Myth One

Companies that “downsize” get leaner.


A headline from the San Jose Mercury News sets the record straight: “Shrinking Firms Are Hiring.” Sound like an oxymoron? The article goes on to explain, “Companies that have been ‘downsizing’ their employment base have begun hiring new workers at nearly the same rate as they lay others off.”

This revolving-door style of hiring-while-firing has become the employment status quo. Two large-scale studies, one by the national management consulting firm Wyatt Co. and the other by the more than 80,000-member American Management Association (AMA), both found that downsized companies don’t necessarily shrink. The Wyatt study discovered that the majority of managers refill some positions within two years. The AMA study showed that of 1,003 companies, the average workforce at the 501 companies that downsized in 1994-95 shrank by a meager 1.1 percent, even though these companies laid off nearly 7.7 percent of their employees.

This is “binge and purge” staffing: Hire when you feel optimistic; lay off when business is down. No other company represents this story of corporate bulimia better than Apple Computer. Once considered one of America’s most creative and revolutionary companies, Apple began a slow and painful dance with the downsizing ideology in 1985 when it laid off 1,200 employees (about 25 percent of its workforce). The layoffs continued for 11 years until more than 6,000 employees — more than Apple’s total employment in 1985 — had lost their jobs. Despite Apple’s high restructuring costs, amounting to $198 million in 1991 alone, Apple’s total employment continued to grow, adding more than 13,000 jobs by 1995.

The same hiring-while-firing pattern holds for American middle management, whose ranks, according to popular myth, have greatly shrunk. In fact, a 1995 Wall Street Journal story showed the number of managers at all the companies reporting to the Equal Employment Opportunity Commission has remained constant at 5 million since 1990. Further, mammoth corporations like Aetna Life & Casualty Co., American Express, and Procter & Gamble — all of which have laid off large numbers of workers — report an increase in the number of managers per 100 employees during the same period. In a recently published book, Fat and Mean, economist David Gordon points out that American companies are as middle-management-heavy as ever.

This is not to suggest that a middle management slaughter isn’t taking place. Middle managers and supervisors accounted for one-third of all layoffs in the AMA survey for 1995. So what gives? Companies are firing high-paid managers and hiring less experienced managers at a lower pay to take their places (see “Getting Rid of the Gray”.)