Do Lean Companies Create Fewer Jobs?

A thought-provoking column in The New York Times recently spotlights a little-known fact: a decline in job churning.

What that means is that there is less volatility in the job market. Most people focus on the number of jobs created each month, but that is a net number. In recent months, the total numbers of jobs eliminated and jobs created – and the percentages of total employment those numbers represent – have declined.

Contrary to popular belief, the most recent numbers show that job cuts in the private sector have fallen to a near-15-year low. In the first three months of this year, workplaces that downsized or shut down have eliminated 7.1 million jobs, equal to 6.2 percent of the nation’s total private-sector employment.

That may sound like a lot, but it’s a lower percentage than at any point from 1992 (when the Labor Department began keeping such records) to last year. Scott Schuh, a senior economist at the Federal Reserve Bank of Boston, says that job destruction rates have probably been on the wane for most of the last 50 years.

Unfortunately, the number of new jobs created by start-up and growing businesses has also been falling. These businesses added 7.5 million jobs in the first quarter of this year, which made for the slowest pace of job creation on record.

David Leonhardt, who wrote the column, suggests that the situation is not the result of downsizing or free trade agreements.

The biggest problem with the job market isn’t the jobs that are being eliminated, shipped overseas or filled by temporary workers. The biggest problem is on the other end of the equation. There are far fewer jobs being created by new or expanding companies than there were throughout the 1990s.

He calls it the Honeywell syndrome. Honeywell laid off thousands of people from 1999 through 2001, but then its business turned around – revenue in 2007 was up 50 percent over 2002.

So you might think that the company would be hiring scads of workers. But it isn’t. Around the world, it employs 118,000 workers today, not so many more than the 108,000 it employed back in 2002. Honeywell has simply figured how to do more business with fewer people. That’s good for the company’s investors and for the employees already on its payroll, but it doesn’t do much to strengthen the job market.

On its Web site, Honeywell proudly declares its commitment to continuous improvement and its “Six Sigma Plus” strategy, whose methodologies include what the company calls Lean Enterprise.

So as more companies adopt lean strategies, does that contribute to fewer jobs being created? Is a side effect of lean that the job market is less robust? Do you know of any other examples that support this idea? Share your thoughts below.


Curious Cat said...

I do not believe lean companies produce fewer jobs. If you set say the sales of a company at a certain growth rate then a company effectively adopting lean methods would produce fewer jobs. However that is a false comparison. Lean companies will grow and create jobs while poorly managed companies will shrink and lose jobs. For an example compare jobs at Ford and GM with Toyota.

Similar to Deming's chain reaction improve quality, lower costs, gain market share, provide more and more jobs...

Anonymous said...

I do not agree that Lean cpmpanies create less job opportunities. I have been lucky to have had the experience of working for a company whose 'back were to the wall', the complete and on time delvery rate was 53%, with back orders peaking at 1699, approximately 74 people were employed, last chance was to implement lean. This was done very successfully, resulting in leadtinme reduction from 66 days to 7/8 days, Backorder reduced to approx 10 units, goal is less than 30, there are currently 360 people employed.Main reason - sales grew as customers learned to trust that we could deliver.