Published May 2001

Look at the numbers: Economy not in dire straits

By Renee Radcliff
Guest Editorial

It was only one short year ago that the NASDAQ was seeing record highs and unemployment was at an all-time low. Now that we’ve experienced a few months of historic stock market drops and industry layoffs, one has to ask what made the high-tech economy go from boom to bust so quickly.

Or did it?

If one can set aside the emotional pain of stock market losses for just a moment, we can take a look at the facts behind recent market realities and employment market changes.

First, the stock market from a different angle: The “new economy” wasn’t really new. The Internet is not so much a new way of doing business as it is an extension of an existing business. Given enough time, business will be transformed — as it has been by telephones, automobiles and fax machines.

The rules of business have not changed. We still live in a world governed by supply and demand, and when the demand never caught up with the supply of Internet businesses, something had to go boom — and it did.

In the long run, we’re going to be better off. The Internet and e-commerce are not fads. Millions of people use the Internet, and they’re using it to shop — not as a matter of novelty, but as a matter of convenience. Profits may be elusive now, but they won’t be forever. The market will return to rationality — but only in the long-term.

Now, let’s take a look at the changing employment picture.

While Web-based firms have taken on a larger-than-life presence in the news and capital markets, their actual impact on the labor market is quite small.

By one estimate, 900,000 people currently are employed in that sector, which means that if every dot-com in the country disappeared tomorrow, the unemployment rate would jump to 5 percent — still far below what was considered full employment only a few short years ago.

There is no question the labor market is different today. In the past six months, even those high-tech companies that haven’t been laying off employees have become more cautious about hiring. And those who are hiring are looking for good fits — not just warm bodies.

What we are experiencing is an extremely hot labor market morphing into a good, solid labor market.

There are weak spots, of course.

Temporary workers across the country have been hit hard. Instead of the 10 percent-plus growth rate in temp jobs that we saw during the past several years, that sector is now contracting.

But what has brought about the greatest concern is the sharp jump in recent layoff announcements. It feels as if we’ve been transported back to the early ’90s when “downsizing” and “rightsizing” were the catchwords of the day.

However, look at the facts and you’ll see we’re a long way from that period.

At that time, the unemployment rate averaged over 7 percent and the number of help-wanted ads plunged 40 percent.

Today, the unemployment rate remains a microscopic 4.2 percent, up slightly from 4 percent in December. Help-wanted ads dropped 13 percent between January and August 2000, but have remained steady since.

While the headlines on some recent layoff announcements are pretty shocking, a glance at the fine print should offer relief. Many reductions within the high-tech sector will be achieved through attrition and early retirement — and those are being spread over a number of years.

Given the willingness of today’s business leaders to learn from the past, I’m quite upbeat about the future. Tomorrow’s start-ups will be built on firmer foundations.

What we really have in today’s economy are companies learning to be honest with themselves, their employees and their investors. And that’s a giant step toward a long-term, stable and healthy economy.

Renee Radcliff is Executive Director of the Washington Council of the AeA, Advancing the Business of Technology.

Back to the top/May 2001 Main Menu