The Layoff Domino Effect

Financial Crisis Affecting Jobs

The first victims of the financial crisis were those directly connected to the real estate market: mortgage brokers, real estate agents and home builders. Next up were related companies such as Home Depot. As home equity credit lines started to dry up, fewer homeowners had the free money to make renovations, taking down contractors and trade people.

Then the bottom fell out on Wall Street. Banks and investment firms started to add up their losses on mortgages and mortgage-backed investments. Losses mounted, firms went under and jobs were lost across the financial sector.

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For instance Morgan Stanley has cut roughly 10 percent of its workforce this year and another 2,000 to 2,500 job losses are expected there before the end of the year. Citibank will cut 50,000 jobs. Fidelity Investments recently announced that it will lay off 1,300 employees and American Express made similar cuts.

The loss of many of those high-earning jobs has its own ripple effect. Investment bankers had to cut back on everything from fancy lunches to expensive cars and pricey clothing. For instance, some New York nightclubs stopped selling $300 bottles of vodka to free-spending customers. There simply wasn't enough demand any more.

Those restaurants, bars, clothing shops and auto dealers all are then forced to layoff workers to cut costs. Those workers then buy fewer goods and the cycle continues.

There are several factors making the situation even worse today.

First, the three major U.S. automakers -- long troubled -- say they are on the verge of bankruptcy. Such a collapse would have a major impact on the U.S. workforce. Everybody from car dealers to parts suppliers would feel the pain.

There are some companies that are still healthy, to be sure. But because banks are hesitant to loan money, they too are suffering. Healthy companies that want to expand can't get a loan to build, say a second or third assembly line. Without that extra line, they have no need for extra workers.

Finally, falling stock prices have shriveled most American's retirement and savings accounts leaving them with less money to spend or at least a feeling about being broke. Consumers who feel poor or fear losing their job -- even if they haven't -- are less likely to spend money on vacations or might scale back Christmas gifts.