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November 01, 1999
More hiring, more firing, more companies doing both at once
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e sectors hot, like IT and sales, but overall workforce growth slowing

As more companies hire, fire and do both concurrently, overall growth of the workforce is slowing, according to the findings of the American Management Association's (AMA) 13th annual survey of the U.S. workforce.

The survey of 1,192 large and mid-sized firms shows that staffing increased by an average 5.0 percent in the twelve months ending in June 1999, compared with 7.7 percent in the prior twelve months.

Of those surveyed, 77.2 percent reported creating new jobs, up from 72 percent in the previous twelve-month period, while 49.6 percent eliminated jobs, up from 40.9 percent previously. Actual downsizing, or net reductions in the workforce, rose to 24.1 percent of the surveyed companies from 21.9 previously. Many job cuts were offset by concurrent hiring: 36 percent of surveyed firms both created new jobs and cut existing jobs in the period, up substantially from 27.1 percent previously.

The survey results also show that fewer companies ascribe staffing moves to market demand, citing instead the results of strategic business processes, including organizational restructuring and reengineering. Future staffing plans are less robust than a year ago, according to the survey. Respondents forecast an average net workforce growth of approximately 4 percent in the coming 12 months, compared with a forecast of approximately 5 percent growth in last year's survey. Hiring will take place in an increasingly competitive environment: almost 66 percent of respondent companies say that skilled workers are currently scarce, up from 60 percent a year ago.

The survey also demonstrates the value of employee training after job cuts occur, showing a substantial correlation between increased training activities and increased profits and productivity following workforce reductions.

"Few companies are hitting the breaks, but many are easing up on the accelerator," said Eric Rolfe Greenberg, the AMA's Director of Management Studies. "While the results this past year demonstrate a somewhat slower rate of job growth compared with previous years, nothing indicates a return to the `Decade of Downsizing' that ended in the mid-90s."

Companies responding to the AMA's study represent an accurate sampling of the AMA's corporate membership of over 10,000 organizations, which together employ one-fourth of the American workforce. Approximately 83 percent of the surveyed firms gross more than $10 million annually, which puts them in the top 5 percent of U.S. corporations. Of those surveyed, over 45 percent are manufacturers, while only 22 percent of U.S. corporations are manufacturers.

Scope of job cuts rises

The scope of the job cuts rose substantially, averaging 7.5 percent of the workforce, compared with the previous year's 4.9 percent average. Where companies cut jobs, the net workforce change averaged -0.8 percent; where companies hired and fired concurrently, there was more hiring than firing, with an average net change of +2.6 percent. As a group, respondent companies created five new jobs for every three jobs they cut in the survey period.

Supervisors and managers targeted for job cuts; technical expertise in demand

When compared to the workforce at large, job creation was disproportionately reflected among salaried professional and technical specialists and at the hourly (non-exempt) level, accounting for 93 percent of the jobs created. Job elimination was disproportionately reflected in supervisory and managerial ranks, at 28 percent.

Technical expertise was in high demand at both the salaried and hourly levels. The survey results indicate that respondents were three times as likely to increase their staffing in those areas than to cut back.

In the same vein, companies were six times more likely to increase staff in information systems and technology than to cut back in that area. Increases were also the rule in all aspects of sales, marketing, customer service and sales support. Cutbacks were most frequent in general and administrative staff.

Corporate restructuring, reengineering lead to increased job creation

While half of the respondents reported job elimination, less that 3 percent cited lesser product demand as the sole reason for the cuts. An additional 12 percent called it a contributing factor. Therefore, 70 percent of the companies cuttings jobs did so for reasons that had nothing to do with the current or anticipated market demand.

According to the survey's responses on rationales behind job elimination, decreased market demand trailed such factors as corporate restructuring and business process re-engineering. While increased market demand was the leading rationale for job creation, cited by nearly half of all respondents and 62 percent of those that created jobs, corporate restructuring and reengineering processes were far more often cited as rationales than in previous years.

"Five years ago, organizational restructuring and business process reengineering were cited far more often as rationales for job cuts than for job creation," Mr. Greenberg said. "That gap has closed dramatically. Today, as many companies report creating jobs due to process reengineering as report cutting jobs for the same reason, and the numbers on restructuring have also narrowed."

In addition, for the third consecutive year, a greater share of respondents has indicated that automation and other new technological processes have led to the creation of new jobs (15 percent).

According to Paul McAfee, AMA's Senior Vice President of North American Markets, "The 1999 survey results suggest that new business conditions and a new or improved technical base call for new skills and competencies - issues which many of the AMA's members are addressing through education and training."

What happens to the work after job cuts?

Of those respondents that cut jobs during the survey period, a narrow margin (50.5 percent) reported that the work continued to be done through some combination of transferring the work to other permanent or temporary employees, or through outsourcing or contracting, or by automation. Eighty percent of these respondents reported that work once done by departing workers was transferred to other employees, almost 36 percent turned work over to automated processes, 17 percent filled the gap with temporary workers.

Survey responses indicate that companies that eliminated jobs during the survey period without concurrently creating new ones fared worse than others in key areas of measurement: employee morale, resignations and voluntary departures, quality improvement and profits.

According to those companies that responded to the specific inquiries:

The constant correlation in improved corporate performance connects to training. Just under half (49 percent) of all surveyed firms answering the query reported increased training activity. Of those, 60 percent said that operating profits grew, while 64 percent reported increased shareholder value. Of those that cut or maintained their levels of training, only 38 percent reported increased operating profits and just 39 percent said that shareholder value increased.

"As our survey results suggest, the impact of training on the bottom line argues that providing employees with new skills and management techniques plays a critical role in helping companies successfully optimize their people for competitive advantage," said Franck de Chambeau, Ph.D., AMA's Practice Leader for Human Resources.

The Future: Slower workforce growth; increasing competition for workers

As of midyear 1999, 48 percent of respondent firms had plans to create new jobs in the coming 12 months, while 20 percent had plans to eliminate jobs. As indicated in an analysis of data compiled over the previous four years, the share of respondents that actually cuts jobs is often double the share that plans them at the outset of the period. The share that creates new jobs tends to rise almost as dramatically.

For example, for the 12 months ending June 1998, 44 percent of respondents planned to create jobs and 17 percent planned to eliminate jobs. For the period ending June 1999, the actual results were that 77 percent reported creating new jobs, and 50 percent reported eliminating jobs.

This year's survey responses indicate that companies are approaching the future with more caution than in previous years. An average increase of 3 percent in the workforce is forecast, compared with last year's 5 percent. Yet companies indicate that hiring will continue - with a net workforce increase forecast by 46 percent of respondents. Planned "downsizing" - an actual net decrease in the workforce - is forecast by 12 percent of respondents, a five-year low.

The survey results suggest that future market demand will be a spur for new hiring but a nearly negligible factor in planned job cuts. Instead, the rationales that drove past hiring and firing are still at work: restructuring (cited by 18 percent as resulting in job creation and by 17 percent in job cuts), reengineering (cited by 17 percent as resulting in job creation and by 13 percent in job cuts) and automation (cited by 10 percent as resulting in job creation and by 8 percent in job cuts).

Robust as the hiring projections are, respondents anticipate some difficulty in meeting staffing goals. An ever-increasing number of human resource managers characterize the availability of skilled workers as scarce. In fact, over 65 percent of respondents characterized the current availability of skilled workers in their industries as scarce, up from 60 percent reported in 1998, with over 75 percent of respondents currently characterizing the long-term availability of such workers as scarce.

A short, four-page summary is available through the AMA's website (www.amanet.org/research).

A summary of the survey findings appears in the November issue Management Review, AMA's monthly membership magazine.

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