Thursday, March 29, 2007

Union, Anyone?

Circuit City cuts 3,400 who its says earn well above the going rate. They can apply for their old jobs -- for less pay.

The Los Angeles Times reports:
Circuit City Stores Inc. has a message for some of its best-paid employees: Work for less or work somewhere else.

The electronics retailer on Wednesday laid off 3,400 people who earned "well above" the local market rate for the sort of jobs they held at its stores.

In 11 weeks they'll be able to apply for their old positions — which will come with lower hourly wages.
The move put Richmond, Va.-based Circuit City, which has more than 40,000 employees in the United States, at the forefront of a new way of controlling labor costs in the service industry. Employers determine the prevailing market wages for particular jobs in various geographic regions and then find ways to make sure that their workers' salaries stay within that range.

Wal-Mart Stores Inc., for example, last summer capped the pay of its veterans at levels consistent with competitors' top wages. Wal-Mart didn't lay off those who earned above a certain amount but did stop giving them raises, saying that would encourage them to advance through the ranks to higher-paying positions.

Circuit City is being more aggressive about it, said Peter Doeringer, a professor of labor economics at Boston University. "What's unusual is to say we're doing this deliberate swapping of high for low."

Company spokesman Bill Cimino said Circuit City wanted to be honest with its sales associates so they would understand the reason for the layoffs.

"It had nothing to do with their skills or whether they were a good worker or not," Cimino said. "It was a function of their salary relative to the market."

Circuit City expects to reap $110 million in savings in the next year, partly as a result of the layoffs and other changes announced Wednesday, including the outsourcing of about 130 information technology jobs to IBM Corp.

The company's stock rose 31 cents to $19.23. Circuit City shares have fallen 21% over the last 12 months.

Not everyone on Wall Street is sure the layoffs will pay off.

The highest-paid employees can be some of the best and most experienced, and if Circuit City's customer service suffers, so may the company's fortunes against Best Buy Inc., whose reputation for high-quality help has helped make it the industry leader.

"I question whether Circuit City's move is going to do them any good at all," said Van Baker, a media and consumer electronics analyst with Gartner Inc. in San Jose. "One of the things they're doing is getting cheaper employees who are likely to be not as well equipped to address consumer questions."

Warren Bennis, who teaches leadership at the USC Marshall School of Business, agreed, calling the move "demeaning and counterproductive."

Circuit City's Cimino said that higher-paid employees weren't necessarily the most productive. He also noted that only 8% of the workforce was affected.

Among those who lost their jobs Wednesday were 321 people who worked in the Los Angeles area's 44 stores. A total of 621 workers at 90 stores in California were laid off.

Circuit City wouldn't give details about what it paid its nonunion workforce or the prevailing market rates, noting that they widely vary across the country.

Analyst Richard Weinhart with BMO Capital Markets in New York estimated that people who work in consumer electronics stores earned $8 to $13 an hour.

The company said it expected "greater sales volatility" during the first half of the fiscal year partly because of the layoffs.

In a note to clients, Goldman Sachs analyst Matthew Fassler said that after Circuit City's last major pay change in 2003, when it went from commission-based pay to flat hourly rates, Best Buy's sales in stores open at least a year gained significantly while Circuit City's fell.

On Wednesday, customers walking by a Circuit City store in Santa Monica with a "Now Hiring" sign in the window expressed dismay.

"To me it's a slap in the face," said Kenrich Nyvett, a parking lot manager in Santa Monica who went to Circuit City for DVDs.

"I don't feel like it's something good," the 46-year-old Los Angeles resident said. But "everybody needs a job these days."

Meanwhile, the top 300,000 U.S. income earners saw the biggest gain since the 1920s and the 90 percent of all income earners showed a decline:
If you feel a little left out these days in the "I am so totally rich party," there is a good reason. You were not invited. According to a study that analyzed U.S. Internal Revenue data, the top 10 percent of all income earners in the U.S. reserved the club car, the engine and the caboose for this party ride. Your chances of getting a ticket is even less likely than getting a special invite to Elton John's recent 60th birthday bash.

The study compiled by Professor Emmanuel Saez an economist at the University of California, Berkeley and Professor Thomas Piketty of the Paris School of Economics,indicates the top one percent of all income earners (those earning in excess of $348,000 per year) received the highest increase in income. The New York Times reports that increases in income amounted to nine percent overall during 2005.

The bulk of the income increases apply to income earners at the top 10 percent. The super majority of all income earners saw a .06 dip in their income compared to 2004. According to the New York Times article dated March 29, entitled "Income Gap is Widening" by David Cay Johnston this range of income inequality within the United States has not been seen since 1928.

According to Professor Saez, "If the economy is growing, but only a few are enjoying the benefits, it goes to our sense of fairness." "It can have important political consequences," added Professor Saez. The disparity may even be greater at the top range of income because the IRS has an easier job tracking wage earners. Those in the top range may have business income and expense and other types of investment income which may have gone unreported and are more difficult to trace.

The current debate in Congress centers on the pivotal question of whether the tax cuts for the top 10 percent of all income earners in the United States has infused the economy with important investment capital or whether the tax cut dollars could be distributed more equally to benefit the majority of all tax payers. This comes at a time when many other social issues are at play. The predictable short fall of the entire Social Security Trust Fund including Medicare due to the retiring post World War 11, "baby boomer generation" and the rising costs of health care at all levels is one consideration. This factor is underscored by concerns expressed by the Federal Reserve Board and other governmental watch dog auditors.

The statistical study does find that while the top 10 percent have paid more in taxes even with the tax cuts their net return in income was the highest in 2005 since the late 1920s. The top 10 percent of all income earners got back 48.5 percent of all income earned in 2005. This figure is up significantly since the 1970s when this elite group captured 33 percent of all income reported.

The debate promises to be a lively and colorful Power Point display of graphs and statistical analysis. The actual figures in question amount to an average of $150,000 per year in tax cuts for people making in excess of one million dollars per year, according to Richard Greenstein, Executive Director of the Center on Budget and Policy Priorities.

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