87,000 "Big Company" Job Losses Already Announced in 2009; Deflation Starts to Hit Wages

Once we get "through" the credit crisis - and by through I mean when we've effectively nationalized the entire U.S. financial system by taking all the bad assets off the banks shoulders and put them onto the taxpayers - we'll "only" have to deal with this very ugly recession. I heard on one of the national evening news networks that 48,000 job losses were announced Friday alone (inclusive of the stake through heart of Circuit City). CNN/Money has a chart showing 87,000 job cuts by "name" companies already announced and we're just a few weeks in.

• Circuit City Inc. is the biggest culprit of 2009. The bankrupt retailer said on Friday that it is shutting down because of dried-up consumer spending and liquidating its 567 U.S. stores, dooming some 30,000 jobs.
• The Conference Board forecast two million more job cuts this year.

I contend the real damage in this economy is not in the names you hear but in the countless small businesses being destroyed - where 70%+ of Americans are employed. But since they are not "too big to fail" we don't care about them. Anyhow, in just the first few weeks of 2009 it looks like we have at least 87,000 new potential Walmart, federal government, and healthcare workers ready to retool into their new careers.

Now let me prepare you for the Kool Aid you will soon here by the financial punditry... "companies have cut back jobs as far as they can; if they cut anymore it will be cutting bone not flesh and they will not want to do that...therefore the majority of cuts are in our rear view mirror and it's time to look ahead to brighter days." OR "job losses are a backwards looking indicator - who cares! Stop looking backward - look forward my friend. Brighter days ahead - the stock market has already discounted another 2.5 million unemployed Americans in 2009!" Trust me, you are going to hear a lot of that soon enough. The fact is, and people already forget, how poor the job recovery was from earlier this decade - in fact it was called the jobless recovery. So to be cutting so many jobs when we added so few in the previous recovery is very telling.

Also another reason to drink Kool Aid... Obama will be creating 1.5 million... err 2.5 million... err 3.5 million.... err now 4 million jobs with his magic wand (i.e. stimulus) Yep. Personally, instead of doing a $800 Billion stimulus to create (ahem) 4 million jobs - I'd recommend we do a $4 Trillion package to create (ahem) 16 million jobs. Problem solved! *MAGIC*

Meanwhile as I've outlined in [Dec 8, 2007: Do the Bottom 80% of Americans Stand a Chance?] our love affair with supply side economics, along with globalization and "wage arbitrage" across countries has led to a trend where income distribution among the top vs middle/bottom parts of society is at its widest since....... (wait for it)..... the 1920s. Right before a certain event.... here is an old chart showing productivity continuing to steam ahead (% of profits to corporation i.e. executives pockets) while less going to the lowly worker class.

And that was in the relatively shallow recession (2001-2003) followed by "good times" (2003-2007). Gosh, one can only imagine what happens during a good ole, old school recession. Can anyone say deflation?

Wall Street Journal: Big Firms Deepen Job, Wage Cuts

• Strapped U.S. companies, while continuing to slash their work forces, are deploying a once-rare tool to trim labor costs -- pay cuts. In addition to layoffs, companies are increasingly trimming wages, a tactic economic historians said hasn't been wielded broadly since the Great Depression.
• Heavy equipment maker Caterpillar Inc. announced in late December it would cut executive pay by half, and many salaried employees would see cuts of as much as 15%. Hutchinson Technology, a Hutchinson, Minn., maker of disk drive components, cut salaries 5% for employees who remained after a round of layoffs concluded this week. On Friday, microchip maker Advanced Micro Devices Inc. in Sunnyvale, Calif., said it would temporarily cut pay between 5% and 20% for workers and executives.
• Kulicke & Soffa Industries Inc., a Fort Washington, Pa. designer and manufacturer of semiconductor equipment, laid off about 240 employees last year as demand dropped for its line of wire-bonding equipment. The company has since announced more layoffs, and also instituted a 10% wage cut for salaried employees.
• Other companies are resorting to measures just shy of wage cuts and layoffs. On Wednesday, Gannett Co . Inc, the largest U.S. newspaper publisher, said it would force workers to schedule a week off without pay.
• The Federal Reserve reported this week in its survey of economic activity that companies around the U.S. are considering freezing or cutting pay.
• For companies with a unionized labor force, the very real prospect of bankruptcy has eroded much of the remaining power of collective bargaining. Trucking firm YRC Worldwide recently negotiated a 10% pay cut with drivers represented by the International Brotherhood of Teamsters, as well as pay cuts for non-union employees.
• What's making it easier for employers to cut wages -- and for workers to accept them -- is that jobs are getting harder to find.
• Small businesses also are resorting to cutting wages. Sarah McGee, owner of Visual Changes Salon and Spa, in Ellicott City, Md., has seen sales fall 10% from the summer, as their customers stretch out hair appointments and do their nails at home. Labor represents about half of Ms. McGee's costs, so she recently cut wages for two of her nine employees. A nail technician's wage fell to $9 an hour from $10; another who performs facials and body waxing fell to $14 an hour from $17.

But I don't want you to worry; as the Federal Reserve continues to slap savers across the face and drive down interest rates on cars, homes, (CDs) you name it - these folks who face job losses or reduced wages are going to run out and do the "American thing" - spend. In 6 months when the economy "rebounds". Yep. Thesis.

Here is what people need to understand - as we move to a "service" economy, and face increasing competition worldwide - wages are going to be under pressure permanently. (unless you work for government woo hoo!) All higher wage countries without protectionist governments will face this; it's just a reality in an increasingly flat world. For many, the future is a lower standard of living and it has nothing to do with "recession" - see the inflation adjusted wage/salary figure above - its been o to -2% almost the entire decade. Meaning people are behind where they were a decade ago... "thankfully" they've had the house ATM (or credit cards) to keep up their standard of living. This erosion is not sudden, it HAS been happening and many without a voice have been feeling it for a long while. It is just, of late - moving higher and higher up the food chain (from the working class) to capture more of the middle class - and this recession is exposing it.

Now that above mentioned outcome is for for suckers in the bottom 80% - thankfully as we look to the top 0.5% - CEO pay has risen from about 40x the median wage in the 1970s to 300x.... whew! no global wage arbitrage there. [Oct 4: Credit Crisis Sharpens Anger Over CEO Pay] And they deserve it because of course very few people could do the "magic" they do. And we need to keep them motivated! Just keep repeating the dogma "it's a free market", "the boards are doing an excellent job at setting pay" and "if we don't pay CEOs at 8x the rate they used to get in the 1970s, we won't be able to keep smart people hungry and motivated!" You see dear reader... CEOs in the 1970s (or 1960s, or 1950s) were not smart or hungry or motivated - their pay rate at 30-40x the median wage of the company worker shows us that. Hence we had to increase the ratio of their pay to the median worker by roughly 800% ... now they are motivated. Also, CEOs in foreign countries - even today - are not motivated (nor talented) since they don't have these egregious pay and benefit packages. Only American CEOs are motivated (and talented). That's what the pay package tells us. Lower paid CEOs abroad = terrible talent, awful intelect. High Pay CEOs domestic = the best the world has to offer. Just ask our bank CEOs - they will tell you. Remember, heads they win, tails they win - how can that not be motivating? [Sep 27: Heads We Win, Tails We Win] You dear worker? One can only imagine how the worker bees in America, at their lowly wages, somehow stay motivated? Ah yes - it's called survival. Feeding kids. Praying to keep healthcare benefits. Etc. A different kind of "motivation" that would never work for the CEO class.

So let's review: stagnant (at best) or reduced wages (accelerating as we enter this recession full steam ahead) for the many. Exploding pay for the few. Tell the sheeple (using political dogma) it's necessary for it to be like this or else the talented few will leave and do stuff like sell antique product on EBAY. Which doesn't utilize their 1 in a million skill. (i.e. ability to run our banks into the ground) And our economy will crumble. Cramerica - for the corporation, by the corporation.

If my long term thesis about how all this plays out in our society, the backlash by the disenfranchised against such a bipolar society could be quite immense. Once the disenfranchised stop searching for Britney Spears & John Cena on Yahoo and begin to figure this all out, that is.