(DV) Smith: "Cost Containment" at Circuit City

In January, Circuit City employee Bobby Young received a certificate of excellence for his twenty years of loyal service at the company’s Roanoke, Virginia store. On March 28, he received a pink slip.

When the 47-year old father of two arrived at work that morning, he was handed a letter inexplicably addressed “to whom it may concern,” explaining that the company had terminated his employment, effective immediately. That same day, 3,400 workers at Circuit City stores across the country were greeted with the news that they had been fired -- before management quickly escorted them out of the building.

Company spokesman Bob Cimino bluntly announced that the mass firings targeted the most experienced and highest paid in-store workers as part of a “wage management initiative” to replace them with low-wage new hires. “It had nothing to do with their skills or whether they were a good worker or not,” Cimino said.

Those who were fired made up roughly 8.5 percent of the 40,000 workers at the 650 retail outlets of the nation’s second-largest electronics retailer, which trails only Best Buy. But these workers, the company explained, were being paid “well above the market-based salary range for their roles.”

According to Bloomberg News, however, Circuit City pay averages $10 to $11 an hour -- precisely the market average. After 20 years, Young was earning $18.90 an hour, with health care benefits. His replacement will earn less than half that amount, without benefits.

The company will graciously allowed its allegedly overpaid former workers to reapply for their old jobs -- at starting wages after they endure 10 weeks of grueling unemployment. Fired Los Angeles worker Richard O’Neal was told he could eventually reapply for his job, if he is willing to work for $7.50 per hour, California’s minimum wage.

But the company would discuss no further details of the terminations. Company spokeswoman Jackie Foreman, for example, told reporters she did not know when the fired workers’ health care coverage would run out.

This information might have helped Pennsylvania worker Jim Hammon -- who had surgery for rectal cancer just three months ago -- adjust to his new unemployed status. “I can’t afford to not have a job,” Hammond said, since he and his wife are ''over our heads'' in credit-card debt from medical bills.

As recently as September, Circuit City was awash in profits, and management had nothing but praise for its workforce. “Thanks to the hard work and focus of Associates throughout the company, we delivered strong growth in net sales, stable gross margins and expense leverage,” crooned Philip J. Schoonover, president and chief executive officer.

But the last six months have not been kind to Circuit City profit margins, as big box retailers Wal-Mart and Target undercut prices on prized flat-panel televisions during the holiday season. The company reported its first loss in six quarters in December while bracing investors for more gloom to come after the unexpected holiday debacle.

The mass firings are the centerpiece of a restructuring plan expected to save the retailer $250 million over the next two years.

Perhaps the fired workers would be less bitter if Circuit City’s top executives showed the least inclination to share the burden of controlling costs. After all, management bears far more responsibility for the company’s recent slippage than employees barely eking out a living.

Yet Schoonover and Chairman W. Alan McCollough together raked in nearly $10 million in total compensation last year -- including nearly $96,000 for Schoonover’s use of a company jet. Schoonover undoubtedly expects another raise this year for his daring “cost containment” scheme.

“I’m just lost right now. I’m lost. I don’t know what I’m going to do,” a desperate Bobby Young said after learning he was fired. “What they did as a company to me, it’s not the American way.”

Indeed, the ruling elite has long since transformed the “American way” of doing business. Decades of union-busting have resulted in a downward spiral in union membership, falling to just 7.4 percent of private-sector workers last year.

Labor unions fought to establish the expectation that a life of hard work will be rewarded by workplace seniority and higher pay. But as union membership plummets, that expectation is on a collision course with a new corporate reality that seeks to dispose of its most loyal and productive workers. Since 1973, productivity has grown by more than 70 percent in the U.S., yet the median wage is worth less today than in 1973.

The 3,400 fired Circuit City workers are the guinea pigs of the latest experiment in aggressive wage reduction. Corporate America has become impatient with two-tier wages, which reduce the salaries of the newest generations of employees but still allow veteran workers to maintain higher wages until they retire.

If Circuit City increases its profits by firing its highest-paid workers, this will become yet the latest corporate trend in slashing working-class living standards.

If not, perhaps Wal-Mart’s more subtle method will do. Last summer, Wal-Mart simply stopped granting wage increases for its long-standing employees, sending the clear message that their services are no longer wanted. These days, management prefers a revolving door of “entry-level” workers to a loyal workforce.

Left unchallenged, expect this trend to hasten. IRS data show that class inequality accelerated significantly in 2005: the richest 1 percent of Americans, with incomes of more than $348,000, received their largest share of national income since 1928, immediately preceding the Great Depression.

Then, as now, union organization provides the only vehicle for turning the balance of class forces, for corporate greed apparently knows no bounds.

Sharon Smith is a columnist for Socialist Worker and author of Women’s Liberation and Socialism, a new collection of essays that will be published by Haymarket Books. This article first appeared on the SW website: www.socialistworker.org. Thanks to Alan Maass.