New Layoffs Are Harbingers of Broader Economic Changes
Danielle Kurtzleben

Technology and a shrinking public sector are dramatically reshaping the U.S. job market

The private sector added 91,000 jobs in September, according to payroll firm ADP's monthly employment report -- a modest gain, but a welcome increase after last month's news from the Labor Department that job growth was stuck at zero in August. At the same time, however, new figures show that layoffs skyrocketed last month. Those newly unemployed workers now find themselves in a job market that is not only stagnant but increasingly uncertain, as that slow growth coincides with broad structural changes.

According to outplacement firm Challenger, Gray & Christmas, U.S. employers announced plans to cut 115,730 workers in September, the most layoffs since April 2009. Government and the financial sector were the largest sources of the announced layoffs, followed by education, energy, and transportation. Many jobs being lost are not coming back anytime soon, and changes in technology and economic realities are also changing the nature of those jobs being added to the economy, making for fundamental shifts in the U.S. job market.

"I just think we're in a paradigm-changing, era-changing, watershed -- whatever you call it -- time," John Challenger, CEO of Challenger, Gray & Christmas, tells U.S. News.

Though the spike in layoffs is alarming, the bigger story in the numbers is what they presage for the future, says Challenger. He says that September's increase is not directly related to any new economic weakness, pointing out that 70 percent of the job cuts came from Bank of America, which just announced 30,000 layoffs, and the United States Army, which announced 50,000 job cuts as part of a five-year troop reduction plan. More alarmingly, the future for both the larger finance industry and public sector looks grim: "Bank of America is not the only bank still struggling in the wake of the housing collapse. And, the military cutbacks are probably just the tip of the iceberg when it comes to federal spending and layoffs," he said in a statement accompanying today's release.

Those potential future cuts are signs that the job market has changes ahead of it that will render it unrecognizable to older generations of workers. "It would appear that there are certain structural changes that are going on that are not necessarily cyclical." says Mike Lubansky, senior financial analyst at Sageworks, a company that develops software for the finance industry. "But there are always structural changes in the economy. We just happen to be at a time where there may be more than you might see at other times."

Government has been one major source of job losses in the U.S. economy over the last year and a half. And with more austerity coming, government jobs that were once mainstays will become more scarce. "We're going to see some of these core jobs, the most traditional jobs, safer jobs, the ones that you had more chance of a long-term, if not lifetime job, like being a mailman, soldier, teacher, being reduced in a large way," Challenger says.

In addition, cuts in military personnel -- which do not contribute to Labor Department unemployment figures -- and the winding down of two wars will continue to add people to the workforce. Finding employment is already a problem for America's youngest veterans. As of August, the unemployment rate for veterans who served from September 2001 to the present was 16.6 percent.

Lubansky cites technology as another force that is shaping the job market during the downturn. Automation has already led to cuts in many industries, and it may yet threaten even the healthcare industry, one area that has been a rare source of consistent job growth, says Challenger. "Healthcare is going through a furious change in its operating system," he says of the transition to electronic medical records. The increased efficiency of that system, says Challenger, would eliminate the need for the infrastructure of people who process paper records.

Increased efficiency is yet another hindrance to job growth, and it is visible on numerous levels. U.S. GDP growth continues, albeit slowly, despite massive unemployment numbers. Profit per employee at privately held companies is also growing rapidly. In 2009, the profit per employee at privately held companies had plummeted from $13,400 in 2006 to just over $10,000, according to Sageworks. Thus far in 2011, that figure has shot up to $15,279 -- a 44 percent increase over 2009, adjusted for inflation.

Employers are indeed doing more with less, and thus may not see a pressing need to hire...yet. This is one reason to be hopeful: A business must eventually hire in order to grow. "When industries start to recover, what we would generally see is productivity increases first until a certain point until you can only get so much out of productivity," says Lubansky. "Normally that can only take you so far before you do have to start hiring more employees to get increased profitability."