Learning why workers are laid off is important not only for those out of work now, but also for those still working because one never knows when the axe will fall. Going forward you will be looking for good job opportunities, not just any job. This requires information about how employers operate, like laying off 10,000 workers at a crack. The last thing you need is to jump into another job that will disappear in six months. To avoid that potential tragedy, you need to do your homework.
One could argue night and day about why workers are laid off or fired. You hear one story from the academics, another from business executives, another from the talking heads on the financial channels, and still another from politicians. And, do not forget the mindless chatter on social media. To cut through the hype let’s go to the numbers. When it comes to figuring out what is happening in the workplace, the numbers usually tell it all.
Examining the Numbers
Workers are constantly being downsized, reorganized or rightsized. In fact, approximately 55,000 workers lose their jobs each day. That’s over 20 million per year. Because of this constant churning in the workplace workers will change jobs an average of 6.5 times during their working years.
The American workplace employs over 155 million workers, making our workforce alone the world’s eighth largest “country. There are many moving parts in the workplace, some working in sync and others fighting against each other. Employers are constantly revising plans, merging, acquiring competitors, going into bankruptcy, and going out of business. When that happens, workers lose their jobs.
The Unemployment Rate
Daily we hear the pundits, talking heads and media gurus screaming about one of their favorite topics, the unemployment rate. To hear them talk, one would think that America is heading for financial disaster with unemployment taking a leading role. The numbers help us sort fact from fiction.
The rate of unemployment in the U.S. since the Great Depression has been approximately 6 percent. Many economists interpret that to mean that an employment rate of 94 percent is truly full employment. Since 1970 our lowest rate of unemployment was 4 percent in 2000, and the highest was 10 percent in 2009. Looking at these numbers in “modern” times
(the past fifty years) we note that the average rate of unemployment over the past 50 years has remained 6 percent.
The three main causes of unemployment are: seasonal unemployment, when workers are laid off because of bad weather; structural unemployment, when workers are laid off because their jobs are replaced by technology; and, cyclical unemployment, when workers are laid off because of changes in the economy such as a recession which weakens consumer demand for products and services. These three causes of unemployment will always be present. There will never be such a thing as a 0 percent unemployment rate.
The numbers tell us that America has an average employment rate of 94 percent making it the best place in the world to find a job. If workers in American claim they can’t find work, it is not the fault of the President, elected officials, their teachers, or their mothers and fathers. The fault lies with them alone. If you really want a job in America, it is there for the taking…if you know where to look.
The Private Sector Workplace
We can divide the workplace into any number of parts but for now let’s consider just three: small businesses, large companies, and entrepreneurial businesses. Let’s see how they operate.
Small Businesses
The Small Business Administration, www.sba.gov, states that approximately 540,000 small businesses will close each year. This is an important number because over 65 percent of all workers are employed by small businesses, which are defined by SBA as those businesses having less than 500 employees.
When a business closes, workers lose their jobs. Fortunately, the American workplace is so robust that approximately 550,000 businesses open each year. When businesses open workers are hired. All of this action makes for a constantly changing workplace, one where workers are hired, fired, laid off….and hired again. Many workers in small business become trapped in this never ending cycle.
Frequently, we think of small businesses as store front shops employing only a dozen or less workers and generating “break even” numbers. However, many small businesses employ hundreds of workers and generate millions in annual revenue. For example, the Consortium for International Education Exchange (CIEE), a company in Portland Maine, employs over 300 workers and generates in excess of $160 million annually. (CIEE is a nonprofit that works with colleges, universities and high schools administering study-abroad programs. Review their website, www.CIEE.org, to learn more about the company and job opportunities.)
Large Companies
Large companies employ over 500 workers and are privately held or publically traded on the stock exchange. The failure of large businesses raises the unemployment rate for workers in all age groups, but especially for mid-career workers. For example, large retailers have been closing thousands of stores, primarily because of the trend toward online purchasing. The result? Job loss for millions of workers. A look at the following numbers tells why workers are constantly being laid off in just one sector of the economy, retailing, which is undergoing massive change as consumers purchase online instead of at bricks and mortar stores.
2015-2017 Store Closings
- Barnes and Noble…223
- McDonalds…500
- Gap…175
- Office Depot…400
- JC Penny…400
- Staples…55
- Macy’s…100
- Walmart…154
Entrepreneurial Businesses
Over 70 percent of businesses in the U.S. are owned by sole proprietors or partnerships. The owners are personally responsible for all profits, losses, debts and taxes. Such businesses have a much higher failure rate than do small businesses or large corporations.
The main reason why such businesses fail is that they are under-capitalized. Entrepreneurs frequently believe that if you create a great new product that fills a market need it will automatically sell. What they forget is that in order to generate income a business needs professional marketing and sales initiatives, which cost money to implement. This highlights the reason why most entrepreneurial business fail, undercapitalization. In order to make money, a business must spend money.
If you are considering a job with an entrepreneurial business, ask to see the business plan, the estimated capital requirements, and the written commitment for capital from lenders such as a local bank. If the entrepreneur hesitates to disclose the plan, especially the part which tells where the money is coming from, walk away from the opportunity.
Factors That Cause Job Loss
Workers are fired or laid off every day. A person who does not meet the job requirements or engages in inappropriate behavior is fired. Being let go is strictly their own fault. However, most workers who lose their jobs are laid off even though they met the job specs and obeyed the rules. Seven major factors are responsible for the large number of workers who are laid off each year.
- Reduction in Force. Businesses exist to make money. If they make money, they remain in business and grow, which results in more hiring. This applies to both for profit and nonprofit businesses alike. If a business does not make money after deducting expenses and taxes it will go out of business and workers will lose their jobs. To maintain profitability companies are constantly adjusting the size of their staff. For example, when a fast food company like McDonald’s experiences a downturn in profits over a period of two or more quarters, it will downsize its staff. The result? Massive layoffs. This process is frequently called a reduction in force, a RIF. Those laid off in this process are referred to as riffed.
- Mergers. Tens of thousands of companies combine forces each year for a variety of reasons. When two companies merge their operations, workers are laid off. For example, when Company A merges with Company B, the new Company C will need only one Vice President for Sales. The result? One of the VP’s from A or B will be laid off.
- You hear it every day. “Company X buys Company Y” Again, when two companies are combined into one, workers are laid off to prevent duplication of services. For example, when the purchase of Yahoo by Verizon is completed later this year, thousands of Yahoo workers will lose their jobs. Also, businesses sometimes sell only their products or services. The result? Massive layoffs occur because the acquiring company does not take the employees, only the products. It is called an asset acquisition.
- Trade Deals That Send Jobs Overseas. Staff employees are usually the last to hear that their American employer cut a deal to have their products manufactured in a foreign country. It is only after the layoffs that workers learn that their jobs were lost because the company’s products can be made more cheaply outside of the USA. The same applies to services. For example, when was the last time you spoke to an America-based customer service worker? And, what is the name of the country of origin on your new pair of Nike shoes?
- High American Business Tax Rates. Another reason why companies move out of the USA causing workers to lose their jobs is our high Federal tax rate for businesses. America has the highest business tax rate of any developed country. Companies are in business to make as much money as possible and our high tax rate takes much away from the bottom line. Hopefully, Congress will pass a tax reform bill in the near future.
- Bankruptcies. When a company is consistently unprofitable, it uses the business tactic called bankruptcy to pay off creditors. When a company files for bankruptcy it can go out of business entirely and everyone loses their job
- Reorganizations. Periodically, companies reorganize to improve day to day operations or emerge from bankruptcy. For example, General Electric is moving its corporate home office from Connecticut to Massachusetts. GE offered to relocate workers with key positions but this was not acceptable for those firmly grounded to the Connecticut location. Those who do not accept that offer will be laid off along with workers in support positions. The same thing happened to workers employed by Merck in some of its New Jersey offices. When the company decided to relocate some operations to others states, many workers were laid off. Frequently, it is less costly for companies to lay off workers and hire new talent in the new location. When you are seeking a new job, it is prudent to learn as much as you can about company plans to reorganize.
Moving Forward
Many readers of this article have already been fired or laid off so what’s the point of including material about why layoffs occur? It’s after the fact. The reason is this. When you are seeking another job, this information will help you assess prospective employers. Your company evaluation should include an examination of company profitability, and a network search to learn if your potential employer is talking merger or acquisition. If you find that a prospective employer has been talking with a competitor about merging, reorganizing, moving to a foreign country or has not been profitable, walk away from that opportunity, no matter how good the company reputation is. Military veterans are particularly susceptible to being laid off because they are not familiar with how civilian companies work. In the military, one does not lose a job because of a reorganization.
The bottom line for all workers seeking employment is this; when assessing any job opportunity, look at the numbers. Use resources such as company financial reports, the Small Business Administration (www.SBA.gov), the US Chamber of Commerce (www.commerce.gov) ) and Hoovers financial reports (www.hoovers.com). In addition read this enlightening book by Karen Berman and Joe Knight: Financial Intelligence. A Manager’s Guide to Knowing What the Numbers Really Mean. Harvard Business Review Press, 2013
Copyright 2017, John Henry Weiss
The content of this article is an excerpt from a forthcoming book by the author. The title is MOVING FORWARD IN MID CAREER: A Guide to Rebuilding Your Career after Being Fired or Laid Off. It is available for pre-ordering in paperback or eBook from Amazon.
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