Disposable Workers: Layoffs and Their Consequences

An interview with Louis Uchitelle

Louis Uchitelle is the author of The Disposable American: Layoffs and Their Consequences. He is a reporter with the New York Times, where he writes about business, labor and economics. He was the lead reporter for the Times series “The Downsizing of America,” which won a George Polk Award in 1996. He has taught at Columbia University and was a visiting scholar at the Russell Sage Foundation in New York in 2002-2003.

Multinational Monitor: What is Who Moved My Cheese?

Louis Uchitelle: Who Moved My Cheese? is a best-selling book that is often distributed to people who have been laid off. The idea is to encourage them to go out and look for work. The book is the story of two mice and two men who are always supplied with cheese. One day the cheese disappeared. The mice went out and looked for another supply of cheese and found it. The two humans held back, but eventually they went out, found the cheese and got back to meaningful lives. The message is to take responsibility for yourself. Layoffs are your problem, mister, not society’s. You can solve it on your own and save yourself.

MM: How many layoffs are there annually in the United States?

Uchitelle: If you take full-time workers — about 100 million people — about 4 percent are laid off every two years. Those are just the official layoffs as compiled by the Bureau of Labor Statistics.

If you add in the hidden layoffs — the people who are forced into early-retirement as an alternative to being pushed out, or for one reason or another feel forced to leave their jobs — then you may get up towards 7 percent of all full-time workers. Instead of four million, that’s seven million biennially. That’s a lot of people. And it should alarm people that we have a set of statistics in America that play down the layoff problem.

MM: How long does it take the typical laid off person to get a new job, and how does the new job generally compare to the old one?

Uchitelle: About a third of people who are laid off drop out. About a third of people find jobs that, two years after their layoffs, pay 15 to 20 percent less than the jobs that they had before. About a third end up in jobs that, two years later, pay the same or more than they had earned before. The overwhelming evidence is that men and women who are laid off can get back into the work force, but usually at wages below what they earned before, and usually in jobs that aren’t as skilled as the ones they had before. In other words, they are working beneath their skills.

MM: What does it mean when you say “drop out?”

Uchitelle: It means they stop looking for work. Maybe they take an early pension, maybe they live on savings, maybe a spouse works and they don’t. They are neither employed nor actively unemployed and looking for work, which would qualify them as unemployed.

MM: If you are laid off, why can’t you get a job that’s as good as the one you just lost?

Uchitelle: This is one of the great myths we have. People blame themselves for their own layoffs and we reinforce that as a nation. We say to people, “No problem, just get yourself re-trained or re-educated for the very good jobs that are out there and that are unfilled.” So people go through this re-training very often and then they don’t get those good jobs. Then we as a society blame them for not getting the right re-training and the right re-education. They bear the responsibility.

The fact of the matter, and it is very evident in the Bureau of Labor Statistics data, is that the number of well-paying unfilled jobs is less than the demand for them. So you have situations where more than 30 percent of all flight attendants have bachelor’s degrees, when that’s not work that requires a bachelor’s degree. In any number of professions, you find that people are over-educated, because they can’t get work commensurate with their education and skills.

MM: Your book emphasizes the psychological effects connected to layoffs.

Uchitelle: When I started the reporting for this book, I didn’t realize how much I would be drawn into the psychiatric aspects of layoffs. We have plenty of data that show the damage from long periods of unemployment, but we have none that illustrates the trauma that men and women suffer from the layoff itself — even if they end up working again in a week or two. I ran into it frequently in my interviews and then went to psychiatrists who verified what I was finding.

The trauma lies in being told that you don’t have value. It’s damage to self-esteem. It shows up in therapy situations where people are a little depressed and they are not working to their capacity. Or there are marital troubles. Very often in those situations, psychiatrists tell me, a layoff has been a factor in triggering this blow to self-esteem.

I went to psychiatrists and asked them about this. They said, “Yes, we run into this all the time.” I said, “Why don’t you put a warning label on that: layoffs are detrimental to mental health and layoffs to millions are harmful to public health. They said, “We should, really. But we would have to put a similar label on divorce and war.” But we know that divorce and war are traumatic; society doesn’t know that layoffs are a traumatic experience, damaging to mental health and as a result to public health.

A well-known psychiatrist, Dr. Theodore Jacobs, told me, and I quote him in The Disposable American, “Even if a person is accurate in saying, ‘I did a really good job and I can see that the company is in a bad way and they have to lay off a lot of people and it’s really not about me,’ there is seldom an escape from the inner sense of ‘Why me?’ In other words, one has some sense that one has failed and the outside world had made that judgment. And that self-perception dovetails with existing inadequacies that many people feel about themselves.”

MM: To reiterate, this is distinct from the phenomena of being unemployed?

Uchitelle: Yes. We have a lot of data on the psychological consequences of unemployment, particularly long periods of unemployment. We have no recognition that layoffs are damaging. If we had that recognition, then the layoff would become something that was not the victim’s responsibility to overcome with help from education and training; it would be a much broader social problem. And that would shift towards policies that would attempt to minimize layoffs.

I’m not fool enough to think that in this particular global economy in which we live that we can eliminate layoffs, but we can certainly reduce them quite a bit. And I also think that most layoffs have nothing to do with the global economy; they really take place within the national economy.

MM: What was the Humphrey-Hawkins Act?

Uchitelle: There has been a long-running debate over whether the private sector can create well-paid jobs for all who want them and qualify for them.

We are not doing that now. Those jobs don’t exist, as I was pointing out before, in sufficient numbers to meet everyone’s needs.

This issue came up in the debate over the Employment Act of 1946, with the Depression in mind. Could the private sector meet the employment needs of our society? Should government be an employer of last resort? Not necessarily through direct employment on federal payrolls or state payrolls, but through public works projects so that government job creation would kick in until the unemployment rate got to a certain level. At the time, Congress refused to pass any legislation that had any teeth in it.

The issue came up again in the early drafts of the Humphrey-Hawkins bill in the mid-1970s, during a severe recession. The Humphrey-Hawkins Act was passed in 1978. But in those early drafts, Augustus Hawkins, a black congressman from a district that included Watts, wrote legislation that would have made government the employer of last resort, as a supplement to the private sector. The legislation went through a number of iterations. Finally, Hubert Humphrey more or less embraced the idea, but he was sidelined, partly as a result of cancer, from which he died. Instead of Humphrey, Jimmy Carter became the presidential candidate in 1976 and then President. He decided that inflation control was more important than full employment. Ironically, inflation control became a major aspect of the Humphrey-Hawkins Act that finally emerged. And inflation control came to mean that, when the unemployment rate got low enough, the Federal Reserve raised interest rates until the economy slowed sufficiently to drive up the unemployment rate. What emerged was the exact opposite of what Augustus Hawkins originally had in mind.

MM: You write that, following World War II and through the mid-seventies, people in the United States had an expectation of job security, but that this expectation was dismantled and is now almost completely gone.

Uchitelle: Job security is woven into our history. It started to rise in the late nineteenth century, when we created what turned out to be the first giant corporations in the industrial world — the railroads, U.S. Steel, Eastman-Kodak, Procter and Gamble, Sears-Roebuck. The owners of these giant corporations came to realize that the companies were very complex, and they required experienced people who identified with the company and who stayed with the company. So they promoted policies that encouraged job security.

There was also a labor element to this. Labor in certain periods was quite strong and companies offered job security as a means of fending off unions. It was in the interest of both management and labor to have job security, and that became the norm.

In the 1930s, when the Depression struck and management lost interest in job security, government stepped in with labor laws that strengthened labor’s hand.

Toward the end of the war, in 1944, politicians, union leaders and management were all in favor of job security. It was politically what everybody believed. It was like apple pie. In the 1944 presidential campaign, Thomas E. Dewey, a very conservative Republican for his day, ran against Franklin Roosevelt. In a stump speech, Dewey said, “If at any time there are not sufficient jobs in private employment to go around, then government can and must create additional job opportunities because there must be jobs for all in this country of ours.”

That would be an unheard of statement from Republicans today. It was normal politics back in the mid-1940s.    

Starting in the seventies, we got into a global competition. We were no longer the dominant economic power, and we had to deal with an influx of well-made European and Asian products, autos to start with. As a cost-cutting measure, we began to get into layoffs. But what started as a more or less legitimate practice got way out of hand. We gradually dismantled all the barriers to layoffs, all the job security measures that we had erected in the previous 90 to 100 years. By the late 1990s, we finally acquiesced, and forgot that we could have a society with much more job security.

MM: You write that, in the Clinton administration, Labor Secretary Robert Reich and Treasury Secretary Robert Rubin represented the polar extremes in the cabinet on the issue of layoffs and how serious they were. But you also say that Reich, representing the most liberal view, did not fundamentally challenge the idea that widespread layoffs were an inevitable part of the modern economy.

Uchitelle: That’s correct. Reich and Rubin differ considerably, but within a framework they both shared. They both thought, and Reich in particular, that the solution was education.

According to Reich, people who didn’t do their work in some routine fashion could generate job security by training themselves in computers, by finding ways to do things better. Job security was a question of education. Education would qualify people for better jobs. But it was also a question of initiative. Someone running a supermarket check-out register, for example,  finds ways to do the job more efficiently and therefore assures his or her job security. That was the Reich position, and it is still the Democratic Party position.

Reich and Rubin differed in that Reich was more willing than Rubin to spend money on wage insurance, for example, or on strengthening the unemployment insurance system or on various programs that would supplement income or alleviate the pain of those who were laid off. So he wasn’t opposing layoffs, he was just trying to make the transitions easier and less painful.

MM: But your view is that there are things that could and should be done to actually prevent layoffs from taking place.

Uchitelle: I want to make clear that we are not going back to the old job security that we once had.

But I think that there are many things that we can do to reduce the number of layoffs. We need to treat layoffs as a damaging social phenomenon that we must deal with and minimize as much as possible. There are several things that have to happen.

One is that we have to recognize the severity of the psychological damage and the extent of the layoffs — roughly 7 percent of all full-time workers.

Second, we have to recognize that there aren’t enough good jobs out there for all the people qualified to fill them. The private sector can’t generate enough, so we have to think in terms of public investment, as helping the private sector achieve full employment. It can’t be done alone by the private sector. And we have so many things that require public investment — building schools, building roads, providing quality daycare. Those are things that the private sector does not or should not do.

Third, companies should recognize — and should be forced to recognize — the commercial damage from layoffs. There are any number of companies that avoid layoffs and in doing so operate more efficiently and more effectively. Take, for example, Southwest Airlines, which has essentially a no-layoff policy and as a result has employees who identify very much with the company. People have pride. People have a sense of their own importance. They turn around planes in only 20 minutes on average, which is very important for an airline that specializes in many short domestic flights. Suppose Southwest engaged in layoffs and broke that sense among employees of identity with a job and with a company and with a skill. The turnaround time would start to inch up to 25 minutes to 30 minutes to 35 minutes. The damage might not be noticeable at first, but in fact there would be less revenue from the flights because it would take longer to get them into the air and more time would be spent wasted on the ground.

MM: A key element of what you are proposing is an effort to shift the culture back to an expectation of job security and a valuing of job security.

Uchitelle: A valuing of job security and a reluctance to engage in more layoffs than are absolutely necessary. That would include an awareness that a lot of these layoffs have nothing to do with efficiency but are often a result of companies taking on big debts in order to pay for acquisitions or mergers. They then cut labor costs through layoffs so that the money saved in wages can be channeled into debt repayment. Such acquisitions often end up hurting the companies involved, not to mention the workers who lose their jobs.

If these acquisitions were vigorously challenged as wasteful and company managers were forced to justify their acquisitions, there would not be as many wasteful acquisitions, or as many layoffs. In sum, there would be more accountability from the companies involved. That accountability is completely absent today.

MM: What scale of public investment would be required for the government to function as a guarantor of job security?

Uchitelle: I don’t know the amounts involved.

The first order of business is to recognize that, if we’re going to have some layoffs, we have to treat them as a social issue. One of the solutions to layoffs as a social issue is to find alternative work for people who are valuable. And there isn’t today enough alternative work for people in the private sector, at good pay. One of the goals of government must be to engage in public investment that is job-creating, so that we can get as close to full employment as possible. Then the question is what public investment. In a democracy, that determination has to be the result of a vigorous public discussion. The financing involved also needs to be discussed.

If we went back towards a progressive income tax, for example, one far more progressive than the one we have now, we could engage in a lot more investment than we do today. We have a very deteriorated infrastructure at this point, so there is plenty of room for public investment.

How much can we afford in any one year? Perhaps the question should be: how much do we need to get close to full employment?

MM: You argue for a quite significant hike in the minimum wage. Opponents typically claim that a high minimum wage would lead to unemployment, but you argue something to the contrary.

Uchitelle: The minimum wage has deteriorated. One of the ways that we’ve acquiesced to layoffs is that we have so devalued many low-wage jobs. The pay is so low, the jobs are not valuable to the people who hold them  or to the employers. The people who hold the jobs lay themselves off, going from one poorly paid job to the next. There isn’t a sense of joining your company as a dishwasher and working your way up through internal training. If you started to raise the wages of people to a minimum wage of eight or nine dollars an hour across the country — and some states are moving in that direction — then companies would have to value the people they hire more than they do now. They would obligate themselves to train people much more than they do today. Intra-company training has greatly deteriorated. Once you invest in the training of a worker, you want to hold onto that worker.

Then we might gradually return to a system in which people join companies, are trained, wages rise and there’s an internal promotion system — all of it based on workers who are paid enough so that the company has to value them and so that the workers themselves come to value the jobs.

MM: There is a global business push for other countries to become more like the United States in regard to what’s called “labor flexibility.” Given your reporting, how do you react to that campaign?

Uchitelle: Some people have said to me, “Oh, you’re not for flexible labor policies, you must be a Frenchman.” The inference is that there is no middle ground, no continuum.

What in fact is taking place is a debate in many developed countries over how much job security there should be. What is necessary for a healthy society? And, for that matter, for an efficient workforce?

We in the United States are at one extreme of this debate, having acquiesced to no job security at all. The Europeans might be too far in the other direction, favoring more job security than is necessary — although when you look closely at the Europeans, they have plenty of insecurity.

The point is that both we and the Europeans are engaged in a debate as to how much job security should be fostered in a global economy. We do ourselves a great disservice by saying that we are successful and they are not, and therefore flexible labor forces and no job security is the right answer.