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Executive Decision

A volatile business climate continues to drive corporate refugees into entrepreneurship.

In a business climate fraught with constant change, corporate layoffs have become a common business practice. For many corporations, outsourcing business functions is more cost-effective than handling them internally. At the same time, new technology is allowing big business to replace bodies with machines, robbing workers of their jobs. And with the bottom line often the top priority, profit-driven job cuts are now in vogue.

As more workers continue to fall off the corporate ladder, many displaced executives are discovering only one way to land on their feet: become an entrepreneur. Challenger, Gray & Christmas, a Chicago-based corporate outplacement company, estimates the number of layoff victims who have turned to entrepreneurship has roughly doubled in just two years, ballooning from 6 percent to 8 percent in 1993 to 12 percent to 15 percent in 1995.

While the rate of layoffs slowed between 1993 and 1994, economists acknowledge layoffs are still continuing at a much higher pace than was the case a decade ago-and there's even been a slight acceleration in layoffs in recent months. Overall, economists believe not only is this phenomenon likely to continue, but also that, in part, its effects will be more far-reaching than in years past.

"What is different about the last few years is that job instability is creeping up the ladder," says Robert Solow, professor of economics at Massachusetts Institute of Technology (MIT) in Cambridge. "It's moving from blue-collar and clerical workers to include managerial people and even some technical people."

What's also unsettling about today's round of cutbacks, say economists, is that unlike the series of layoffs in the 1980s, which was largely concentrated in the automotive, steel and rubber industries, '90s-style layoffs are occurring in industries across the board.

"What's going on now is that it's happening more broadly and more frequently," explains Ken Goldstein, an economist at The Conference Board, a New York City economic research firm. The reason? "There's more emphasis on achieving and maintaining a competitive edge in a globally connected and intensely competitive environment."

Economists agree cutbacks will continue in industries facing stiff international competition or deregulation, or undergoing rapid change. They point to such fields as telecommunications, computers, insurance and banking as particularly vulnerable.

A spate of mergers in recent months is feeding the trend as well. According to Challenger, Gray & Christmas, a whopping $866 billion worth of mergers took place in the United States last year, setting a new record; these mergers resulted in more than 72,000 layoffs. And there's no sign of any slowing: By the first quarter of this year, there had already been $208 billion in mergers.

Take all these factors into consideration, says Goldstein, and this unstable business climate is here to stay well into the foreseeable future. "The competition big business faces today isn't going to get any better in the next five or 10 years," he contends. "If anything, it'll get even more intense. The very factors that drove [corporations] to do what they did in the early '90s will still be there [in the future]. Not only are things unlikely to change in the next five or 10 years; they're not likely to change in the next 50."

That's hard news to swallow for many corporate employees-but news that must be accepted nonetheless. "I think the general public still has the sense that once this [layoff trend] is over, it'll all go back to normal," says Dixie Darr, editor and publisher of The Accidental Entrepreneur, a Denver-based newsletter for downsized-execs-turned-entrepreneurs. "But today, this is business as usual. There's just a lot of change going on, and it's going to continue."

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This article was originally published in the July 1996 print edition of Entrepreneur with the headline: Executive Decision.

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