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World Socialist Web Site www.wsws.org
WSWS : News & Analysis : North America
WorldCom spearheads US job cuts
By Jerry Isaacs
29 June 2002
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Layoff notices went out to 17,000 WorldCom employees Friday. In a now familiar
scene, hundreds of workers carrying their belongings in cardboard boxes left work
for the last time at WorldCom�s offices across the US, including 1,300 in Virginia
and 1,000 in Dallas and hundreds in Mississippi where the company is
headquartered. The latest layoffs follow another 3,700 jobs cut in April.
The nearly bankrupt telecommunications giant, whose officials concealed $4 billion
in expenses in order to inflate earnings reports, is the latest US company to wipe
out thousands of jobs after being accused or indicted for illegal business practices.
Enron cut 4,000 jobs; another 8,500 lost their jobs at accounting firm Arthur
Andersen; and Tyco eliminated 15,000 employees in February. On Friday, Xerox
Corporation, already in the midst of downsizing thousands of jobs, announced it had
misreported more than $6 billion in revenues over the last five years.
WorldCom�s demise is expected to have widespread consequences throughout the
US and world economy. Several major corporations, which hold large amounts of
WorldCom debt, announced they would face big losses. American Express said it
would write down its WorldCom debt of about $90 million, resulting in a pretax
investment loss in the second quarter of $75 million to $80 million. Similarly,
General Electric executives told Wall Street analysts yesterday that GE would
reduce the value of its $209 million of WorldCom bonds to about 20 cents on the
dollar, leading to a $110 million write-down in the current quarter. In addition, real
estate corporations that lease property to WorldCom and its subsidiaries face the
loss of millions in unpaid rent.
The same week WorldCom�s subpoenaed executives were sending out thousands
of pink slips several other corporations announced major job cuts. Cell phone and
semiconductor maker Motorola announced Thursday it would cut another 7,000
jobs, or 3.5 percent of its workforce, as part of its massive two-year restructuring
plan. By 2003 the company plans to reduce employment to 93,000, down from
150,000 in August 2000.
About 3,000 of the job cuts will come from the Motorola�s wireless infrastructure
business, with most of its operations in North America, followed by Europe and
Asia.
�This comprehensive restructuring purposefully returns Motorola to approximately
its mid-1990s size, the era prior to the excesses of the telecom and dot-com
booms,� said Christopher Galvin, Motorola�s chairman and chief executive.
Although the company�s stocks rose on news of the layoffs, Wall Street analysts
said the number of job cuts needed to be even larger. �My gut reaction is that it
probably won�t be far enough,� said Vivian Mamelak, an analyst with New York-
based Arnhold & S. Bleichroeder. �If the revenue growth they need doesn�t occur
they�re going to have to continue restructuring.� Mamelak said. Two weeks ago,
Standard & Poor�s downgraded Motorola�s corporate credit rating to two notches
above junk status.
Meanwhile, computer maker Hewlett-Packard, which had previously announced
plans to cut 15,000 jobs, said it would furlough 4,000 contract workers in its
information technology department for three weeks, while officials evaluate projects
and decide how many workers will be let go permanently.
Wall Street investment firms Goldman-Sachs and Morgan Stanley announced they
had cut 991 jobs and 1,337 jobs respectively over the last three months. The cuts
came as the New York Daily News reported that Wall Street companies could cut as
many as 35,000 jobs, or 10 percent of their workforce, in the coming year due to the
ongoing decline in the stock market. �Everyone is looking at cutting,� said Reilly
Tierney, an analyst at Fox-Pitt Kelton. Merrill Lynch, which eliminated 15,000 jobs
last year, is likely to cut more this year, Tierney said.
Other job cuts this week include technology companies Cereva Networks (140) and
Cnet Networks (200). Challenger, Gray & Christmas, a firm that tracks layoffs, said
dot.coms had laid off 684 workers in June, for a total of more than 150,000 layoffs
over the last 24 months.
The firm also reported that the average tenure of discharged managers and
executives had fallen to under five years and nearly one in every three discharged
managers does not even make it to his or her two-year anniversary. �We are
witnessing a profound change that will permanently do away with the 10-year pin
and other commemorative gifts for longer service. It is getting to the point where a
person�s career at a specific company will be measured in months, not years,� said
John Challenger, the firm�s CEO.
�It used to be that job cuts were a rarity at most companies, occurring once every
few years, if at all. Companies would make one big job-cut announcement and the
remaining employees could rest assured that their jobs were relatively secure for
the next several years. Now it is rare when a sizeable company goes 12 months
without announcing workforce reductions,� Challenger said.
The lack of job security is undermining consumer spending, which accounts for two
out of every three dollars generated by the US economy. The New York-based
Conference Board, which conducts a widely followed survey of 5,000 consumers,
said its consumer confidence index fell to 106.4 this month from 110.3 in May. That
was the second-biggest drop since the terrorist attacks of September 11. The
confidence index is seen as a crucial predictor of consumer spending. Consumer
spending also fell in May�for the first time in five months�due in large measure to
a falloff in new car sales.
Lynn Franco, director of the Conference Board�s research center, attributed the
eroding confidence level to �weak labor market conditions, generally soft business
conditions, and waning public confidence in questionable business practices.�
The board found that 23.1 percent of US consumers said jobs are now �hard to get,�
up from 21.8 percent a month earlier. The percentage of consumers expecting
fewer jobs to be available in the next six months rose to 14.2 percent from 13.6
percent.
While the news media widely reported that the US gross domestic product grew at a
rate of 6.1 percent in the first quarter, economic growth remains heavily dependent
on a one-time buildup of inventory and a huge increase in military spending by the
Bush administration. With the ongoing mass layoffs and corporate scandals many
economists are predicting that the GDP will grow at a rate of 2.5 percent or less in
the current quarter.
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World Socialist Web Site
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