Making Heroes of Those Who Slash Jobs

Wolf Richter's picture

Wolf Richter

Wall Street makes heroes of CEOs who slash jobs. Especially of those who parachute into the executive office. The more people get axed, the better. The knee-jerk reaction can be phenomenal. Citigroup’s massacre of 11,000 souls caused its stock to jump 8% before tapering off a bit.

By the irony of coincidence, we also learned that wages adjusted for inflation had dropped 1.4% in the third quarter—a continuation of the brutal 12-year-long real wage decline that has hollowed out the middle class, pushed many people into the lower classes, and devastated the poor, though it has largely spared the top 5% [The Pauperization of America].

Other big US corporations already bathed in layoff glory this year. In May, H-P announced 27,000 job cuts, about 7% of its worldwide workforce. AMR is still trying to figure out how many people it will axe, maybe 11,000. In February, PepsiCo picked up some brownie points with plans to slash 8,700 workers, after J.C. Penney had said it would shed 5,500 workers.

Citi, the third largest bloat bank in the US by assets and the recipient of multiple bailouts by the government and the Fed, wasn’t a trailblazer. Its 11,000 planned layoffs bring the worldwide tally of 30 big banks to 171,000 since early last year, according to a Reuters analysis—and that doesn’t include the job cuts at innumerable smaller banks and brokers. The new CEO, Michael Corbat, had to show the world that he wasn’t lagging behind, that he was on top of it, that he was doing something. So he fired off a broadside rather than continue plinking at 150 people here and 3,000 there.

The announcement was successful—though the stock’s intraday high of $37 was just a reminder of where it had been: $557 in December 2007, before it fell of a vertigo-inducing cliff. On that chart, the movements over the last few years are barely perceptible squiggles.

In its press release, Citi said that it would undertake “a series of repositioning actions” that would “reduce expenses and improve efficiency.” The result would be “streamlined operations and an optimized consumer footprint.” But it would cost some serious money, or rather “repositioning charges” of $1.1 billion. When implemented in 2014, revenues might drop $300 million per year, but it would hopefully save $1.1 billion per year.

The wishes of a bank that has gotten way too big, unwieldy, and unmanageable. And dangerous. But instead of attacking its real problems, it introduced new jargon into the corporate lexicon: “repositioning actions” for job cuts and the corresponding “repositioning charges.”

There was talk in the press release of improving “productivity”—the passion of successful businesses. Which brings us back to the irony of coincidence: the release of the Productivity and Costs report by the Bureau of Labor Statistics: productivity jumped 2.9% during the third quarter.

Getting work done for less keeps companies alive in a competitive world. It preserves jobs—those jobs that didn’t get slashed in the process. It was a good report. Fed governors will slap each other and the Chairman on the back: hourly compensation rose 0.9%, so that workers feel as if they made a tiny bit more and are thus content, but it’s a form of deception as inflation once again outpaced their wage gains. Real wages dropped 1.4%.

For the vast majority of American workers, real wages peaked around the year 2000 and have since declined significantly, though nominal wages have risen, just not as fast as inflation. When the Fed speaks of inflation as a “target,” it aims at the earnings power of American workers—and it has been hitting it with stunning accuracy. The Fed has its reasons: declining real wages raise corporate profits and makes labor in the US more competitive with labor in countries like Mexico or China.

A competition that takes place more in the executive’s mind than in Mexico or China. He or she decides where to source components, where to invest and build plants and train a workforce, where to partner with suppliers. Many factors figure into this equation, prominent among them the cost of labor—and the curious fact that cutting headcount charms Wall Street more than creating American jobs.

Particularly interesting in this scenario is that the top 5% are just about back at their real wage peak, with the top 20% getting closer. But the remaining 80% are drifting ever lower (excellent graph by Doug Short). To maintain their standard of living and consume enough to keep GDP positive, as everyone expects them to, the bottom 80% have to borrow from the future—which the Fed, the great enabler, encourages them to do with their Zero Interest Rate Policy.

With ugly consequences, however, not only for consumers suffocating under piles of debt but also for life insurance companies; ZIRP demolishes their predicable return on investment and bleeds their reserves. So, during the off-hours on Sunday, when even astute observers weren’t supposed to pay attention, the National Association of Insurance Commissioners approved new rules that would allow life insurance companies to lower their reserves—at the worst possible time—having already forgotten all about the financial crisis. Read.... “Future Generations Have To Deal With The Financial Carnage”.

Speaking of Mexico: when President Obama met with the new President of Mexico, Enrique Pena Nieto, the press focused on issues ranging from energy to climate change. But the Mexican economy is outperforming the US economy, and the real immigration concern is Americans illegally moving to Mexico. Read.... Californians Are The New Wetbacks Headed For Mexico.

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shovelhead's picture

So now paper pushers have to face the same job pressures the constuction, service industries and contract workers have always faced.

Work slows down, goodbye, sayornara, adios, don't call us, we'll call you.

Somehow I can't get too empathetic when reality hits a coddled class protected from the vicissitudes of life that come from working for huge corporations that the other millions of workers have to deal with everyday.

This is what happens when those same banking corporations turn the economy into a disaster movie. Everyone dies or gets injured. Very egalitarian (for those not at the top).

I know it sounds cold to those of a socialist bent, but isn't equality and fairness their ultimate goal?

There you go.

SmoothCoolSmoke's picture

This will continue as long as CEOs continue to think that they should earn 10,000X what the guy on the factory floor makes.  50 years ago the CEO made 100x the broom pushers and US companies were in much better shape.

BKbroiler's picture

Socialist!! Socialist!! Someone help, get me Ayn Rand, get me Grover Norquist stat, we got us a pinko waging CLASS WARFARE!!!

Hey buddy, if the free market says that the CEO should make 1,000,000 X the lowest salary then who are you to argue?  That is Adam Smith's warm invisible hand massaging your concerns away.  Relax and bask in the laissez fair economy, ask no questions, move along.

Aegelis's picture

Perhaps I'm dumb as a brick, but why doesn't the government offer greater tax incentives to hiring in the United States?

Cosimo de Medici's picture

Didn't you see the interview with Tim Cook of APPL?  Apple is bringing jobs back to the US with a vengence.  Why even now they are sending filled but unsealed boxes all the way from China, and having American Workers using American Tape seal those boxes shut.  If anybody can shut a box, it's the American Worker.  Best Box Shutter in the whole damned world.  Just think how many box shutters Apple will have to hire if that iPad mini takes off?  It'll be biscuits and gravy again in America.

And those stickers:  Proudly Boxed by an American Worker.  Brings a tear to your eye, doesn't it?

Oldwood's picture

You mean like lowering US business taxes? HAHAHAHAHAHAHAHAH

Aegelis's picture

Apparently my ignorance has been exposed.  Yep, that's my question.  Wouldn't the government make more revenue from employed people paying taxes than is taken from a corporation?  Job growth problem solved too.

rsnoble's picture

I posted this on another article here as well and unless I get advised not to do so I will probably periodically post this because after years of reading ZH articles I feel it is very appropriate. Not to mention the countless comments that are obviously from distressed(to say the least lol) individuals like myself that need a different direction:

Here is a great link that I think many of you could find beneficial.  I am not getting paid to share this, I am doing you a favor.

If that perks your interests I invite you to continue along and read and sign the Non-Job Declaration of Independence.

I would also appreciate it if you could help get the word out.  It's apparent by all the great articles here on ZH that we are indeed needing an alternative escape route from the madness of this system and this is a great approach to doing just that.

Stud Duck's picture

I have live through more than one of these SIGMA SIX debacles. The poor bastards that keep the jobs will have to work 50-80 hr to keep the workload under control and they will eventually get the ax after they burn out.

Then young kids that don;t have a clue will be hired, play the game for a while.

My advise to all, to incurr econmic bondage, as you are one file away from being fired at all times. Don;t believe the illusion that you job is secure, all you can do is "crawl out of the hole you dug yourself the night before, sling your weapon and pack, put one foot in front of the other, and hope you survive another day to dig yourself another hole to sleep in".

You are ecpendable in a economic war! The best way to survive is remember that!


AnAnonymous's picture

Or there is the 'american' way, which is far better but not everyone's access.

Be on the right side of it, be the man who sends the grunts digging their holes.

TheFourthStooge-ing's picture

Or there is the 'AnAnonymousitizen' way, which is far easier but not everyone's shameless.

Be on the roadside of it, be the man who squats and grunts, leaving it whole.

Mark Wilson's picture

ZH seems a strange place for a post like this considering many of the fuckers who comment here regularly call for the outright FAILURE of the large financial institutions like C and BAC. How many fucking jobs would THAT cost, eh?

fredquimby's picture

It fucks me off when you click reply to a post, you log in, then type your answer, then it puts your post right at the bottom, not answering the one you clicked you wanted to answer.

Anyhoo......To the geeza UP THERE USING CAPS.......STOP FRIKKIN SHOUTING!!


Conax's picture

In their competitive rush to cut costs and improve the stockholder's returns they cut the workforce or beat down their wages as if it doesn't matter that these 'human resources' make up most of the market for their own products and services.  They greedily swung a big ax, and wrecked their own market in the process.  Labor adjustments can be made without the drastic measures they take, firing thousands.

To fire 10,000 means you let the problem go too far or never needed all of them in the first place, so executive heads should roll first.

The middle class was born when Henry Ford paid his work force better so they could all buy one of his cars, and other industrialists began to follow suit. I've read that the retail sector is 70% of the economy. Low wages and a diminished work force hurts the retail sector, E-Z credit notwithstanding.

AnAnonymous's picture

The middle class was born when Henry Ford paid his work force better

Nope. It was born in the US when the Indians, mesmerized by the 'american' project of 'american' freedom, truth and justice, generously surrendered their land so that the resources could be distributed to the US citizenry by the US government.

Seems that Indians are a scarcity these days.

Hard to maintain an 'american' middle class without those generous sponsors.

Only way out seems to slash out one share of the 'american' middle class and secure the other through concentration of wealth.

delivered's picture

Ten plus years in and what, another 10 to 20 years to go? The message is simple as for decades, America consumed too much and produced too little. Now, through the methodical process of real wage decreases (ten years in and counting), the masses in America are just starting to understand the process of reducing our standard of living in order to repay its debt (of course debt levels continue to increase). Just ask anyone who has traveled to stronger countries including Canada, non Euro countries in Europe, and parts of Asia in relation to just how far a USD will go and what it will buy. We're being bled to death by the central planners in Wall Street and Washington who continue to throw a few bones to everyone to continue the charade.

When history is finally written on this era, it will most likely document the greatest wealth extraction from the masses to TPTB the world has ever witnessed. No middle class will be left as either you'll be one of the very few haves (and part of the program) or one of the many have nots, a vast pool of financial dependent junkies simply surviving and "dancing for the man".

So the only real question left is not the end result but if TPTB can continue to manage this transition in an orderly fashion or will a forced event finally drive the masses over the edge. Right now, it would appear that the banksters on Wall Street and the politicians in Washington have the upper hand as they continue to manage the spin and BS very effectively. But in the end, we all know that livestock (i.e., the sheepies across the country) will sooner or later get slaughtered as they are brought to market. But of course this is the great thing about livestock, they simply follow the herd and the masters into the pin before they realize they're all gooners. This of course is what TPTB are counting on as they coral the livestock (which in Citi's case is 11k heads), offer them one last meal (with some BS severance package), and then begin to eliminate them like shooting fish in a barrel.

What did Ceaser say before his death in the movie Gladiator (after the final battle was won against the barbarians), "So much for the Glory of Rome". With the US's final battles being waged in the Middle East and the consolidation of power in Washington, so to must this statement be applied to the US. "So much for the Glory of America" as it clearly has become a corrupt and immoral country.

Clowns on Acid's picture

Maybe Obama can provide some Fed funding for a new solar company to hire these 11,000 ?

3.7.77's picture

Hey, where's all the anti union trolls, screw the workers as long as they aren't union.

Oldwood's picture

So how profitable would all corporations be if they fired everyone? Would their profits be sooo large that their taxes would pay off the debt? I mean if you plotted it on a graph and projected it out like so....we should reach revenues of infinity and beyond!

SmoothCoolSmoke's picture

Yes, I've always said, if cost cutting if you main goal.....then just go out of business and costs will go to zero.  Oops, wait a minute........

Quaderratic Probing's picture

11,000 new nontax payers to become future 99ers and food stamp holders

pashley1411's picture

I'm kind of alright with the big companies going down the tube.   After all, every company eventually fails, even if, with the mainstreet consensus of the people at the top, they happen to do the equivalent of gulping-the-Koolaid, in unison.   

Its bringing down a good part of the economic system of the world with them.  Kind of bugs me.

ceilidh_trail's picture

Big companies are not going down the tubes. It is the poor shmoes that work(ed) for them that are. Either eat it thru crappy wages, or lose the job completely. It's everywhere, even healthcare. Suits do well, the people actually doing care get treated like "worker bees". Yes, that term has actually been quite popular lexicon of management in my 10,000 person organization. Totally sucks.

WALLST8MY8BALL's picture












Uber Vandal's picture

Later versions were "Real men of Genius".

Aptly stated for the bizzaro world we keep waking up in each day...


IamtheREALmario's picture

Not quite as odd as worshipping psychotic mass murders as "great leaders".

Uber Vandal's picture is a great place to look at the carnage.

I miss the days of though.....


LongSoupLine's picture

We're back to the days of Chainsaw Al Dunlap again.


Speaking of fucks up's Larry Summers is getting blown on CNBS by Joe "fullfucking retard" Kernan.  Like watching a fucking train wreck.

Vampyroteuthis infernalis's picture

These companies are slowly destroying themselves. Only so many layoffs can occur before there is no one left who knows how to steer the helm. Insane are running the insane asylums.

AlaricBalth's picture

The irony is, on financial news networks, these people are referred to as "the job creators". The pinnacle of communication bypass.

jonjon831983's picture

There is a lot of departmental mergings and "resignations" going on out there.


Who knows how far they will go.  If they hire people it will be for lower pay than previously.