Countering Damage From Layoffs, One Job at a Time

MINNEAPOLIS — When Barry Bosold took over the aging and no-longer-needed Marshall High School building 10 years ago, he re-christened it the University Technology Center and turned its spacious classrooms into a rabbit warren of small incubator offices for budding entrepreneurs.

Here, under his nurturing hand, was supposed to arise the answer to one of America’s deepest concerns: how to replace the high-skill, high-wage jobs that were evaporating in the blaze of corporate downsizing and global competition.

Last month, although unemployment sank below 5% for the first time since 1973, even that milestone could not erase nagging fears that too many new jobs may be the low-wage equivalent of flipping hamburgers.

On first inspection, Bosold’s venture does little to prove the Jeremiahs wrong. In the huge trophy case that dominates the entry hall, emblems of past football glory have been replaced by advertisements for some of U-Tech’s tenants: custom violin maker Carl Becker & Son, the Midwest Karate School, the Minnesota center for Shiatsu massage.

Valuable as these are to their customers, Bosold concedes that they cannot generate the wealth and employment opportunities needed to replace hundreds of thousands of jobs eliminated by Fortune 500 companies.

But poke a little farther down a hallway, toward the old auditorium or up a broad staircase that once bustled with boys in letter sweaters and girls in poodle skirts.

It is here you may come upon Bill Hall, founder of a company called Applied Policy Research Inc., which helps colleges compete more effectively for students. Or Kirk Hoaglund, at 37 already a partner in three small firms, including one that harnesses computers to produce chummy sound-bite ads for grocery stores.

Hall, Hoaglund and a covey of others, all refugees from downsizing, represent in miniature a process that has helped generate a stunningly large number of “good” jobs without the surge of inflation that poisoned the low unemployment of 1973.

“IBM laying off 50,000 people is a headline story, but little firms rehiring them one, two, three at a time is not,” said Joseph Ritter, an economist at the Federal Reserve Bank of St. Louis. “And that is obviously happening.”

Workers Rebounding After Losing Jobs

Nor do Labor Department statistics support the widely held concern that large numbers of skilled middle-class workers, cast aside through corporate downsizing, wind up in far inferior jobs.

For the three years ending last year, half of all workers who lost their jobs to plant closings, job eliminations and the like found new work within three months. Three-quarters were employed within a year.

Nor were huge pay cuts the rule. On average, displaced workers landed in full-time jobs that paid about 10% less than the jobs they left. Young workers (between 20 and 34) actually gained in pay.

Economists warn that the combination of rapid job growth and low inflation may not last indefinitely. And so far as new jobs are concerned, Harvard University labor economist James Medoff argues, the U.S. labor market is much weaker today than in 1973.

That may make noninflationary growth easier to sustain, but it may not be entirely good news for workers. Medoff notes, for instance, that the help-wanted index maintained by the Conference Board, a private economic research organization, is way down when adjusted for the growth of the labor force. Moreover, employers have been in such a strong position in recent years that they could hold down wage gains and even cut back on such once-common benefits as pensions and health insurance.

Still, low inflation helps workers as well as employers. And in their tortoise-like way, the small companies at U-Tech are doing at least two things that may help produce good jobs without the inflation that often accompanied low unemployment in the past.

First, as the economy improved in the traditional business cycle, companies would expand output by adding shifts and hiring new, often less-skilled workers in a frantic effort to keep up with demand. The result was higher costs, lower efficiency and eventually a downturn.

U-Tech’s best companies try to avoid such yo-yoing. For one thing, they deliberately stay very lean. And they also tend to add new jobs by finding profitable new products or services to offer instead of by cranking up the engine on old ones.

Although U-Tech is a for-profit company, Bosold provides low-rent office space--everything from a cubicle with built-in desk to multi-room suites--plus flexible leases, telephone and fax systems and other support services on bargain terms that enable his 180 tenants to function without using too much of their precious capital on start-up costs.

Second, these enterprises use advanced but existing technology to create the kinds of jobs that require highly educated workers. That’s small comfort for those trapped in poverty, but it does offer hope for workers who can prepare themselves.

“In terms of taxable income, we’re probably the equivalent of 40 hamburger flippers,” APR’s Hall says of his tiny but well-paid staff.

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“I was a nerd from age 10 and still am,” Hoaglund said. “I only ever wanted to do computers. And my timing was perfect.”

As he entered high school in a small town near Rochester, Minn., the school was presented with a terminal--”a big, clunky typewriter with a big roll of yellow paper”--connected to a mainframe computer in Minneapolis. In his school, only young Kirk Hoaglund and his math teacher had any idea what they were.

“There were no manuals, no classes. I just began to teach myself programming,” he said. “My math teacher was very supportive. The janitor was not. Every night he would say, ‘You’ve got to go home now’ and pull out the plug--every single night.”

After four years at the University of Minnesota, a good job at Control Data Corp.--then a giant manufacturer of mainframe computers--was almost preordained. But Hoaglund and a co-worker, David Larson, saw that Control Data was beginning to skid toward disaster. From a peak of more than 60,000 workers, it had shrunk to just 3,000 by the time he and Larson decided to “voluntarily downsize ourselves” in 1992.

They hired out as “cowboy programmers,” solving specialized problems for companies that did not need their services full time, companies that eventually included IBM Corp. and Control Data itself.

Within three months they were equaling their old $50,000-a-year salaries. “Surprised the hell out of us,” Hoaglund said.

Today, the office of Larson & Hoaglund Inc. pays each of its three partners more than $100,000 a year. Five other specialists, all fellow refugees from Control Data, top $50,000 a year.

More important, Larson & Hoagland has midwifed two other firms.

One, Parrot Technologies, was founded after a local ad agency came looking for a better way to make audio ads for a grocery chain. Instead of laboriously recording and distributing cassette tapes, Hoaglund and Larson developed a way to store sounds and voice patterns, plus grocery store bar codes, in a computer. Then they wrote programs that allow store managers to dial in the sale item and the aisle where shoppers can find it--and almost instantly get a commercial delivered in the virtually real voice of a popular DJ.

The other company, Professional Network Services, which offers high-speed, high-quality Internet access to business clients, is more prosaic. But in less than a year it has rescued two upper-income workers from the world of downsizing--and given them raises.

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A dozen years ago, Hall, then 36, was a respected education policy analyst for the state of Minnesota. He had engineered an innovative system of financial aid that encouraged competition and diversity by allowing college students to get state help whether they chose public or private institutions.

Yet the agency Hall worked for began to deteriorate; he concluded--correctly, it turned out--that it would not survive. So in 1986, married with two school-age children, he left the public payroll.

Life in the private sector was not an overnight success. Within the first year, Hall cashed out everything he had accumulated in the state pension plan, then sold his house to raise more money for his fledgling college admissions firm.

On the brink of defeat, he returned to the highway construction company that had employed him as a college student. Might there still be work for an experienced grade foreman?

Before an answer came back, Hall received a query from the Eli Lilly Foundation in Indianapolis. Indiana then ranked third from the bottom among the states in the percentage of young people going to college. The Lilly Foundation wondered if Hall might be available to do something about that.

“I told them that if I don’t take this construction job, I’m available,” he jokes now. Hall became a standard-issue consultant, with a good income but little capacity to multiply himself. What lifted him beyond that was his development of a complex set of computer models and other analytical tools that help colleges raise more income from student tuition without pricing themselves out of their own markets.

‘You’re Talking Mom and Pop America’

Exactly how he does it is a closely guarded trade secret, but essentially Applied Policy Research enables its clients to treat seats in the freshman class like seats on a modern-day airliner: Some are sold at bargain-basement prices, some at full sticker price and some in between.

Because many parents try to bargain one school’s offer against another, APR’s computers track each client’s situation continually so that school officials know exactly where they stand--what they can afford to give away for an unfilled seat.

The high value of such services has enabled APR to add a well-paid computer expert to its staff, plus a lawyer-administrator whose arrival has freed Hall to double his own billable hours.

Now he is moving toward hiring another full-time employee. “You’re talking about Mom and Pop America,” Hall said, “but would Mom and Pop have been running high-tech companies that could pay their CEO $100,000 in a good year and $30,000 in a bad one?”

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Unlike Hall and Hoaglund, computer software specialist John O’Hanlon, 30, is no entrepreneur. When he was laid off by a major charitable organization early this year, he had no source of income, virtually no savings, no substantial track record to commend him to a new employer and no notion of starting his own company.

For three months, while living with his college roommates, he combed want ads, mailed dozens of resumes and showed up for an interview with anyone who would see him. All for naught.

“The longer you’re out, the scarier it gets,” he said, “and the harder to go into interviews showing the positive, enthusiastic attitude people want to see.”

At the beginning of May, his luck changed. Michael Hastings, head of Professional Network Services Inc., heard about O’Hanlon from a headhunter and soon offered him a job--at $60,000 a year to start.

PNS, which Hastings founded eight months ago with the help of Larson & Hoaglund, provides high-speed and highly reliable Internet connections for local businesses, including several at U-Tech. “I’ve never gotten a busy signal,” said Hall, for whom being connected to clients’ computers is critical.

Already, PNS is debt-free and adding customers rapidly. With O’Hanlon aboard, it is expanding into the promising field of helping companies link computer systems via the Internet instead of costly telephone lines.

“We’re making business out of existing technology,” Hastings said. “We’re real world.”

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The Economy Then and Now

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1973 Current Unemployment rate 4.9% 4.9% Employed people (millions) 85 129 Employment/population ratio 57.8% 63.8% Displaced workers (millions) 1.2* 1.4 Median family income (1992 dollars) $35,407 $38,782 Consumer price inflation 8.7% 2.8% Poverty rate 11.1% 13.8%

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* 1983

Source: Bureau of Labor Statistics