For a few years starting in the late 1990s, Honeywell International Inc. was one of those companies that couldn’t stop announcing job cuts. It cut jobs in 1999, even as the rest of the economy was booming. It cut more jobs in 2000, when the stock market bubble began to leak.
After the 9/11 attacks, the company, which makes cockpit controls and other high-tech equipment, announced its biggest layoff of all—15,800 jobs. By 2003, though, the layoffs stopped. The economy was growing again, and so were Honeywell’s sales. This year, the company will bring in about $34 billion (nearly Rs1.35 trillion) of revenue—an increase of more than 50% since 2002. It’s selling more navigation systems for business jets and more turbochargers to improve the fuel efficiency of cars. Honeywell even made the new insulated roof for the Louisiana Superdome in New Orleans.
So you might think that the company would be hiring scads of workers. But it isn’t. Around the world, it employs 118,000 workers today, not so many more than the 108,000 the company employed in 2002. Honeywell has simply figured how to do more business with fewer people. That’s good for the company’s investors and for the employees already on its payroll, but it doesn’t do much to strengthen the job market.
The biggest problem with the job market isn’t the jobs that are being eliminated, shipped overseas or filled by temporary workers. The biggest problem is on the other end of the equation. There are far fewer jobs being created by new or expanding companies than there were throughout the 1990s. You can think of this as the Honeywell syndrome.
This pattern has gone overlooked because of the way that the government tabulates its closely followed monthly jobs report. It includes only the net change in employment: jobs created minus jobs eliminated. Forecasters are expecting a gain of 70,000 jobs for November to be reported next week.
But every quarter the Bureau of Labour Statistics also puts out a more detailed report that explains what’s happening with job creation and job destruction with the underlying forces that create the net changes. And contrary to popular belief, the most recent numbers show that job cuts in the private sector have fallen to a near-15-year low. In the first three months of this year, workplaces that downsized or shut down have eliminated 7.1 million jobs, equal to 6.2% of the nation’s total private-sector employment.
That may sound like a lot, but it’s a lower percentage than at any point from 1992 (when the labour department began keeping such records) to last year. Scott Schuh, a senior economist at the Federal Reserve Bank of Boston, says that job destruction rates have probably been on the wane for most of the last 50 years.
Unfortunately, the number of new jobs created by start-ups and growing businesses has also been falling. These businesses added 7.5 million jobs in the first quarter of this year, which made for the slowest pace of job creation on record. As David Talan, a labour department economist, who helped compile the report, says, “Job churning is slowing down.” Even before the economy began to weaken in recent months, net job growth has disappointed this decade. Pay and benefit increases for most workers have been disappointing, too. So a lot of people have looked around and assumed that some combination of North Atlantic Free Trade Agreement, China and corporate downsizing was to blame. Several presidential candidates have reacted to this anxiety, and fed it, by talking about new trade barriers.
But when you look more closely, you see that job destruction is not the culprit. Back in the late 1990s, when pay was rising steadily for rich and poor alike, the rate of job destruction was about 20% higher than it has been lately. Honeywell was one of many companies laying off workers.
Yet, healthy job creation—25% higher in the late 1990s than in early 2007—more than made up for the cuts. Schuh of the Boston Fed points out that one of the primary ways that economies become more efficient, and lift living standards, is by reallocating workers to more productive jobs. ©2007/New York times