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Defense layoffs or bluff?

Contractors say the 'fiscal cliff' could force layoffs as the legal deadline for sending out pink slips looms.

Defense contractors have warned for months they may lay off tens of thousands of workers if Congress fails to cut a budget deal at year’s end. That would trigger what's called sequestration: automatic spending cuts at the Pentagon and other federal agencies.

Well now it's crunch time.

A few large contractors say they may have to issue layoff warnings, as early as last September. Most states require 60 days’ notice. California and New York require 90.

 In a letter to Congress, Lockheed CEO Robert Stevens writes “we have an obligation to tell them that their jobs are potentially at risk.” But will they warn?

 Todd Harrison at the Center for Strategic and Budgetary Assessments says he “wouldn’t be surprised.” But the timing puzzles him, as budget cuts take months, even years, to take effect.

"On January 3, virtually all contractors will be working on projects that were already funded," Harrison says. "That money’s not being cut. It's only new money."

So what's the point of playing the layoff card now?

"It looks a little bit like a scare tactic," says Fordham law professor James Brudney. "I mean, it could be construed as political brinksmanship."

In other words, contractors want to pressure Congress to cut a budget deal, step away from the cliff, and preserve defense spending.

Brudney warns it could backfire on the companies internally.

"To the extent you’re creating significant fear among your workforce, when only a very small percentage, if any, will lose their jobs," he says. "That's a blow to morale."

Harrison notes if workers don’t understand the politics of the warnings, they could get the wrong idea, dust off their resumes, and bolt anyway. And the best talent, he says, tends to get lured away first.

About the author

Scott Tong is a correspondent for Marketplace’s sustainability desk, with a focus on energy, environment, resources, climate, supply chain and the global economy.

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