Monday, December 22, 2008

belt-tightening

I find these methods of cutting labor costs to save jobs positive and promising:

A growing number of employers, hoping to avoid or limit layoffs, are introducing four-day workweeks, unpaid vacations and voluntary or enforced furloughs, along with wage freezes, pension cuts and flexible work schedules. These employers are still cutting labor costs, but hanging onto the labor.

Companies say they are considering other cost cuts, like mandatory holiday shutdowns, salary freezes or cuts, four-day workweeks and reductions of contributions to retirement and health care plans.

Companies seem particularly determined to find alternatives to layoffs in this recession, said Jennifer Chatman, a professor at the Haas School of Business at the University of California, Berkeley. “Organizations are trying to cut costs in the name of avoiding layoffs,” she said. “It’s not just that organizations are saying ‘we’re cutting costs,’ they’re saying: ‘we’re doing this to keep from losing people.’ ”

She said the tactic builds long-term loyalty among workers who are not laid off and spares the company having to compete again to hire and train anew.

The magnanimous feeling will probably pass, said Truman Bewley, an economics professor at Yale University who has studied what happens to wages during a recession. If the sacrifices look as though they are going to continue for many months, he said, some workers will grow frustrated, want their full compensation back and may well prefer a layoff that creates a new permanence.

“These are feel-good, temporary measures,” he said.

But John Challenger, chief executive of Challenger, Gray & Christmas, a company that tracks layoffs, said employers were being driven now not by compassion but by hard calculations based on data they have never had before. More than ever, he said, companies have used technology to track employee performance and productivity, and in many cases they know that the workers they would cut are productive ones.

“People are measured and ‘metricked’ to a much greater degree,” he said. “So companies know that when they’re cutting an already taut organization, they’re leaving big gaps in the work force.”

But of course, that goes hand-in-hand with this unfortunate necessity, that will hurt workers a lot now, and even more down the road:

Companies eager to conserve cash are trimming their contributions to their workers’ 401(k) retirement plans, putting a new strain on America’s tattered safety net at the very moment when many workers are watching their accounts plummet along with the stock market.

For workers, the loss of a matching contribution heightens the pain of a retirement account balance shriveling away because of the plunging stocks markets.

“We are taking a beating,” said another FedEx mechanic, Rafael Garcia. “In a year, I lost $60,000 of my 401(k). You can’t make that up.”

To many retirement policy specialists, the lost contributions are one more sign of America’s failure as a society to face up to the graying of the population and the profound economic forces it will unleash.

Traditional pensions are disappearing, and Washington has yet to ensure that Social Security will remain solvent as baby boomers retire and more workers are needed to support each retiree.

The company cutbacks may mean that some employees put less money into their retirement accounts. Even if they do not, the cuts, while temporary, will have a permanent effect by costing many workers years of future compounding on the missed contributions. No one knows how long credit will remain scarce for companies, or whether companies will start making their matching contributions again when credit loosens and business improves.

“We have had a 30-year experiment with requiring workers to be more responsible for saving and investing for their retirement,” said Teresa Ghilarducci, a professor of economics at the New School. “It has been a grand experiment, and it has failed.”

An employer’s contributions to a traditional pension plan cannot be switched on and off at will. Federal rules set a firm contribution schedule, with deadlines and penalties for companies that fall behind. Employers also get significant tax and accounting benefits from operating a traditional pension plan, so they tend to think long and hard before freezing such a plan to save money when the economy cools.

In a 401(k) plan, by contrast, the employer has much greater freedom to stop making matching contributions when times are tough. The contributions are normally measured as a percentage of payroll, and the savings from any cuts are realized immediately. That greatly simplifies planning and making changes.

“Every percent you cut is a percent of payroll,” Ms. Munnell said. “It comes down to the choice of laying people off, or cutting back on some fringe benefits.”

In addition to stopping their 401(k) matching contributions, companies have been freezing salaries this fall, shifting more of the cost of health care to their workers, and laying people off.

“These are really hard times and people are losing their jobs, and in some ways, a suspension of a 401(k) match, while bad, is probably one of the lesser evils out there,” Ms. Munnell said.


Tough times for all. I know so many people who are stressed out, and I just don't know what to say or do.

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