Companies doing more with fewer employees

LIBERTYVILLE, Ill. -- Shouting over the whine of pneumatic screwdrivers, Phyllis Patrick points to changes in the assembly line that twists around her, evidence of a labor market starting to thaw.

In a plant where workers were asked last year to take time off without pay, managers have posted eight hours overtime on the scheduling board for the coming Saturday. And now word is spreading down the line that ITW Paslode -- which pared its work force here from about 200 to 150 even as it increased production -- is set to hire 14 new full-timers.

"We could always use a few more," the safety-goggle-clad Patrick said, turning back to a workbench where she was testing motors in the partially assembled nail guns.

The pickup at Paslode's plant, 45 minutes north of Chicago, is good news in an economy that has been slow to generate new jobs.

But it comes with a big asterisk: Those are about the only new jobs that Paslode's parent, a $10 billion manufacturing conglomerate that prides itself on running lean, sees adding anytime soon.

"Why would you be hiring people right now?" said John Brooklier, vice president of investor relations for the parent company, Illinois Tool Works Inc., which has shrunk its U.S. payroll from about 36,000 to 28,000 in the past three years.

If companies are still far from filling their manfacturing capacity, he said, "where are the jobs going to come from?"

Variations of that question loom over an economy that is down about 2 million jobs since early 2001. Despite a government report showing the United States added 308,000 jobs in March, many analysts continue to puzzle over the logic of employers' hiring decisions in an economy that by most measures -- from soaring corporate profits to rapid growth in output -- is in high gear.

As election-year politics heat up, much of the public's attention has focused on "offshoring" -- the decision by U.S. companies to send work to countries such as India and China -- as the culprit in the lack of new employment.

But the truth behind the short supply of new jobs, hinted at by changes at companies such as ITW, is more complicated.

Reaping the benefitsIn a nutshell, businesses have figured out how to do more -- produce more goods, services and profits -- with fewer full-time workers. Even as the economy grows, many companies are reaping the benefits in part by rethinking the way they use people.

Part of that is outsourcing, sending some of the work they do to firms and workers who will do it cheaper, both inside and out of the country. Some economists estimate outsourcing overseas accounts for perhaps 10 percent of the jobs lost.

But businesses also are responding to increasing demand by relying more on temporary workers, freelancers and contract workers. Many work off payroll and without benefits -- and aren't tracked in the most closely watched set of government jobs figures.

Employers also are harnessing technology, streamlining and automating operations to reduce the need for labor, and some are pushing remaining workers to do more. Those changes mean they often can respond to increased demand without hiring.

"What employers have really discovered is ... you can have just-in-time employment," said David Wyss, chief economist at Standard & Poors in New York. "That's what this really is -- I use the workers when I need them. I don't use the workers when I don't need them."

The reluctance to hire full-time workers has almost certainly been exacerbated by the rising expense of adding employees in an era of skyrocketing health-care costs, as well as lingering concerns about the solidity of the rebound.

Those concerns will ease over time, and employers are likely to convert some of the jobs now staffed with temps to full-time positions. But the new approach to employment is likely to be more permanent, analysts say.

The change is evident to both workers and employers, although the two groups see it through different lenses.

Consider the experience of Peggy Shea, a graphic artist who lost her job in a layoff at Cisco Systems more than a year ago. Shea, who lives in Scotts Valley, Calif., has been unable to find a new full-time job despite an exhaustive search.

But since the start of the year, she's logged roughly 16 weeks of work as a freelancer for a company whose own staff is overwhelmed, but whose budget allows only outside expenses with no addition to payroll. The policy is at least partly rooted in its effort to boost the running tally of revenue-per-employee that it shows investors, she says.

Shea also has been offered contract jobs through agencies that supply companies with short-term workers. Several agencies have urged her to consider picking up for three- to six-month assignments out of state. She turned down the job, but the recruiter told her he had plenty of other takers.

"OK, at the end of six months, what do I do?" Shea said. "You don't just pick up like a vagabond or a gypsy and move around every six months."

Her experience is underscored by the increasing calls fielded by Working Today, a New York nonprofit that offers affordable health insurance to contract workers and freelancers, and has seen its ranks more than triple in the past year from 1,100 to 3,800.

"People are really eager ... to get back to full-time, permanent jobs with benefits. But they're freelancing as either a job between those two or they're just freelancing" because full-time jobs are so hard to find, said Sarah Horowitz, the group's executive director.

Those who still have jobs or have held on only to be laid off later say employers have increasingly combined positions, pushing each worker to take on a bigger load. The change strikes many as permanent, rather than a grin-and-bear-it symptom of tough times.

Jim Mansour felt lucky to have a job as a mechanical engineer at an Austin, Texas, plant that makes computer-chip equipment. But he was starting to have his doubts.

When Mansour went to track down a problem machine part last year, he was mystified by a strange notation on a worksheet. A manager told him to call a new guy assigned to finding a solution. When Mansour called, he realized the number was in India.

By the time Mansour was laid off in December, the number of engineers running the production lines had been cut from 12 to three, with those remaining required to pick up the load.

"It'd be a strange graph to look at," he said. "As orders go down, all our work went up."

Employers, though, say their new approach is not about putting the squeeze on workers. Instead, it reflects a greater dedication to efficiency and leanness. That is driven partly by the expectations of Wall Street to deliver higher and higher profits and partly by increased competition overseas.

But it also is the discipline instilled by the tight times of the past few years when the easy cash of the late 1990s dried up.

Look what's happening at Best Buy Co. Inc., the nation's largest electronics retailer. The Minneapolis-based chain began a campaign to trim the fat from its operations even though it just completed a year in which its profits grew sevenfold and it continued to open stores.

That effort includes rethinking the way it runs and staffs its distribution centers. To do that, the company sent teams of managers into its largest warehouses to study the flow of goods and figure out how to speed up the flow of stereos and televisions.

The result: new technology and processes -- and fewer workers. Centers that have made the switch used to employ two consecutive shifts of workers, and operated 16 hours a day. Now, many have cut back to 12-hour days without sacrificing productivity, staffing thinner early and late and with a lower headcount overall.

"We are becoming more technology-savvy and our processes are improving, so the way we move product through our warehouses has improved," said Sue Wessin-Cradle, the personnel executive in charge of the company's warehouses.

When the workload picked up the past holiday shopping season, Best Buy's warehouses didn't hire -- at least not in the traditional sense. They called agencies such as Doherty Employment Group in Edina, Minn., which supply prescreened temporary workers who can be let go once demand subsides.

There's a similar attention to running lean at ITW, which operates the Chicago-area nailgun plant. The strategy is not new -- it's been part of the company's credo for years -- but it points to where other companies may be heading.

ITW deconstructs and refocuses businesses it acquires in a bid to make them more productive, more profitable. The side-effect of that effort is to further reduce the need for people.

When ITW opens a new plant later this year in Charlotte, N.C., to make ovens and other cooking equipment, it will hire 75 workers and perhaps increase to 100 over time. But that still is about 20 percent fewer than plants in California and Maryland that it replaces.

Another ITW plant in West Union, Iowa, this year began producing a new version of an industrial strapping machine, designed to require fewer repairs and to be easier to build. The result, though, has a direct impact on workers. The new machine consists of about 200 parts, half the number of its predecessor, and requires just five man-hours to assembly, down from nine.

"Are we adding people in white-collar ranks, in sales, in the factories? The answer is no, because of our productivity," said Russ Flaum, the executive vice president who runs ITW's packaging business.

For many employers, finding such productivity gains has become the defining theme of this economic rebound.

"The basic tenet or philosophy is to constantly and consistently remove waste from your production process ... and, when you do that, what you start finding are activities that are being performed that are totally unnecessary," said R. Michael Donovan, a Massachusetts business consultant who specializes in lean manufacturing.

The problem for workers is that many of those newly "unnecessary" activities are their jobs. Donovan says he encourages client firms not to fire workers whose work has been eliminated, but to utilize them and their institutional knowledge as the business grows. But he admits that's often not what happens.

"There are many cases we're well-aware of where people were considered redundant and they're gone," he said.

Some businesses, of course, are hiring, including startups that will become important new generators of jobs. But even at these new ventures, the decision to hire is more deliberate than just a few years ago.

More than three years after a group of executives started Vulcan Advanced Mobile Power Systems LLC, they are just now ramping up full-time hiring at a new factory in Elizabethtown, N.C. That is despite the fact that the company has been producing its mobile power plants for the past year.

To do that, Vulcan met its first order for a mobile plant -- sold to the U.S. government for use in Iraq -- entirely with contract workers, brought in to staff a factory in Florida.

The decision was not cheap -- the company paid a 40 percent premium for the labor agency that supplied the workers, who received no benefits or security. But the money bought Vulcan time and the flexibility of letting the workers go, no strings attached, once the job was done, says Michael Stewart, the company's chief administrative officer.

"When we sold that unit, we released all the contract people and then we started the hiring process," Stewart said. "You do not staff up with the anticipation of something when you really don't have to."

The evaporation of once-dependable jobs and the uncertainty built into new hiring practices have encouraged many workers to retrain. But, unlike in the late 1990s when acquiring computer skills was seen as a sure bet for landing a job, figuring out where the new opportunities will be now feels like a gamble to many.

Agnes Feldman, a former factory worker, will graduate in July with a two-year degree in business administration from Mitchell Community College in Mooresville, N.C.

Feldman lost a job on the line at a compressor factory three years ago, when Matsushita Corp. of America moved production to China. She found, then lost, another job at an auto parts plant when Eaton Corp. shifted work to Mexico early last year.

Now she's looking ahead to graduation, wondering what she'll find out there, trying to answer the very question that brought her to this point: Will there be new jobs to replace the old ones?

"It's supposed to be picking up, but yet, there are still a lot of people who are not finding jobs," Feldman said. "Right now, it frightens me that I will become one of those people."