Modest pace for job gains forecast.

• Position: The Economy

A virulent combination of cost-saving productivity gains and escalating health care costs probably will keep new hiring at a modest pace through the end of 2004 and into 2005, according to an employment outlook released by the global outplacement firm of Challenger, Gray & Christmas, Inc., Chicago.

"It remains difficult to justify new hires to those who control corporate finances. They see payroll costs surging, principally due to health benefits, while companies invest in new technology to assure that worker productivity continues to remain strong. So, why add new workers?" asks CEO John A. Challenger.

"Companies simply cannot afford to keep spending more and more for health coverage and simultaneously fund expansion. Something has to give. More firms will drop health care benefits, small business in particular."

A survey by Mercer Human Resource Consulting found that employers expect health care costs to rise by an average of 12.9% in 2005. Yet, the survey also found that companies have only budgeted for an average of 9.6%.

"This could mean employees will be asked to pick up the difference or that benefits will be reduced. It could also result in job cuts as companies try to pare costs. The biggest impact could be on small business, which employs the largest number of workers," Challenger indicates. "However, the pace of job cutting could increase [more] dramatically, as it did after Sept. 11, 2001...