Defense Cuts Put U.s. Jobs On The Line

100,000 Workers Could Be Idled Yearly: Experts

April 15, 1990|By N.Y. Times News Service

The U.S. economy can absorb large cuts in military spending without serious damage, economists say, although for a while, at least, tens of thousands of Americans will lose their jobs.

That will happen mostly because military spending will shrink faster than the civilian sector can expand to take up the slack.

By most estimates, the process could temporarily idle up to 100,000 people a year in the 1990s, most of them discharged from the military service against their wishes or laid off at weapons plants, which would then go unused.

The proposed military cuts, some calling for reductions of more than $100 billion a year by the late 1990s, would mark the fourth big cutback in military spending since World War II.

But it would differ from the others in two significant ways.

Never before on the eve of a major reduction has the military represented so small a portion of the national economy: less than 6 percent of the total wealth created in the nation last year.

As a result, the cutback will scarcely show up in the statistics that measure economic strength.

Nevertheless, this is the nation's first attempt to shrink military spending at a time of sluggish economic growth - when idle weapons factories and their workers are not really needed for civilian production.

The cutbacks might be hard to spot in the national statistics, but in a weak economy they could contribute to a recession in the early 1990s.

"Probably, the weakness in the economy today has something to do with the shrinkage in defense spending that has already taken place," said Robert Giordano, chief economist at Goldman, Sachs & Co.

"But to really take a sledgehammer to the economy, you would need cutbacks far bigger than anyone has yet proposed."

Even if the cutbacks turn out to be footnotes in the record books, they still inflict damage in places like Lima, Ohio, and Warren, Mich., where General Dynamics Corp. operates the only two factories still producing tanks in the United States.

The Army intends to end tank production in 1993, for the first time since World War II.

If such plans go through, then General Dynamics insists that it will have to close its tank division, which employs 7,300 people and draws on a network of private suppliers that employ thousands more.

Similar problems are hurting cities and towns in the Northeast, the mid-Atlantic and West Coast, the three regions where military spending is concentrated.

For every $1 billion drop in the defense budget, Hampton Roads historically has lost 600 to 650 jobs, said John Whaley, chief economist for the Southeastern Virginia Planning District Commission. About 250 of those jobs come from South Hampton Roads, Whaley said in a January 1989 interview with the Daily Press.-

And a cutback in military spending brings subtle changes that affect millions of lives.

Among these changes, perhaps the most important is the impact on minority workers.

The armed forces and the Defense Department's civilian payroll have been a source of jobs and training for blacks and others who have been under-represented in the civilian sector.

In addition, weapons makers and military research laboratories often pay more than civilian employers, so the military cutback might lower the national wage level.

In Massachusetts, a center of arms research and production, military-sector wages averaged $33,000 a year in 1987, or 23 percent more than the average income in the private sector, according to a state government study.

More positively, a cutback in military spending would bring highly skilled people to the civilian sector, for example, thirty percent of the nation's engineers and scientists work on military projects, and some would be freed to develop civilian products.

Whatever the benefits or drawbacks, the biggest immediate issues, in the view of many economists and politicians, are retooling and retraining.

Factories that make tanks or fighter planes or missiles will need to be overhauled to make civilian products.

Workers at every level will need to function in a civilian business sector that marches to different values, among them working under pressure and cutting costs.

To deal with the conversion problem, Congress is considering a bill that would force military contractors to draw up retooling plans and to retrain workers.

Above all, the U.S. economy in the 1990s will be shaped by the federal government's strategy for spending the "peace dividend."

The huge debate building over this issue offers two alternatives.

One would use the savings from the military sector to reduce the budget deficit, in the belief that a lower deficit means less government borrowing and thus lower interest rates on loans for everyone.

Given these lower rates, the civilian sector would presumably borrow more to invest in new factories, stores and research operations that would replace the shrinking military sector.

The other alternative is to spend much more on public works.

Daily Press Articles