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Wednesday, March 29, 2006

Disposable American Workers

Brad DeLong reviews Louis Uchitelle's new book "The Disposable American":

Americans Idle, Review by Brad DeLong, NY Times: Louis Uchitelle has long been one of The New York Times's best economics reporters. ... Now he has written his first book, "The Disposable American," about large-scale layoffs and the harm he sees them doing to the country. Uchitelle believes Americans have acquiesced in permanent mass layoffs because of three myths: (1) that they are a necessary step to make companies better, stronger, more efficient and more productive; (2) that it is the laid-off workers' own fault if they fail to find near-equivalent new jobs in the modern economy; and (3) that layoffs are primarily an economic affair that ought to be decided upon by managers looking at their corporation's dollars-and-cents bottom line.

To Uchitelle's attack on these three myths I want to say yes, yes and yes. There are numerous costs associated with layoffs that are not measured by their effects on the corporation's bottom line: it's not only workers who get a great deal of the cash flow from a highly efficient productive operation; so do national, state and local governments, as well as businesses in the region that live off the purchases of the workers who are about to be laid off.

Moreover, older workers have a particularly hard time starting over, turning the skills and experience that made them a good fit at their old jobs into something valuable to a new employer. ... White-collar middle managers in their early 50's have next to no chance of finding remotely equivalent jobs. Layoffs destroy what is ... a valuable meshing of worker skills and experience... A huge amount of human capital disappears when businesses close down.

And Uchitelle is right when he says mass layoffs do not make the companies that undertake them better. Mass layoffs make them different. Consider one of his major examples: the Stanley Works, which found itself under increasing pressure from countries like Japan, Taiwan, Korea and China. "Customers for Stanley's hand tools were defecting in alarming numbers. The lure was Asian tools . . .  indistinguishable in quality from Stanley's offerings, and at 60 percent of the price." ...

So Stanley's directors found a new chief executive, John Trani, to change the Stanley Works from a tool-making manufacturing company into a service-providing money-making machine. ... As Uchitelle explains: "Selling hand tools was not a favored market. ... Automatic entrance doors . . . were a different matter. . . . What set the doors apart was the need to service the various electronic components." ... Stanley now had a chance to survive as it gradually shifted into a high-margin service-sector market niche where foreigners could not compete, but where its corporate tool-making assets still gave it an edge. Meanwhile, Stanley's longtime workers were left high and dry. ... Stanley's workers are increasingly electronics maintenance and repair technicians, not blue-collar assembly-line tool makers.

For Uchitelle, this transformation of Stanley — this use of corporate assets to find new market niches where the old workers do not fit — is a bad thing. In his eyes, Stanley's bosses were morally obligated, and in a better world would be legally obligated, to invest the company's resources in directions that promised a chance of preserving the jobs of longtime workers — even if such investments were, in the judgment of Wall Street, unlikely to succeed, and so would depress the stock price.

Uchitelle's diagnosis that mass layoffs are a serious national problem is convincing. But for this card-carrying economist, his desired prescription is not. I see no examples ... of economies that have taken steps in the direction he desires without severe side-effects. In Western Europe, unions bargained fiercely for job security, and governments enacted "no firing without cause" laws... Yet this did not lead to a happy labor market. Instead, high overall unemployment, extra-high long-term unemployment and extra-extra-high youth unemployment appear to be the consequences ... Companies that know they cannot lay off groups of workers if demand goes sour are very likely to be companies that hesitate to hire workers when demand is strong.

Indeed, Uchitelle does not want to forbid all mass layoffs. "Some," he writes, "are inevitable as American companies adjust to the growing competition from abroad." His real wish is for managers to treat their workers as partners and fellow human beings, rather than as potentially obsolete and disposable parts in the corporate money-making machine. But when demand and industrial structure are shifting rapidly, there is a great deal of money to be made by treating workers as disposable parts rather than as partners.

Uchitelle wants the government to help. But the government's powers and competence are limited: it can do much more at cleaning up the mess afterward — in the form of unemployment compensation, education support and job search assistance — than it can at getting managers, directors and shareholders to "play nice" when the financial stakes are high.

    Posted by on Wednesday, March 29, 2006 at 12:40 PM in Economics, Policy, Unemployment | Permalink  TrackBack (0)  Comments (27)

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