The Job Freeze

By John Greenwald

FOR MORE THAN A YEAR, THE U.S. has been tantalized by tidings of economic recovery. And now those esoteric leading indicators that so hearten the experts are becoming visible to average workers: consumers are buying, and the economy is growing at a steady, if unspectacular, pace. Yet something important is missing as President Clinton prepares his prematurely overdue economic plan: new jobs.

In spite of the good news about the economy as a whole, most large corporations prefer almost any alternative to hiring new full-time employees. Not only do they have painful memories of the recent recession, but they now face runaway costs for health care and other benefits that often make it prohibitively expensive to expand their work force. The same companies are being squeezed even tighter by global competition, which has made cost cutting and downsizing -- on a permanent basis -- a way of life.

"There is almost a paranoia about creating new jobs in large corporations," says David Orr, a managing partner for the outplacement firm Jannotta, Bray. Concurs Audrey Freedman, president of the Manpower Plus employment-consulting firm: "Companies are about as glad to see a new worker in their ranks as impoverished families are to add another plate to their table."

Even companies who want to hire say they are constrained by doubts about the recovery. "This recession has had nine lives, and we've already seen a number of false starts," says John Roach, chairman of Tandy Corp., which owns the Radio Shack electronics stores. "Actual growth in jobs will require a stronger rebound in the economy than there seems to be right now." At lumber giant Georgia-Pacific, hiring plans have been shelved despite forecasts of increased homebuilding in 1993. "Consumers would have to come back after the Christmas buying binge and show continued confidence," says president A.D. Correll. "We would have to see some real economic growth."

That is particularly alarming because no matter what policies the new Administration pursues, the fate of the recovery will ultimately rest on the willingness of companies to start hiring again. So far, the outlook seems stubbornly dim. A recent American Management Association index of the hiring plans of 785 companies stands at a dismal 9.6 on a scale of 100. A growing economy would normally produce an index at least in the 30s. "This recovery will be limited to fewer jobs and lower incomes than at any other time in the postwar period," says Lawrence Mishel, research director of the Economic Policy Institute in Washington. "Many Americans may not feel they are in a recovery at all."

Instead of hiring, such giants as IBM, General Motors, United Airlines and Eastman Kodak are still slashing their payrolls. And dynamic small start-up firms -- which created 20 million jobs in the 1980s -- have faced a lending crunch that denies them the capital they need to grow and add new jobs. All that has left the health-care and temporary-help industries as the chief source of hiring since the recession officially ended in March 1991.

Dreary job prospects have led to a steady drop in campus recruiting. Companies plan to cut their college interviews 6% this year, after a 28% decline in 1992, according to a Michigan State survey. That could force more graduates to settle for short-term jobs rather than entry-level career positions. Fully 43% of workers between 18 and 24 are already stuck in minimum-wage jobs, up from 23% during the 1981 slump.

Even the health-care industry, the economy's bright spot in recent years, has begun to falter as a source of jobs. Faced with mounting public pressure to restrain runaway prices, drug firms and hospitals have been closing facilities and letting people go. "There's bound to be some sort of fallout as we try to slow the escalating cost of health care," says R. Clayton McWhorter, chief executive of HealthTrust Inc., based in Nashville, Tennessee, which may consolidate several of its 81 hospitals. "Naturally there are going to be personnel reductions."

The result is a Catch-22 dilemma: health-care costs must be contained in order to encourage corporations to take on full-time workers, but the process could curtail growth in the one job sector that has been robust. "Clinton is targeting the health-care industry for reforms, but the effects would be regressive right off the bat," says Ed Yardeni, chief economist for the C.J. Lawrence investment firm. "The first impact of new regulations would be to kill the goose that laid all those golden jobs since the recovery began."

Nor can the economy expect much help from defense contractors, which are still shedding jobs while searching for ways to branch into civilian lines of business. "We'll be down somewhat again this year -- a small percentage," says Kent Kresa, chief executive of military-jet builder Northrop, which cut 3,000 jobs, or nearly 10% of its labor force, in 1992. Such layoffs continue to batter Southern California, the home of the U.S. aerospace industry. "This is akin to what happened when Pittsburgh lost its steel firms and Detroit downsized its auto industry," says Jack Kyser, chief economist for the Economic Development Corp. of Los Angeles County.

Small start-up companies, the main engines of job growth in the 1980s, are in a hiring slump. Unable to get loans from risk-averse banks and burdened by rising health-care costs, small firms last year added jobs at a rate of just 10,000 a month -- compared with a peak of 175,000 a month in the 1980s. "If this company had tried to start out in 1991 or 1992, we wouldn't be here * today," says Bernard Marcus, chairman of the Home Depot chain, which has grown to 214 household-improvement stores since opening its first one in 1979. "No bank in the U.S. in the past two or three years would have financed this business."

The bleak picture has brightened a bit, as banks, flush with profits, have begun making more business loans. "We have certainly seen an increased tendency to lend," says Richard Syron, president of the Boston Federal Reserve Bank, "and part of this lending goes to small firms, some of which are hiring." But while the number of new small-business jobs has risen to about 50,000 a month, economists say it would take four times that rate of growth to reduce the U.S. unemployment level from its present 7.3% to a more comfortable 6%.

If companies are reluctant to add full-time workers, they are happy to replace many current employees with consultants and temporary help. That spares firms the cost of health insurance and other benefits and lets them expand or contract their work force as swiftly as business conditions demand. Even as IBM executes plans to lay off 25,000 employees in 1993, it maintains contracts with 300 outside firms to handle tasks ranging from running the computer giant's payrolls to designing software programs. Prodigy Services, a money-losing IBM-Sears venture that provides computerized home-shopping and information networks, is laying off 250 workers while hiring a company to take over its customer-services department.

Such moves are swiftly reshaping U.S. employment practices. Few jobs are too large or too small to be handled by temps or consultants, who can range in skill from fledgling secretaries to surgeons to computer scientists with Ph.D.s. David Lewin, director of the UCLA Institute of Industrial Relations, says contract employees could grow from 24% of the U.S. work force today to 40% by the end of the decade as companies continue to replace permanent positions with temporary jobs.

Though the hiring news is mostly bad, it is certainly not all bad. Some companies have gone right on hiring despite the sluggish economy. Andersen Consulting, a four-year-old spin-off of the Arthur Andersen accounting firm, has been recruiting full-time employees at the rate of 2,000 a year. Sara Lee, an aggressive food and apparel maker whose marketing skills have made best sellers of brands like L'eggs hosiery and Hanes underwear, has built 25 U.S. plants and doubled its job rolls since 1989. And Genzyme, a Cambridge, | Massachusetts, biotechnology research and marketing firm that is developing drugs for diseases like cystic fibrosis, plans to hire some 200 scientists and technicians for the third straight year, bringing its payroll to nearly 1,700 workers.

But most companies have put their expansion plans on hold while waiting to see how the economy behaves under the new Administration. "We're still overstored, overbanked and overgoverned," says Rex Adams, a vice president of Mobil, which has laid off 13,000 petroleum workers in recent years. "We're still a country of excess capacity. There is going to be job growth, but there will still be fewer manufacturing jobs and fewer secure jobs. People are only going to start hiring in significant numbers when they feel they have a possibility of making some money."

If Bill Clinton hopes to solve all these problems in the long run, he will have to deliver on promises to improve the education and skills of the work force and the strength of the nation's infrastructure. Only that will restore U.S. competitiveness and create new jobs in a global setting in which people and their skills are the resources that really count.

CHART: NOT AVAILABLE

CREDIT: [TMFONT 1 d #666666 d {Source: DRI/McGraw-Hill}]CAPTION: JOB CREATION AFTER THE PAST THREE RECESSIONS

With reporting by Jordan Bonfante/Los Angeles, Ketanji O. Brown/New York and William McWhirter/Chicago