The Face of Employment: Permanently Changed?

As if all the prognostications about a jobless recovery and permanently higher structural unemployment weren’t enough, along comes an observer who suggests that some of the nasty workplace innovations that came from this recession are here to stay.

Writing in BusinessWeek, Chris Farrell to suggest that furloughs, pay cuts and other “innovative” corporate solutions are here to stay:

Thanks to the Great Recession, another corporate taboo has been shattered: large-scale pay cuts. As a general practice, companies typically resist slashing worker pay during downturns, especially for their white-collar employees. The preferred response to falling profits has long been layoffs. The main reason both managers and workers prefer layoffs to pay cuts is that pink slips seem to concentrate the pain while pay cuts spread the distress.

“Employers are reluctant to cut the nominal rate of pay,” says Daniel J.B. Mitchell, professor emeritus at the UCLA Anderson School of Management and the School of Public Affairs. “It causes morale problems and antagonizes the workforce.”

That may be true, but it’s an idea management felt free to ignore during the longest, most severe downturn since the Great Depression. Beleaguered managers burning the midnight oil decided not only to embrace mass layoffs but to institute pay freezes, pay cuts, and furloughs to a wider extent than before. Companies figured out they wouldn’t pay much of a price with the supply of unemployed and marginally employed workers so high.

Unfortunately, I think he’s right. The private US labor force have accepted their lot this time around like meek lambs. Led to the slaughter those who survived have counted themselves lucky to have jobs and wouldn’t consider rocking the boat under any circumstances.

Farrell contends that having seen success with these new tools during the recession, managers are not going to be reluctant to use them more broadly even when the economy recovers. He refers back to the ’70s when companies which had preached company loyalty suddenly discovered that mass layoffs weren’t the hemlock they supposed. Out went the concept of loyalty and in came ruthless reorganizations.

To cope with this new regime Farrell suggests that workers are going to have to save more, as he puts it provide their own unemployment insurance funds and start microenterprises, little side jobs that bring in extra money. These microenterprises would serve as the cushion when the inevitable furlough or “temporary” pay cut came along.

Good luck selling that one. I don’t think the American workers’ dream encompasses perpetual income uncertainty and extra work at side jobs just in case things go wrong. At some point industry will push the envelope too far and society will push back. The inevitable winner in that sort of contest is society.

I don’t dispute Farrell’s thesis and tend to agree that we will see more of these games from industry over the next few years. I just don’t think they can win this game long term.

Comments

[whidbey:]

You are correct. The economy has lost key sectors in finance, metals, services, energy and health care. The industrial structure of the US is now stunted and lop sided.

For example it is not clear we can maintain our own defense, provide health care as needed, develop new products and services. In short this Administration has no interest in capacity or productivity as keys for the recovery. They are busy restructuring the society and business economy in ways that are unworkable.
A lower standard of living for all is a reasonable forecast.

Aug 27 04:18 PM

[Pat C:]

I bet we will be seeing a large shift in society's views on employment and working in general. I, like you, disagree with Mr. Ferrell's conclusions on savings and microenterprises at least for the short to medium term. There just isn't enough savings and profitable microenterpises to go around. Let's face it, labor has been commoditized with the opening up of 3+ billion people in China, India and the Soviet Bloc competing for work. Tehnology and modern business processes encourage the transfer of labor. We simply have not made the social changes to adapt to this phenomena. Business and finance is operating in an international arena but our government and social structures are national or local. We have a tax based government and consumer economy that is dependent on taxable and disposable wages - right?! We have had our heads in the sand for the last 20+ years. It is absolutely astounding how long human beings can look the other way, delude ourselves into thinking that we were only outsourcing the unpopular stuff in the middle, etc. etc.
How long will US and Western European societies put up with it? I just don't know. If this current healthcare debate has showed us anything, it is that our ability for intelligent dialogue is severely hampered by outrageous demagoguery and media hype. Reasoned change is frought with unreasonable special interests. Will we hit a tipping point of revolutionary change? I have accepted it, but I honestly don't know when it will hit everyone else to get to the revolutionary scale to tip things over.
You know what's really scary? I'm a reasonable person and I just typed and published this.

Aug 27 05:39 PM

[Dan in mpls:]

If I had to guess, "society" was upset over this whole melt down and already showed it by voting for "change". I dont' expect rioting in the streets as some next step. After our brave new government squeezes the rich,then takes the rest of us down with them, "society" will turn to the Republicans and see if they can't fix it. The box we have put ourselves in is not one that any politician is likely to break us out of without incurring the wrath of the voters I dont see how anyone is going to change the course of history. We have heard that this day was comming for 20 years now. Or was that just me talking to myself. I dont see that industry is pushing any envelope nor playing any game to best the employees they depend on. Industry is trying to keep the doors open and the heat bills paid and doing what it takes to weather this storm. A storm that I believe has just begun to make land.

Aug 27 06:08 PM

[Tom Lindmark:]

One of the best comments I have ever received on any post. I particularly like your last sentence.


On Aug 27 05:39 PM Pat C wrote:

> I bet we will be seeing a large shift in society's views on employment
> and working in general. I, like you, disagree with Mr. Ferrell's
> conclusions on savings and microenterprises at least for the short
> to medium term. There just isn't enough savings and profitable microenterpises
> to go around. Let's face it, labor has been commoditized with the
> opening up of 3+ billion people in China, India and the Soviet Bloc
> competing for work. Tehnology and modern business processes encourage
> the transfer of labor. We simply have not made the social changes
> to adapt to this phenomena. Business and finance is operating in
> an international arena but our government and social structures are
> national or local. We have a tax based government and consumer economy
> that is dependent on taxable and disposable wages - right?! We have
> had our heads in the sand for the last 20+ years. It is absolutely
> astounding how long human beings can look the other way, delude ourselves
> into thinking that we were only outsourcing the unpopular stuff in
> the middle, etc. etc.
> How long will US and Western European societies put up with it?
> I just don't know. If this current healthcare debate has showed us
> anything, it is that our ability for intelligent dialogue is severely
> hampered by outrageous demagoguery and media hype. Reasoned change
> is frought with unreasonable special interests. Will we hit a tipping
> point of revolutionary change? I have accepted it, but I honestly
> don't know when it will hit everyone else to get to the revolutionary
> scale to tip things over.
> You know what's really scary? I'm a reasonable person and I just
> typed and published this.

Aug 27 07:30 PM

[pigdog67:]

This is a great article and the comments are great too. This is certainly evidence of wise people living in America. Unfortunately vast swaths of the American population do not have a clue. The bizarre healthcare debate proves that. As my brother says it is those from the 60s generation (born in the 40s), that run the show and they are a bad bunch. He is one of them but open and wise enough to admit it. He has hope in the younger generation, those currently in their 20s, to clean things up. So all we have to do is wait another 20 years for these people to gain power.
Things are going to suck in the meantime for America though. 20 years of suffering ahead with paralyzed leadership.

Aug 27 10:44 PM

[TripleG:]

We could get out of all this by using what used to work - bankruptcy court and tax cuts to free up cash combined with a strong dollar policy. This would be painful and currently is the most unpopular of statements and no politician would propose these ideas today.

I agree with pigdog67 that the boomers are a bad lot (sorry to all Boomers). I've watched them all my life and, for the most part, they are a self-loving, drug-induced bunch of spoiled brats.

Hopefully we can turn this thing around in 10-12 years.

Aug 28 09:25 AM

[sticktoitiv...:]

You know back in the day companies gave workers something called a "pension" pĕn'shən. It's an old word, you may have to look it up. Now they pay the same cost themselves (401k). Only the most skilled workers used to need to pay for a collage education. Now even mechanics need tech school because employers don't want to train. Most Americans aren't Marxists, but they won't take this umm....bovine feces forever. They are already throwing tea parties.

Aug 28 11:10 AM