How Business Is Coping With Terror.

Layoffs Mounting as Recession Hits Town

PINK slips are beginning to pile up all over Los Angeles.

Just within the Hotel Employees & Restaurant Employees International Union, Senior Analyst David Koff lays out the numbers:

Food preparation workers at Los Angeles International and Ontario airports -- 1,500 layoffs.

Food service and retail shops at LAX -- 1,000 layoffs.

Hotels -- 250 layoffs and 2,000 on-call workers who have not been terminated but for whom there is no work. Another 2,000 hotel workers have seen their hours reduced.

All told, half of the union's L.A. membership is being impacted in some way from the aftermath of the Sept. 11 terrorist attacks. And there are others -- airline clerks, cab drivers, airport shuttle drivers, clerks, porters, parking attendants.

The Economic Development Corp. of Los Angeles County, which forecasts a recession lasting through at least the first quarter of next year, says that 2001 job growth will be 1.1 percent, or 46,800 jobs, and 2002 will see a gain of only 0.8 percent, or 33,200 jobs. That compares with the 88,000 jobs gained in the county during 2000.

Some of the job loss predates the Sept. 11 attacks and involves sectors where the slowdown had been especially felt -- technology and communications. But what has brought L.A. and the nation into a full-blown recession is the curtailment of air travel -- and with it, the drastic slowdown of related industries, including hotels, restaurants and air-freight haulers.

Those being shown the door in these businesses are, for the most part, low-skilled, low-wage workers. This makes it a "front-loaded" recession in which the pain is sharpest during the early going, but not long-lasting.

"Most cancellations and layoffs came in the immediate aftermath of the attacks, and over time people will very slowly begin returning to their business travel and vacation plans," said Steven Levy, director of the Center for Continuing Study of the California Economy in Palo Alto. "That will spur travel-related companies to slowly start hiring back workers."

Of course, uncertainty remains the catchword. While business appeared to be returning to near-normal levels last week in many industries, there's no telling how spending patterns might be affected by potential U.S. military action or another terrorist attack on American soil.

Primary vs. secondary

Assuming that the political and economic climate continues to stabilize, the new economic downturn will contrast sharply with what happened during L.A.'s last recession a decade ago. Then, many of those who lost their jobs were so-called "primary" workers, like aerospace engineers and computer programmers who bring money into the local economy.

Losing such workers was particularly devastating because not only were their wages lost, but also the wages they pay to the area's "secondary" workers -- barbers, car dealers, grocers, florists.

Those primary workers eventually were able to retool their skill sets and re-enter the workforce. Many started their own businesses, as evidenced by the rise in new business incorporations during the early 1990s. L.A.'s path to recovery was further facilitated by billions of dollars in federal emergency funds that flowed in after the 1994 Northridge earthquake.

This time, it's those "secondary" workers who are most directly affected -- workers who might not have the education to quickly find new employment in the midst of a recession.

Their first stop for relief--the government.

"Everybody's climbing aboard the 'Help me, I got (devastated) by the terrorists' bandwagon," said Levy.

Among them: members of the hotel and restaurant union. "Workers must receive some cushion against the devastating impact the terrorist attacks have had on the travel and tourism sector," said Koff. "It's not only the employer side that needs help."

HERE is trying to develop a partnership with a number of hotel owner/operators "to create a common front to pursue (government) assistance like the airline industry is receiving;' said Koff.

Likewise, Miguel Contreras, head of the Los Angeles County Federation of Labor, met with Gov. Gray Davis last week seeking state support.

In addition, the L.A. City Council last week voted 12 to 0 to direct the Personnel Department to generate a list of vacant city positions for which laid-off airport workers would be given preferential consideration.

Low-wage dilemma

But government relief is likely to be limited. Congress has approved $40 billion in emergency funding, as well as a $15 billion airlines bailout package. The Pentagon is pushing for $17 billion more for national defense. Also being discussed are proposals for business and individual tax cuts.

Little of this is specifically earmarked for low-wage workers who lost their jobs -- often with limited, if any, severance packages. These workers are especially vulnerable not only because they will have difficulty finding new employment, but because they generally live paycheck-to-paycheck. Their struggles, played out over an extended period, could have major consequences for public services.

And the state is not in much shape to help out. The energy crisis, dot-com implosion and slowing economy have sapped its coffers.

For the moment, that leaves it up to the private sector to stimulate growth -- not an encouraging prospect in the face of slower demand and tighter lending requirements. Still, there are some opportunities, especially if the economy starts to stabilize before the end of the year.

It starts with consumer spending. "It is perfectly reasonable for consumers, in the weeks after a tragedy, to postpone expenditures," said economist Levy. "Holiday spending will be a much truer indication, starting with how crowded LAX turns out to be during the Thanksgiving holiday."

Some consumer restraint might actually help the local economy.

"Instead of flying to Utah to go skiing, some people might just go to one of the local resorts," Levy said. "People aren't going to cancel vacations because we don't appear to be in a situation where incomes are crumbling."

Other short-term stimulus ranges from Hollywood's renewed preference for filming at home to an increase in municipal spending for security services. Fire and police departments will be beefed up, and there will be a need to better protect public sector facilities. That means jobs.

Eventually, as municipalities are forced to pick up the tab, they may be forced to consider new commercial development -- more specifically, the kind of high-volume retail development that generates lots of sales tax revenues. That means the potential for even more jobs.

But that's a long way off. For now, the hope is that the crisis will be contained. Without that, all bets are off.

Impact On Industries
Most sectors are being hurt by the downturn.
Sector        Comments
Airlines      Widespread devastation
              due to plummeting
              passenger volumes.
Hospitality   Hotels, restaurants
              instituting mass
              layoffs amid travel
              downturn.
Retail        Nervous consumers
              curtail spending.
              Confidence plunges
              heading into crucial
              holiday season.
Distribution  Preparing to accommodate
              last-minute rush orders
              by retailers if consumer
              demand reawakens.
              Contemplating reducing
              reliance on just-in-time
              inventory systems in favor
              of keeping more inventory
              on hand.
Finance       Fed rate cuts enable lenders
              to widen spreads. Credit
              standards tighten further.
              Venture, mezzanine, public
              market financing virtually
              unobtainable.
Housing       Mortgage rates declining.
              Prices may soften a bit,
              but not much due to
              constrained new-home
              construction and
              population growth.