Outsourcing Not to Blame for 2004 Job Losses

Published March 1, 2005

Cost-cutting ranked as the primary reason for payroll reductions by U.S. firms in 2004, accounting for 40 percent, or 419,819 of the 1,039,735 job cuts employers announced, according to a study by global outplacement firm Challenger, Gray & Christmas.

The second-leading cause of job cuts was the closing of facilities, units, offices, or entire companies. Business-closure job cuts amounted to 211,012, or 20 percent of last year’s job cuts.

Outsourcing Ranked Last

Of the 13 categories defined by Challenger as reasons for job cutting, outsourcing and offshoring ranked last, accounting for 4,448–just 0.4 percent–of the 2004 job cuts.

Challenger, which initiated its tracking of job-cut reasons in January 2004, designated “outsourcing” as operations fulfilled by an outside service provider located within the United States, while “offshoring” refers specifically to operations or work completed by a firm outside the country.

Between the two, offshoring was the greater cause of job cuts, accounting for 4,316 of the 4,448 announced cuts related to these practices.

“The low number of offshoring-related job cuts reported does not mean that American jobs are not affected by this business practice. Certainly, any job that is being done overseas because of lower cost is a job not being done here,” said John A. Challenger, chief executive officer of Challenger, Gray & Christmas.

“However, in the long run, offshoring will actually create more jobs in America by freeing up financial resources for expansion, research, and development and new higher-skilled, higher-paid workers.”

Mergers Loom

Challenger projected mergers and acquisitions, which resulted in 65,810 job cuts in 2004, could become a leading cause for layoffs in 2005.

“We are seeing a surge in M&A activity as the economy begins to accelerate and companies try to expand their market share by gobbling up the competition. Job cuts are a byproduct of most mergers, as the combined company eliminates redundancies and attempts to maximize value,” Challenger said.

Post-merger downsizing was recently demonstrated by Oracle, which announced 5,000 job cuts following the completion of its acquisition of PeopleSoft. In addition, the Cingular/AT&T combination will result in 7,000 job cuts over the next 12 to 18 months.

James Pedderson ([email protected]) is director of public relations at Challenger, Gray & Christmas Inc., a global outplacement firm.