Tucson CitizenTucson Citizen

Some firms deciding to keep staffs, make cuts elsewhere

Thousands of people take part in a job fair in  Myrtle Beach, S.C.

Thousands of people take part in a job fair in Myrtle Beach, S.C.

WASHINGTON – Even as the recession cuts deeply into their revenue, some companies are opting to do the unconventional: They’re keeping all their employees and finding other ways to trim costs.

Their strategy isn’t about mercy. It’s built on the notion that layoffs bring high costs and hassles of their own.

Profits at Costco Wholesale Corp. are down 27 percent from a year ago, but the discount store has not laid anyone off. The only workers let go have been holiday seasonal hires.

To trim costs, Costco imposed a hiring freeze at its corporate offices. But the company says it recognizes that labor remains its most valuable – if costliest – resource.

“We’re certainly sharpening our pencil everywhere we can,” said Bob Nelson, Costco’s vice president of financial planning and investor relations. Nelson couldn’t recall any layoffs at Costco since the closing of some stores in the 1980s.

Clearly, companies that have avoided layoffs are the exception, not the rule. Employers have cut 5.1 million jobs since the recession began, including 663,000 last month alone.

Economists say it’s a wise move for some companies to keep their workers and cut elsewhere.

“If you overshoot on the downside and lay off workers, it puts the company at a disadvantage when the economy comes back to life,” said Sean Snaith, economics professor at the University of Central Florida.

The other steps companies are taking to cut costs are not exactly harmless to workers. Chief among them: capping the number of hours employees can work, cutting or freezing pay and suspending matching payments to 401(k) plans.

Casino operator Wynn Resorts is trimming pay and cutting back on retirement fund matches. Credit agency Equifax Inc. froze pay for all U.S. employees for 2009 and at some of its foreign offices as well.

A survey by job placement firm Challenger, Gray & Christmas this year found 71 percent of companies polled had laid off some workers. More than a quarter had implemented pay freezes or cuts.

Despite the alarming job losses nationwide, John Challenger, the firm’s CEO, said it’s more common now than in past recessions for companies to find other paths to savings than laying people off.

That’s because many companies have concluded that layoffs could be costlier down the road. Employers who have laid people off have to find, hire and train new ones when the economy recovers. Workers with specialized skills or strong customer contacts aren’t easily replaced.

Layoffs typically mean companies have to pay severance costs, which vary widely by occupation and industry. A retail clerk, for instance, might cost a company $1,000 in severance. A low-level white-collar manager paid $50,000 a year could get $5,000.

And higher-paid professionals who earn well into six figures – accountants and lawyers – could get $50,000 in severance, estimated Terry Connelly, dean of Golden Gate University’s Ageno School of Business in San Francisco.

Economists say unemployment, now at 8.5 percent nationwide, could climb above 10 percent by year’s end. Some economists say the labor market may not return to normal, meaning a jobless rate of about 5 percent, until 2013.

And once the economy rebounds, companies that didn’t slash payrolls could emerge with an edge.

“You don’t want to lay off 15 percent of your work force, because you want to be prepared to move quickly when the economy turns around, and that will obstruct your ability to do so,” said Dean Baker, co-director of the liberal-leaning Center For Economic Policy and Research.

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