. Layoffs were rare, not
unthinkable, but shocking.
How times have changed. While U.S. innovation and creativity focused on Cold War
military industries, European and Japanese competitors applied their ingenuity to civilian
products and technologies. As their economies recovered and their companies grew,
they gained market share. Eventually they entered the American market, challenging
U.S. corporations at home, and winning. Meanwhile, the Bretton Woods financial order
collapsed, ushering in an era of financial deregulation. The oil price shocks boosted fuelefficient Japanese and European cars, an advantage multiplied by the currency markets.
The devastatingly strong dollar of the early ‘80s took a serious toll on U.S. industry,
making American products much more expensive than goods from elsewhere. Whole
industries disappeared. The term “rust belt” emerged to describe ruined mill towns that
had been built on the foundation of job stability.
Corporate raiders targeted the twentieth century’s great companies. They attacked
corporations to unlock shareholder value, extruding money by breaking up, selling
off, downsizing and doing more with less. They demanded that managers justify every
investment, expense and activity in value-to-shareholder terms. Few companies could.
Prodded by capital market disciplinarians, managers came up with the idea of a core-andperiphery. The core business consisted of activities that created a company’s competitive
advantage and market differentiation: design, new product differentiation and marketing.
Everything outside the core – information technology, personnel services, bookkeeping,
payroll – was peripheral, and best left to experts. Thus, spin-offs and outsourcing became
new U.S. business strategies, bringing more layoffs, along with employee transfers and
the use of temporary workers.
A few decades earlier, an educated, productive worker could expect a job for life.
Now, education and productivity were – if not irrelevant – no guarantee. Even formal
guarantees, such as union contracts, became shaky. Right-to-work laws undermined the
unions, especially in the South. Companies could violate some labor protection laws
because no one enforced them. They could even fire strikers and replace them with new
workers, once called “scabs.”
Politicians who might have protected job security failed to do so. Rep. Augustus Hawkins,
of Los Angeles’ Watts ghetto, wrote the “Humphrey-Hawkins Act” to mandate full
employment. Sen. Hubert Humphrey co-sponsored the bill, which originally called
for the government to act as employer of last resort. Hawkins faced serious challenges
to his bill’s economic underpinning. In the 1970s, Humphrey cut back his support
as he came to see inflation as a greater problem. Jimmy Carter, elected in 1976, was
unenthusiastic about the legislation.
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“The trauma of
dismissal – ‘the
acuteness of
the blow,’ as
Dr. Theodore
Jacobs…put it
– unwinds lives
in its own right,
damaging selfesteem, undoing
normal adaptive
mechanisms.”
“In various
small, peripheral
ways layoffs can
be reduced, or
at least made
less painful.”
“The growing
presence of temps
and contract
workers…more
than 10% of the
nation’s workforce,
up from two to
three percent
30 years ago
– is evidence of
a reorganization
of the workplace
to accommodate
layoffs without
having to call
them that.”
“Then there is
the netherworld
of jobs that are
so poorly paid
and so stripped
of opportunity
(no promotions,
no raises, no
training) that
quitting them or
being laid off are
roughly the same.”
Some say this change happened because the American mood turned from communal
to individualistic. Ronald Reagan’s victory in 1980 tolled the final knell for job security
and anti-layoff sentiment. When aircraft controllers struck, Reagan fired them and
hired permanent replacements. He set a precedent that companies quickly copied.
Indeed, corporations were under severe competitive pressure, losing sales and market
share domestically and abroad because of the strong dollar. They, arguably, had little
alternative to closing and laying off workers – at least initially.
But extensive layoffs bred anxiety in the electorate, and anxiety turned to anger when
people saw clearly that Wall Street was profiting enormously from corporate restructuring.
Junk bond mergers and acquisitions left many workers worse off as they made a few wellconnected executives enormously wealthy. In 1988, Congress finally acted, however
meekly, by passing the Worker Adjustment and Retraining Notification Act. The act
mandated 60 days warning before companies closed a facility or laid-off as many as 500
workers. Reagan signed the legislation with no enthusiasm – in fact, he disagreed with
it. The law helped take layoffs out of the political limelight during the 1988 presidential
campaign, in which Republican Vice President George H.W. Bush defeated Democrat
Michael Dukakis. Subsequently, layoffs all but disappeared from political discourse.
William Clinton’s 1992 election did nothing to protect jobs. Neither Clinton nor Treasury
Secretary Robert Rubin paid much attention to layoffs. Indeed, they apparently saw
employment as the employers’ concern, not the government’s. Nobel laureate Joseph E.
Stiglitz, chairman of Clinton’s Council of Economic Advisers, often favored government
intervention in the economy – but not to stop layoffs. He felt there was no way government
intervention to prevent layoffs would improve the lot of everyone in the economy. Indeed,
he believed that the only alternative to layoffs was protectionism, which was unacceptable.
The administration professed to believe – contrary to evidence and experience – that
education and retraining would be sufficient to address the problem of layoffs.
The Problem with Education and Retraining
In the early 1990s, United Airlines took over a state-of-the-art aircraft maintenance
facility in Indianapolis. Thanks in no small part to massive government subsidies, United
used the facility to service its own planes and, eventually, began to service America
West’s planes also. Although employment levels at the facility never reached the numbers
United had spoken of when it negotiated its subsidies, thousands of unionized, skilled
people worked there.
During the early ‘90s, times were good. There was plenty of work for all. However, a
labor dispute in 1999 resulted in a slowdown that sent the maintenance facility into a
tailspin. America West looked elsewhere. United itself, leery of the union’s power at
this facility, decided to diversify its maintenance arrangements. Then, United fell into
financial straits, declared bankruptcy and laid off all the mechanics at the facility.
Despite being highly trained, the overwhelming majority of these mechanics were unable
to find new jobs paying anything close to what they had earned from United Airlines.
Much of the airplane service business migrated to service providers in the South, where
wages were as little as half of Indianapolis union wages. This sort of experience is not
only a blue-collar phenomenon. Similar layoffs affected thousands of workers. Many
white-collar workers ended up with sad stories to tell, including:
• A Citibank human resources executive, laid off after decades of service, was unable
to find employment at comparable pay.
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• A successful Connecticut bank executive in his 50s was replaced by a 22-year-old who
worked for much lower pay. The executive wound up running a welcome station for
tourists entering the state, a position much lower in pay and status than his bank job.
• An information technology and human resource executive for Procter & Gamble
who accepted an early retirement package in anticipation of a layoff, was never able
to find employment even close to her P&G salary level.
“Stable jobs and
sufficient incomes
and stable
communities
are powerful
equalizers.
Restore them
– or begin to
restore them
– and the political
influence that
wealth now buys
and that distorts
democracy will be
easier to unwind.”
“Each job saved
is a victory and
each victory brings
people together
in the mutual task
of resurrecting
the obstacles to
layoffs that once
protected us and
lifted our dignity.”
The euphemism “income volatility” describes this downward mobility. Once, it applied
mainly to workers who lost high-paying factory jobs and were unable to find similarly
paid work. However, in recent years, white-collar workers have seen their incomes fall
permanently for the same reason. This kind of income volatility is a big factor in the
stagnation and decline of U.S. workers’ incomes. Training and re-education only solve the
problem when they lead to other jobs offering equivalent pay. That is seldom the case.
Moreover, the consequences of layoffs and unemployment are not entirely financial. They
take a severe emotional and psychological toll. Unemployment is clearly associated with
depression, which may be exacerbated by the loss of social networks and self-esteem.
People who are laid-off carry the wounds and pain of the job loss experience for years,
and are often unable to pick up the pieces and put their lives together again.
What Is to Be Done
America must address the problem of layoffs and job loss in a broader context. Without
job stability, income security and community stability, wealth can seize possession of the
democratic political process – as it has in recent years. America does not have to tolerate
the wave of layoffs. One good first step would be to end the competition among municipal
and state governments that spend $30 billion a year subsidizing companies to locate
or relocate into their jurisdictions. These expenditures increase layoffs, because many
companies lay off workers in their old locations when they move. A revitalized labor
movement and additional public investment to create jobs would increase employment
security, but both are unlikely to happen.
To solve the problem of layoffs, first consider its magnitude. Current unemployment
statistics undercount the actual number of unemployed by ignoring those who have given
up looking for jobs. Everyone unemployed should be counted, and all layoffs should be
reported. The census refers to layoffs, but people who were laid off twice or more in three
years are only counted as being laid-off once. The U.S. doesn’t count early retirements as
layoffs, although they often are. It doesn’t count outsourcing that transfers a company’s
employees and outside units, although such arrangements are tantamount to layoffs
because lower pay and benefits at the new units lead many people to quit. Companies
should be required to file audited employment reports similar to their financial reports,
specifying how many people left during each period, why, and whether the departures
were voluntary or involuntary. Such measures would improve the available data, enabling
policies to be developed to confront the problem of layoffs in America.
About The Author
Louis Uchitelle has covered economics for The New York Times since 1987, focusing on
labor and business issues. He shared a major award for its 1996 series “The Downsizing of
America.” He also taught journalism at Columbia University’s School of General Studies.
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