WorkForce21
Former Welfare Recipients Who Found Work Now Get Pink Slips
The Wall Street Journal © 2000 All Rights Reserved
Page One Feature
Former Welfare Recipients Who Found Work Now Get Apologies and Pink Slips
By JACOB M. SCHLESINGER and RUSSELL GOLD
Staff Reporters of THE WALL STREET JOURNAL
Hyacinth Vanriel was a boom-time success story. The 34-year-old single mother of four worked her way off welfare and last year landed a full-time union job at the Boston Park Plaza Hotel that paid $11.53 an hour, plus health benefits.
Last month, Ms. Vanriel became an economic victim of the Sept. 11 terrorist attack. She lost her job when the Park Plaza's owner, Starwood Hotels & Resorts Worldwide Inc., began cutting its work force by nearly one-fourth in response to the fall-off in travel after the attack. Three weeks of pounding the pavement haven't yielded new work. "There are too many people going to get jobs," she says.
Beyond the obvious economic damage of Sept. 11 -- the stock-market plunge, sputtering airlines and the heightened risk of recession -- lurks another threat: an end to the late-1990s golden era of low unemployment.
Until the mid-1990s, most economists thought the "natural," long-run unemployment rate for the modern American economy was about 6%. Anything lower for any extended period of time would cause inflation to gallop out of control, the experts said. In mid-1997, the experts were proved wrong, as the jobless rate fell below 5% for the first time since 1973 -- and prices stayed low. The jobless rate hasn't returned to 5% since. But that is almost certain to change.
On Friday, the Labor Department released its monthly employment report for September, which said the unemployment rate remained at 4.9%, the same as in August. But the report was based on surveys taken before the wave of post-Sept. 11 layoffs. And even the report's earlier data suggest a considerable weakening of the labor market, pointing to higher joblessness in the future -- and pain for the less-well-off Americans who benefited from the late-1990s boom. Businesses cut payrolls by 199,000 in September, the biggest monthly contraction of jobs since February 1991, during the last recession. Since January, payrolls have fallen by 800,000.
"October job loss could easily be worse," says Merrill Lynch & Co.'s chief economist, Bruce Steinberg. "The unemployment rate is headed for 6%."
The ultra-low jobless rate of the late 1990s stemmed from the rapid overall growth of that period. From 1997 through 2000, the economy expanded at a 4% annual pace, well above the 2% to 3% rate most economists had considered the country's speed limit. The technology boom, globalization, the federal government's move from deficits to a surplus -- all of these helped spur a sustained expansion of jobs.
Faster growth meant factories produced more, stores sold more, and companies of all kinds needed more workers than in any other recent period in American history. Among those who benefited the most were high-school dropouts, racial minorities and immigrants. To cope with short-run labor shortages, companies expanded training, which, in turn, paid long-term dividends to trainees.
With competition for workers becoming more intense, companies had to raise wages -- and offer benefits -- for many entry-level workers. Poverty rates dropped. Millions of women moved off welfare rolls and onto payrolls. A quarter-century trend toward ever-wider income inequality slowed.
All of those developments now are threatened. Even before Sept. 11, demand for workers was falling. Since the attack, the labor market has deteriorated sharply, especially in industries such as travel and tourism, which have been among the biggest sources of entry-level jobs in recent years.
"Our industry is the largest employer of welfare-to-work people, the largest employer of single parents, the largest employer of immigrants, of people working paycheck-to-paycheck," says John W. Wilhelm, president of the Hotel Employees and Restaurant Employees International Union. He estimates that between a third and a half of his 300,000 members have been laid off during the past three weeks, with countless more put on reduced hours. Last week, a Las Vegas affiliate of the union, the Culinary Workers Union, set up a large white tent on its property to process unemployment claims for the estimated 10,000 members who have lost jobs in recent days.
At Washington's Omni Shoreham Hotel, Chantay Richardson lost her full-time housekeeping job, in which she had just received a raise to $9.25 per hour, from $8.85. She has since found a similar housekeeping job at an area hospital. But that pays just $7.25 per hour and provides only eight hours of work a week. Even with jobless benefits, she says: "The rent's not getting paid. I have five kids. It's rough."
For some workers, full-time jobs are eroding into part-time posts. In September, the number of people working part-time but wanting full-time work soared by 860,000, mostly "among persons whose hours were cut due to slack work or business conditions," the Labor Department said in its monthly report.
Sandra Elamin's job as a telephone operator at Loews Miami Beach Hotel was scaled back last month from full-time to as little as three days a week, part of the hotel's effort to avoid layoffs by spreading the pain. When she first got the job last year, after a decade on and off welfare, it seemed like a source of steady income to cover her bills. Now, says the 41-year-old, "My cupboards aren't as full as they should be. I need to get my son undershirts and socks, but I've got to pay the electric bill."
A surge of layoffs, which began before Sept. 11 and has intensified since, comes at a time when the government safety net has been weakened. The federal government and states have made it harder for people to qualify for welfare and have limited the funds available for benefits.
Meanwhile, many people who are laid off -- especially those who have just left welfare -- are finding it hard to obtain state unemployment insurance. States often require workers to have held a job for a certain length of time and peg insurance payments to income level.
That's the situation confronting Manuel "Butch" Silvia of Hartford City, Ind. Since he made only $11,600 over the past year, he qualified for only 14.5 weeks of checks per year, far fewer than the 26 weeks many better-paid workers in Indiana can get. He used up his benefits during a layoff earlier this year. When he was laid off on Sept. 17 from a factory job at Tru-Form Steel & Wire Inc., which he had held for only four months, he learned he wouldn't qualify for any additional government assistance until next year.
To help cushion the economic blow of Sept. 11, President Bush last week proposed to make additional federal money available to the hardest-hit states to extend the duration of unemployment benefits and to make it easier for unemployed workers to qualify. Democrats in Congress are pushing for a more generous package.
There is less movement in Washington on providing affordable health insurance to those who lack it, including many of the now-laid-off low-wage workers who can't afford to pay the premiums to continue coverage. Boston's Ms. Vanriel says her Park Plaza insurance runs out in November. She doubts she can afford the $600 monthly payments needed to continue that coverage. Yet she isn't sure she can afford not to: One of her daughters has a lump in her breast, which hasn't been diagnosed, but Ms. Vanriel fears it could be cancer.
Some good news is mixed with all the bad. The Sept. 11 attack has led some businesses, such as security firms, to step up hiring of entry-level workers. "Our placement rate in New York hasn't really changed much over the last three months," says Peter Cove, founder of America Works Inc., a New York-based firm that specializes in finding jobs for welfare recipients and other hard-to-employ people. "There's been a shift in demand," he says, with airport food-service vendors cutting back but "a real uptick for us at security companies." After one of Mr. Cove's clients, Tremayne Rice, a 20-year-old high-school dropout, lost his $7.50-per-hour maintenance job at New York's John F. Kennedy airport, he quickly found work as a 40-hour-a-week, $7-an-hour property guard elsewhere in New York.
As long as the unemployment rate doesn't rise too much for too long, some progress from the 1990s will endure. Many of the people who joined the labor force over the past five years but are now losing jobs will be better prepared to find new ones in the future.
When Ronald Reagan National Airport in Washington was shut down from Sept. 11 to Oct. 4, Sheila Johnson, a 39-year-old mother of three, was laid off from her $5.15-an-hour job as a passenger escort. She's back now, but equally important, she says, having her first paid job in 17 years has given her the confidence to think she might be able to find another one if she has to. "At least I have a foot in the door," she says.
Getting a foot in the door was a big part of the story of the 1990s.
The U.S. enjoyed periods of strong growth in the 1970s and 1980s. But a large group was left behind. From late 1974 through 1994, the jobless rate mainly stayed above 6%. Wages and salaries for lower-income and even middle-class workers stagnated, barely rising through the 1980s and early 1990s. Meanwhile, the gap between the best-paid and worst-paid soared. The share of total income paid to the top 5% rose to 21% in 1993 from 15.6% in 1981.
That changed with the expansion that began in March 1991 and kicked into high gear five years later. By September 2000, the jobless rate had fallen to 3.9% for the first time since 1970. For African-Americans, the rate fell to 7.2% at one point, the lowest level since the government started keeping such statistics in 1972. The percentage of working-age Americans working or seeking work hit a record 67.4%.
Pay rose. From 1994 through 1999, median household income increased 14%, hitting $42,187 in 1999 before slipping in 2000, to $42,148. By March of 2001, the percentage of American households living below the poverty line had fallen to 11.3%, the lowest level since 1973.
When President Clinton signed into law sharp cutbacks in public assistance in 1996, critics predicted a surged in poverty, as inexperienced people were pushed into a wary labor market. Instead, the unanticipated rise in demand for workers boosted employment rates for those leaving welfare higher than expected, says Sheila Zadlewski, a researcher at the Urban Institute, a think tank in Washington. Studies published earlier this year found that about 40% of former welfare recipients had found full-time work, she says. Another 20% had found part-time work. The median wage for those workers was about $7.15 an hour, a full $2 above the minimum wage.
Then, with economy slumping, the planes smashed into the World Trade Center and the Pentagon. Already-weakening demand for the least-skilled, least-experienced workers declined further. The jobless rate for African-Americans in September was 8.7%, more than a full percentage point higher than the recent low. The jobless rate for high school dropouts hit 7.8%, also well above the expansion's low and a sharp jump from August.
Companies are getting choosier about whom they hire and less generous to those they do hire. During the boom, some employers took unskilled workers and incurred the expense of teaching them job skills. But in recent months, Ecolab Inc. of St. Paul, Minn., has halted most of its on-site math classes. "We are not trading down any more, saying I would like to have someone with a high school degree and five years experience, but I'll settle for someone with the high school degree and no experience," says Diana Lewis, senior vice president of human resources for the manufacturer and distributor of industrial cleaning products.
In Detroit, not so long ago, some auto makers were hiring inexperienced temporary workers after arranging for them to shadow a company employee for a month. Now, the manufacturers increasingly are demanding temps who have actual experience working for them for at least a few months.
For a growing number of workers, the job market has dried up completely. In September, 60.6% of unemployed workers had been out of a job for at least five weeks, up from 54.5% a year earlier.
Bennie Elder illustrates the sharp turnabout in the labor market for workers. After leaving the Air Force in 1995, Mr. Elder, now 27, had no trouble finding manual labor in Omaha, Neb. "I could quit a job and the very next day get a job," he says. And that's what he did, spending time as a construction worker, warehouse lift driver and welder on a motorcycle-factory assembly line, before settling into work as an automobile mechanic.
As recently as April, he didn't think twice about quitting a $38,000-a-year job managing the repair shop for a Chrysler dealer, even though his wife had just given birth to their second child, he says. He and his new boss didn't see eye to eye, so Mr. Elder moved on. Another car-repair shop offered $13 an hour, plus profit sharing if repairs were finished promptly.
At first, Mr. Elder was getting 40 hours of work a week in his latest gig, plus regular overtime and health insurance. Then people became more frugal about bringing in cars for repairs, and his hours fell off sharply. "All of a sudden, I couldn't feed my family," he says. On Sept. 6, he was laid off.
Finding a new job after the Sept. 11 attack has proved difficult. "Everywhere I put in an application, they have tons of other applications," Mr. Elder says. He recently found out he has four weeks left of unemployment payments. "If it comes down to it, I could work out of my garage, repairing cars," he says. "But I don't think that would pay the bills."
Write to Jacob M. Schlesinger at jacob.schlesinger@wsj.com and Russell Gold at russell.gold@wsj.com