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Amid bountiful jobs, US layoffs creep higher
WASHINGTON, March 3, 2019 (BSS/AFP) – The US jobs engine has continued to
deliver for nearly a decade, putting more Americans back to work and sending
unemployment to a historic lows.
But, just over a year after Congress enacted sweeping corporate tax cuts
meant to jolt the economy, a shadow has crept into the picture: Layoffs are
also on the rise.
While claims for unemployment benefits remain low, major companies have
begun to swing the axe even as many enjoy the tax windfall and solid profits,
and are spending record amounts of cash to buy back their own stock from
investors.
In February alone, layoffs were announced by PepsiCo, the video-gaming
giant Activision Blizzard and the cosmetics marketer Avon.
General Motors enraged President Donald Trump in November by announcing a
15 percent cut to its workforce while shuttering auto plants in the political
battleground states of Ohio and Michigan.
Economists say tax cuts often fuel investments like mergers and
acquisitions, which frequently result in job cuts — at least initially — as
some workers become redundant.
Automakers, toy manufacturers, banks, tech firms and telecommunications
giants are trimming their workforces.
Job cuts jumped 29 percent last year in the wake of the tax reform to
about 540,000, the highest in three years, according to Challenger, Gray &
Christmas, an outplacement firm that tracks staff reductions.
And job cuts in January hit 44,653, higher than 20 of the prior 24 months,
the firm reported.
Despite the increase in layoffs, first-time claims for jobless benefits
have risen only slightly in recent months — suggesting the current US jobs
market is so hot many laid-off workers find new jobs even before they need to
claim unemployment insurance.
The economy created over 220,000 new jobs each month on average in 2018,
up from about 180,000 in the prior year.
The reasons driving layoffs vary. Banking giant Wells Fargo announced in
September it was cutting five to 10 percent of its workforce as it focused
more on internet banking.
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And some firms shed workers because they worry the economy could hit a
rough patch in the near future or are seeing rising raw material costs, John
Challenger, the employment firm’s CEO, told AFP.
But as more companies merge, more employees become redundant: combined
firms no longer need two departments to handle accounts payable, human
resources or IT.
“You see layoffs occur that aren’t really about the slackening of business
conditions,” Challenger said.
– Rhetoric and results –
“You don’t need full-scale vertical operations in as many locations as
banks get bigger and core functions get moved to headquarters.”
The value of mergers and acquisitions in the United States jumped 17
percent last year to $1.94 trillion, the second highest since 2000, according
to financial data firm FactSet.
Edward Rice, a professor of finance at the University of Washington who
has studied the effect of tax cuts on corporate behavior, told AFP his
research shows tax cuts tend to produce mergers and acquisitions that were
more profitable.
He acknowledged those corporate combinations could cut jobs initially, but
argued that over time healthier companies could hire more.
“The idea of the merger is that somehow the firm’s going to get more
efficient and grow faster. So there may be a saving in employees now but a
gain in employees later,” he said.
However, Rebecca Lester, professor of accounting at Stanford University,
said tax cuts sometimes have failed to produce the desired outcome.
A popular corporate tax cut in 2004 — intended to reward companies with
activity and workers in the United States — actually caused some firms to
increase investment abroad while others reduced their US workforces, her
research showed.
“The rhetoric was, we want to increase jobs, we want to increase
investment here in the US,” she told AFP. But “it can be quite difficult to
get those outcomes.”
Douglas Holtz-Eakin, a prominent Republican economist who favored the 2017
tax overhaul, acknowledged that despite the lower tax rates, businesses
slowed their investments in new equipment and machinery in the later part of
2018, something he called “very disappointing.”
But he said the number of layoffs by itself was not the best yardstick for
measuring the impact of the tax cuts.
“The ultimate test is, do we see higher levels of investment that produce
better productivity and wage growth?” he said.
“We shouldn’t care which firm employs somebody. We should care that they
are employed at good and rising wages.”
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