NY Times - U.S. Economy in Worst Hiring Slump in 20 Years

[Jim Farmelant <farmelantj@xxxxxxxx>]

U.S. Economy in Worst Hiring Slump in 20 Years
By DAVID LEONHARDT


The economy has fallen into its worst hiring slump in almost
20 years, and many business executives say they remain
unsure when it will end.

The employment decline has become even worse than it
was at a comparable point in the so-called jobless recovery of
the early 1990's, according to recently revised statistics from the
Labor Department. The economy has lost more than two million
jobs, a drop of 1.5 percent, since the most recent recession
began in March 2001, as layoffs have continued despite the
resumption of economic growth more than a year ago. The
decline was 1.3 percent at the same point in the business cycle a
decade ago.

About one million people appear to have dropped out of the
labor force since last summer, neither working nor looking
for a job, according to government figures.

The surge in discouraged workers is the most significant since
the months immediately after the recession's start. This
suggests that the pain of joblessness has worsened even
though the official unemployment rate,
which counts only people looking for work, held steady
at 6 percent in December.

"Last year," said Tom Koehn, 50, who lost his job at a
machinery maker in South Bend, Ind., in May, "I heard a lot of
people say, `Come back after the first of the year; if the
economy picks up, we might hire some people.' But
so far, I haven't found anybody who's hiring."

The shortage of jobs has also slowed wage growth so that
only workers in the most affluent groups are still gaining
ground on inflation, ending a six-year streak of broad
increases in buying power.

Manufacturers of durable goods like computers, furniture and steel have
made the deepest cuts, with one of every nine jobs in these industries
eliminated since early 2001. Airlines, brokerage firms and makers of
clothing and textiles have also each cut at least a tenth of their work
forces.
Government agencies have been among the few employers that continue
to expand, although many states are now laying off employees to close
budget deficits.

Executives say they have been disappointed too many times by the halting
growth of the last year to begin hiring workers in significant numbers.
While the government is likely to report tomorrow that the economy added
some jobs in January, many executives are still waiting to be convinced
that business has regained a solid footing after the collapse of the
bubble
of the late 1990's.

The possibility of a war with Iraq and an increase in oil prices
offers another reason for hesitation, they say. Many companies
have also used new technologies and management techniques
to produce more with the same number of employees.

"This is what I call the new reality," said Robert M. Dutkowsky,
the chief executive of J. D. Edwards, a software maker in
Denver that has kept its work force at 5,000 people for the last
few years. "The environment we're operating
in is what it's going to be like for a while."

In his State of the Union address last week, President Bush called
the improvement of the job market his "first goal" for the coming
year and asked Congress to pass a $670 billion, 10-year tax cut.

"We must have an economy that grows fast enough to employ every
man and woman who seeks a job," Mr. Bush said. "With unemployment
rising, our nation needs more small businesses to open, more companies
to invest and expand, more employers to put up the sign that
says, `Help Wanted.' "

Most economists say that the tax plan and another $4 billion in help for
the
jobless would have only a small effect on the economy this year.

The number of companies cutting jobs has spiked since
November, with AOL Time Warner, Boeing, Dow Jones, Eastman
Kodak, Goodyear, J. C. Penney, McDonald's, Merrill Lynch,
Sara Lee, and Verizon all announcing new layoffs. Barring
a sustained rise in oil prices, however, the cuts appear
likely to taper off in the coming months as the economy continues its
slow
recovery, most forecasters say.

The bigger problem seems to be the unwillingness of companies to hire
new workers. In December, the number of help-wanted advertisements
in newspapers across the country fell to the lowest level in almost 40
years,
according to the Conference Board, a research group in New York.

"There isn't the confidence level in business today that we need for
growth,"
said Cinda Hallman, chief executive of the Spherion Corporation, a
staffing
company based in Fort Lauderdale, Fla., that places almost 400,000 people

in jobs, down from 600,000 three years ago. "There's uncertainty.
Companies are being much more cautious than they used to be."

The labor market entered the 2001 recession tighter than it had been in
30 years, with the jobless rate falling below 4 percent in late 2000.
Even at 6 percent ? its level in December, the most recent
reading ? it remains lower than it was during the aftermath of
most other recessions.

But the reluctance of companies to hire is causing pain in ways that
the jobless rate does not measure.

An unusually large number of today's unemployed have been out of
work for months, including Mr. Koehn, the South Bend manufacturing
worker, who lost his job last spring. Almost 1.9 million people still
looking for work have been unemployed for at least six months,
triple the number of two years ago.

"There are a lot of people out there who aren't used to asking for help
who need some help," said Mr. Koehn, who plans on applying to
convenience stores if he has not found other work before his jobless
benefits expire in mid-February. "It's a tough pill to swallow when
people
say, `Oh, you still haven't found work,' and you know you've been
looking."

Many other people seem to have stopped looking. Since June, the number
of adults not in the labor force has jumped by more than one million, to
72.4 million, according to the Labor Department. Many are retired, still
in
school or raising children, but the sharp change suggests that a growing
number have become too frustrated to continue applying.

"I went out and pounded the pavement faithfully," said Theresa H.
Washington, who lost her $60,000-a-year electrician's job more than
a year ago at a Cleveland steel mill closed by the LTV Corporation.
"I did the whole nine yards in terms of looking for work, and I never
had an interview.

"There is no job market right now," Ms. Washington, 47, added.
She estimated that she had applied to more than 50 companies.

In May, she enrolled in a community college and is studying to become
a counselor to people addicted to alcohol or drugs, a job that will pay
about $40,000 a year. Until she finishes the program in May 2004,
she and her two children will rely on extended jobless benefits of
about $370 a week, a local health care clinic, a food bank and help
from friends and family, she said.

"It's been a complete change in lifestyle," she added.

The prolonged jobs slump has also taken away much of the bargaining
power that workers had in the 1990's.

Qualcomm, the technology company based in San Diego, receives
200 résumés a day, up almost 25 percent from a year ago, and the
applicants are generally more qualified than in the past, said Daniel
Sullivan, executive vice president for human resources.

At 7-Eleven stores, employee turnover remains high, but it has fallen
in the last year. "One of our biggest challenges was getting people,"
said James W. Keyes, 7-Eleven's chief executive. Now, he said, "it's
much, much easier to both recruit and retain employees."

With little need for companies to compete for workers, wage growth
has ground almost to a halt, after inflation takes its bite, for people
in
the bottom of the income distribution. That is a sharp reversal from the
late 1990's, when low unemployment and increases in the minimum
wage allowed low-income workers to receive bigger proportional raises
than those in the middle.

Workers at the 20th percentile of earners made $8.31 an hourat the end
of last year, up only 1.1 percent from a year earlier, according to an
analysis of government data by the Economic Policy Institute, a liberal
group in Washington. Over the same span, inflation was about 2.2 percent.

The median worker ? the one falling squarely in the middle of the
distribution ? received a 2.1 percent raise over the same span, to
$13.36. The top third of earners received increases of about 2.7 percent.


In the late 1990's and 2000, workers near the bottom were receiving
annual raises of more than 4 percent, slightly better than the increases
for those at the median or for most of those near the top.

The economy has shown signs of picking up in recent weeks, including
a survey of service-sector managers released yesterday that showed
their business improved in January. But the hints of recovery are
difficult t
o distinguish from ones that proved false in the last year or so,
executives
say. Many companies still have more stores and factories than they can
profitably use, and little need to add new workers.

The effects of the bubble of the late 90's in the stock market and
business
investment will eventually wear off, but the recent increases in
corporate
efficiency appear to have created a long-term change in the level of
economic
growth needed for an improving job market. The economy advanced 2.8
percent from the end of 2001 to the end of last year, which was once a
growth rate capable of generating demand for tens of thousands of new
workers a month. Yet payrolls still declined significantly, as companies
used both new technologies and strategies forced on them by an
increasingly
competitive economy to produce more goods and services with fewer people.

In the last few years, for example, Applebee's, the restaurant chain
based in
Overland Park, Kan., has centralized its purchasing of food to save costs

and begun varying the pay of its workers more than it had been, in order
to retain the most productive ones. The steps have allowed its sales to
grow faster than its employment, said Lloyd L. Hill, the chief executive.

"It's not brain surgery," Mr. Hill said. "We just recognized we had to do
better."

BASF, the world's largest chemical company, spent $4 billion investing in

new plants and equipment in the United States in the last five years.
Like
many companies, it will turn to its new machines to increase production.

"Now," said Klaus Peter Löbbe, who runs BASF's North American
operations, "comes the time to make the assets sweat."


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