The nation's unemployment rate climbed to a 16-year high last month, according to government figures released yesterday, and the pain of the recession is spreading to those fortunate enough to remain employed.
U.S. employers shed 598,000 jobs in January, driving the unemployment rate up to 7.6 percent from December's 7.2 percent, the Labor Department said yesterday.
January's worse-than-expected losses cut across nearly all industries, except for private education and health care, and economists expect more people will lose their jobs even as lawmakers work on a $900 billion economic stimulus package.
On top of layoffs, many employers are freezing salary increases and 401(k) matches, cutting back work hours and imposing temporary work stoppages on the people who remain. More businesses are expected to cut retirement contributions and take other actions to cut expenses and preserve cash in the next 12 months, according to human resources consulting firm Watson Wyatt.
Macy's said this week that it is eliminating 7,000 jobs and reducing contributions to employee retirement accounts in 2009 as consumer spending and sales continue to plummet.
Sprint Nextel, Motorola and FedEx are among the companies that have suspended matching payments to 401(k) retirement plans. The state of Maryland has imposed unpaid furloughs. So have media conglomerates Gannett Co., the parent of USA Today, and Landmark Communications, which owns the Capital newspaper in Annapolis and the Carroll County Times.
Employers also have put pay increases on hold, most notably President Barack Obama, who ordered a salary freeze for White House aides earning $100,000 or more.
For workers, shrinking paychecks and vanishing perks are another blow to their declining finances amid falling real estate and retirement assets.
"I've lost $70,000 in a year," said Rafael Garcia, a FedEx mechanic at Newark Liberty International Airport, referring to his 401(k) plan. "It's a big hit. We used to make extra money through overtime. Everything is cut. It's so much harder now to make that money up, especially without the match. Every penny helps."
A recent survey of 100 human resources executives by outplacement firm Challenger, Gray & Christmas found that almost half of them avoided permanent job cuts at their companies by using several cost-cutting options, including reducing salaries, forced vacations and hiring freezes.
"Organizations have a vested interest in avoiding layoffs at all costs, but they can't do that either in this kind of environment," said John A. Challenger, chief executive officer of the Chicago firm. "Companies sometimes try to take every measure possible to try and batten down the hatches and survive the recession."
Baltimore money manager T. Rowe Price Group, which has seen its mutual funds' assets fall amid market losses, has stopped hiring except for critical positions, after a recruitment spree in the past few years. The company also reduced last year's bonuses and is freezing salaries this year of higher-paid employees.
"I'm a big believer is protecting people at the lower end of the wage scale," James A.C. Kennedy, Price's chief executive and president, said in a recent interview, noting that many employees have college tuition, car payments and mortgages to juggle. "We work hard to protect them."
Employees at the Maryland university system are being furloughed up to five days, a plan that the Board of Regents approved in December to avoid laying off any of the system's 22,500 full-time workers.
"The biggest fear is to be told that you would be let go," said Carol Abraham, coordinator of Towson University's College of Business and Economics Graduate Services, who was hired two years ago and has little seniority in her department. "They could easily let me go. They way the university is handling this is to have the furloughs. I'm tremendously grateful."
Abraham will take her three days in May, one each during a pay period, to lessen the financial hardship, she said.
Maryland government also implemented a furlough plan designed to save the state $34 million. But that might not be enough. Gov. Martin O'Malley is proposing laying off hundreds of state workers to help close a $2 billion budget deficit projected for the fiscal year that begins in July.
Yesterday's dismal unemployment report found that more people are working part time because their hours have been cut or they weren't able to find full-time work during the past 12 months. The number of so-called involuntary part-timers totaled 7.8 million in January, up 3.1 million from a year ago.
"These workers are lucky in this labor market to hold on to their jobs, but they are still feeling the pinch of the downturn," said Heidi Shierholz, an economist at the Economic Policy Institute, a liberal think tank in Washington.
"The pinch of the downturn could be felt through direct wage and benefit cuts and the general economic insecurity of people. The psychic cost of not knowing whether your job will be there is enormous on families."
Human resources experts say employers face huge pressure to cut costs in this uncertain environment while trying to minimize impact on their workers.
It's a balance that is difficult to maintain, said Jane Weizmann, a senior consultant at Watson Wyatt.
"The recovery piece requires leaders who are forthcoming and making decisions that in the long run will improve the health of the organization," she said.
That employers are cutting wages and hours, on top of layoffs, speaks to the dire state of the economy, said Challenger, the outplacement expert. Businesses risk low morale and productivity among their remaining workers.
"Companies are in a precarious place because the steps they're taking seem to be unprecedented and taking away the soft benefits that made the jobs workable for people or gave it extra value," he said.
Macy's spokesman Jim Sluzewski said employees at all levels are being affected by the retailer's cost-cutting efforts.
The company, which has eight stores in the Baltimore region, is also eliminating merit increases for executives for 2008 performance. And management is recommending to the board that it reduce executive perks such as merchandise discounts, company cars and company-paid life insurance.
"Clearly, we've been prudent with expenditures and expenses and, especially in times like this, we're asking everyone in the company to be very careful with expenses and avoid expenses that are not necessary," Sluzewski said.
FedEx chief executive Frederick W. Smith is taking a 20 percent cut in his base salary, while the shipping giant slashes pay of other senior executives by up to 10 percent. The cuts do not affect hourly employees such as couriers, mechanics and package handlers.
In December, Smith told employees on a company blog that it took such drastic steps to "minimize job losses and project the long-term financial health of our company."
Employers are not only slashing jobs but in many cases cutting matching 401(k) contributions, freezing salary increases and imposing furloughs in response to a deep recession.
Here are a few companies and what steps they're taking.
Motorola: The mobile phone company has announced 7,000 job cuts since late last year, frozen U.S. pension plans, suspended matching 401(k) payments and terminated pay increases for employees in many markets in 2009. It is also reducing the base pay of its co-chief executive officers.
Sprint Nextel: The company, which has 668 workers in Maryland, is cutting 8,000 jobs across all levels, freezing 401(k) matches and annual salary increases in 2009, and suspending tuition reimbursement.
Saks Inc.: The luxury retailer is eliminating 1,100 jobs and merit-based wage increases in 2009, suspending matching 401(k) contributions for at least one year and freezing benefit accruals for associates who remain in the company's pension plan.
Caterpillar Inc.: The equipment maker, which is cutting 20,000 jobs, is reducing executive compensation up to 50 percent, cutting pay for senior managers and instituting a hiring freeze. The company also will temporarily shut down factories in response to market conditions.
Sources: Respective companies