The Sequestration Sideshow: Jobs and Pentagon Contracting in Context

This week another major defense contractor used its employees as political pawns in its campaign to halt planned reductions in Pentagon spending.

The Los Angeles Times reported on Monday “Northrop to shed nearly 600 jobs.” The article includes all of the industry’s talking points about “budget uncertainties,” “jobs lost,” and “more cuts,” and even uses the erroneously high $600 billion amount for defense sequestration (the correct amount is $492, as ProPublica’s critique of media using the $600 billion figure illustrated). Unfortunately, the article not only overstates the actual amount of Pentagon sequestration by more than $100 billion, it also fails to put Northrop’s job-shedding into context. For those interested in a little more balance in their sequestration news, here are a few facts to mull over before jumping on the contractor “doomsday” bandwagon.

First, Northrop has reduced its workforce every year since 2008, cutting thousands of workers every year during a time in which its Department of Defense contract dollars remained fairly constant. Employment figures from its SEC filings for 2008, 2009, 2010, and 2011 chronicle this downsizing. Northrop wasn’t the only defense contractor to cut jobs either. In the past five years the top five defense contractors—Lockheed Martin, Boeing, General Dynamics, Northrop Grumman, and Raytheon—collectively cut nearly 20,000 jobs while their contracts from the DoD increased by more than $10 billion. In short, if there is any connection between revenue and employment it has, at least recently, been in the opposite direction that Northrop would have us believe.

Second, while these firms have been cutting jobs they’ve been increasing the compensation packages of their top executives. For example, Northrop’s CEO, Wesley Bush, received a total compensation package worth more than $26 million last year. But even Bush trailed the top paid defense contractor CEO, David Cote of Honeywell, who received more than $35 million in total compensation last year.

Third, Northrop and the rest of the defense industry have an enormous backlog of contract work—guaranteed revenue from work yet to be complete—that will insulate their firms from reductions in planned Pentagon spending. At the end of last year Northrop had a $40 billion backlog—that’s nearly 3 times the value of its DoD contracts in 2011. The defense industry collectively has a $491 billion backlog, which incidentally is just a billion dollars less than the entire amount of defense sequestration ($492 billion).

Fourth, the immediate impact of defense sequestration on contractors will be marginal, at worst. The non-partisan Center for Strategic and Budgetary Assessments reports that defense procurement contracts would only be reduced by approximately 3.5 percent in 2013. And, numerous defense experts have argued that sequestration is manageable, as the Pentagon’s budget will ultimately climb back above current levels by the end of the decade.

In this economic climate we need a leaner, meaner military prepared to meet twenty-first century threats, not a large, bloated Pentagon bureaucracy that annually gives more than $350 billion to contractors who provide overpriced and underperforming weapons. And we need a media that will provide readers with all of the facts, not just the views of defense contractors.