Layoffs in Perspective

By Alan Reynolds
Thursday, April 5, 2007

Lou Uchitelle of The New York Times has made a career of writing passionately about the plight of laid-off workers. This is not a challenging journalistic mission. Even at the peak of economic booms, it is never difficult to find laid-off workers who face difficulties and are delighted to tell reporters what they think about the boss.

Uchitelle recently penned "The End of the Line as Detroit Workers Know It." For any reporter determined to find bad news in the labor market, Michigan was definitely the place to be. The February unemployment rate was 4.5 percent for the nation but 6.6 percent for Michigan, which had lost 55,300 jobs in a year. For the nation, payroll employment was 2 million higher than a year before. No other state lost jobs.

"The End of the Line" noted that 42,300 people left Michigan last year, which sounds like a sensible thing to do since every other state was adding jobs. To Uchitelle, however, nothing and nobody should ever move. Change is just too scary. "The exodus," in his wild imagination, "is reminiscent of the Dust Bowl migration from the prairie states in the 1930s."

Michigan's Dust Bowl experience cannot be blamed entirely on the auto industry, which is now mainly located in states like Tennessee, Kentucky, California, Texas and Missouri. Before the recent layoffs, Michigan accounted for only 22 percent of all jobs in motor vehicles and parts. Employment in motor vehicles and parts was 1,023,000 this February, down 54,100 from 1,077,100 in February 2006. That is, Michigan lost more jobs than were lost in the nationwide auto and parts industry.

Uchitelle is determined to convert Michigan's unique job woes into what he has called a "festering national crisis." To do that, he simply had to do what New York Times economic journalists do best -- make up numbers.

"Across America," wrote Uchitelle, "more than 30 million people have been forced out of jobs since the early 1980s, the Bureau of Labor Statistics reports, and regaining lost incomes has not been easy. Nearly 50 million new jobs have been created over that same period, according to the bureau, so there are always new opportunities, but more often than not at lower pay."

Comparing nearly 50 million new jobs with "more than 30 million" lost implies a net job gain of less than 20 million since 1984 (the first year these data about displaced workers were collected). In reality, employment rose from 105 million in 1984 to 144.4 million in 2006 -- a net gain of 39.4 million.

If new jobs actually involved lower wages and benefits "more often then not," then real compensation per hour would have fallen dramatically since 1984. On the contrary, the BLS index for real hourly compensation rose from 91.1 in 1984 to 111.5 in 2000, or 1.4 percent per year. Real wages and benefits rose by 1.6 percent a year since 2000, to 120.8 in 2006.

Uchitelle claims that "among those who have lost work, only a third held new jobs two years later that paid as well as those that were lost, according to the bureau's surveys of displaced workers. Another third of those displaced were in jobs that paid, on average, 15 to 20 percent less than their previous employment -- while the final third had dropped out of the labor force entirely."

The ominous remark about dropping out of the labor force is ironic because he began by explaining how GM, Ford and Chrysler are offering six-figure checks to departing workers, many of whom are in their 60s. "Many who left or are leaving were eligible for retirement," he wrote, "having already worked the necessary 30 years." When people retire, they drop out of the labor force entirely.

In the most recent report on the current status of workers displaced within the past three years, the bureau found that 30 percent were not working or seeking work during the survey month of January. That consisted of 12 percent of those under the age of 55, 27 percent of those between 55 and 64, and 64 percent of those over the age of 65. Combine those figures, and 30 percent appear to have "dropped out of the labor force entirely," which means most retired.

The claim that "only a third held new jobs two years later that paid as well as those that were lost" is deceptive because about one third accepted buyouts to retire early, go to college or start their own business. The article mentions one man who is using his $100,000 buyout to finish college. It notes that such a "lump-sum payment ... could be used to start a small business or to buy into a franchise."

But people who begin working for themselves are no longer counted as wage-earners, and neither are those who attend college or retire. Uchitelle counts them all as not receiving a wage as high as before, but that is because retired people, students and small business owners are not earning a wage.

The BLS finds that "of these re-employed full-time workers who reported earnings on their lost job, 51 percent were earning as much or more in their new jobs as they had earned on the job they lost ... (while) 29 percent reported earnings losses." That is not an entirely pretty picture, but it is not nearly as dark as the Dust Bowl image Uchitelle attempts to paint.

Mass layoffs are unfortunate, but this is one of those cases where the cure is much worse than the disease. Uchitelle has long urged the United States to adopt Europe's regulations and sanctions that make it difficult and costly for employers to fire workers. Yet such policies always backfire, making employers extremely reluctant to hire in the first place and particularly afraid to give inexperienced young people a chance.

Citizens of Michigan's cities are entitled to ask state and local officials some tough questions about why their state and-or city appears so unattractive to prospective employers. The Tax Foundation, for example, has some cautionary advice about replacing the nefarious Single Business Tax, which is to be phased out next year.

The last thing the people of Michigan should be asking for is the sort of "job protection" policies that produced unemployment rates of 8.6 percent in France, 9.3 percent in Germany and 11.5 percent in Belgium.