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The term “labor hoarding” has been in play recently in economic circles as the job market remains strong despite the Fed’s best efforts to cool it.
The latest jobs report shows the growth of the labor market remains strong, and US payrolls surging by 261,000 in October, although there was a slight uptick in unemployment to 3.7%.
“There have been several thousand high-profile layoffs in the tech sector in the past few weeks. While this is a disaster, it is useful to keep in mind that the labor market is much larger and is all healthy,” Bledi Taska, chief economist at the labor market consultancy and research firm Lightcast, said in an email.
There are 159 million people today employed in the USand in the past month there were 1.3 million layoffs.
“This is quite normal and historically low when it comes to layoffs rate 0.9%,” he said.
Taska notes that even in tech and at private VC-funded companies like Stripe, layoffs aren’t that big. In the Professional and Business Sector (where most tech companies belong) Layoffs down in September and layoffs start to have as well come down in the past few months. “Overall this means that while it is important to follow some high profile tech layoffs, they are not indicative of overall trends in the labor market, or even in the tech sector,” said Taska.
The labor hoarding has become something of an indication of how difficult it is to find workers to fill open positions. Kindergarten is afraid to read too much on the talk of the accumulation of labor yet, and he said that it cannot be denied that the economic basis of labor is in failure.
“You can’t have as many people if the demand goes down,” Taska said. “Yes, it’s a difficult period to find people, but companies want people because they need them to be productive, and if people cost too much, the bottom line will be the most important. want people for people,” he added.
Still, Taska and other labor market experts say the way CEOs and CFOs think about layoffs in a slower economy could be due to change, as demographic trends that will persist beyond a single economic cycle make companies more strategic in planning workforce reductions.
One of the main reasons that the workforce decision may be different than in the past has to do with all the millions of unfilled positions, seven million before Covid which has recently risen to 11 million.
“At the very least, if you have 30 positions open, fill 15 of them,” Taska said.
C-suites all expect some form of recession. A recent survey from the Conference Board and Business Council found 98% of CEOs anticipate a recession over the next 12 to 18 months.
But so far, consumer demand has held back, making it harder to move quickly to cut jobs. CEO of Bank of America Brian Moynihan said the strength continues to be his view is now the consumer.
The latest numbers on open positions show the unpredictability related to the growth rate of the labor market.
Job openings appear to have disappeared, with August’s number exceeding 10 million, down 10% from the more than 11 million reported in July – and a million fewer than expected. That leads to that belief “Hard labor market is over” but in the 10 million-plus open jobs, the labor market is still very healthy. And that was followed by a surprise JOLTS report earlier this week showing an increase in open positions at a time when economists are expecting a lower amount.
While the headlines focus on job cuts and hiring freezes that have been announced, those who are concentrated in the sector with the most sensitivity to the policy of the Federal Reserve, and the Fed continues to raise rates. Although there is guidance at this week’s FOMC meeting it can consider slowing the pace, commentary from Fed Chair Powell was far from clear on future policy to be more dovish. So far, the story of the labor market slowdown is mostly tech, where Hiring was overly aggressive – Microsoft recently announced another round of layoffs and Amazon announced one Hiring company freeze.
Most firms don’t want to “overshoot” people in either direction.
“Firing people is not fun, but you don’t want to hire more people,” Taska said. “Let’s start by revising the outlook on open positions versus where it was three or four months ago. This is not the phase for the ‘first fire’ except in tech, where they are over-hired,” he said.
The number of people working or looking for work remains near historical lows as measured by the labor force participation rate and has been on a downward trend for a decade. That means that for now, and in a recession that turns out to be less severe, employers can adjust to gaps in the labor market by simply not posting new jobs for a while.
While the labor market typically lags the economy, layoffs would have been expected to take already.
“We’re seeing almost no sign of another mass layoff in the most interest-rate-sensitive areas,” said Andrew Challenger, senior vp at Challenger, Gray & Christmas, which works with the firm to help employees transition out of the workforce. “We’re seeing a little bit of an uptick in technology and cars and construction.”
“When I talked to HR they were still in the full hire model,” he said. “They’ve been in hiring mode for a long time and it’s just all hands on deck trying to get people into the organization, trying to deal with an exit rate they’ve never seen before and a huge turnover in leadership.”
That can change. In fact, Challenger thinks the labor lag effect will be a factor in 2023, but he’s less confident in that call. “Three to six months from now will probably be different, but I also thought six months ago,” he said.
The biggest driver of labor market tightness was, and will remain, the aging population and retired baby boomers. This is one reason why it’s still better to adjust supply to demand as far as job openings go than to see layoffs, said Lightcast senior economist Elizabeth Crofoot.
By 2025, the number of high school graduates is expected to peak and after that, it will decline in a period of time as retirement accelerates.
“In a year and a half, we will see even fewer and fewer people available to take jobs. This trend will only accelerate through 2030, so the next few years will be harder and harder to find people,” said Crofoot.
The U.S. has also failed to pass bipartisan immigration reforms that would have created a pool of foreign talent that many business leaders say will be needed to fill future jobs. US Secretary of Labor Marty Walsh recently told CNBC the lack of immigration reform will a “disaster” for the economy.
The 2008 recession led to an “unemployment recovery.” Don’t expect that to happen again.
“This is going to be a very different recession where people still have jobs,” Crofoot said.
He said the unemployment rate targeted by the Fed (4.4% by 2023) is not high by historical standards.
After 2008, it took the labor market about three years to achieve an economic rebound.
This time, “the talent pool is going to be much smaller than you would expect after a recession,” he said. “I think there will be some give and take from the employer, and they will tread more carefully. Otherwise, they will have a very hard time replacing people. There will not be a huge horde waiting for jobs.”
Today’s labor market remains challenging to forecast, as many businesses plan for the recession but don’t see the weakness in consumer demand fast enough to support large workforce reductions.
Companies that hire more should move to a more conservative position regarding costs for slower growth expectations and not the type of negative labor market like Covid, “when the knife falls and employers fear for their own lives,” Challenger said. “It’s a different situation. It’s not panic,” he said.
At the same time, long-term demographic factors and the increased cost of recruiting and training new employees are reasons to move more “strategically” said Crofoot, when it comes to workforce reductions.
But even though labor market numbers remain strong, now may be the last “best” time to get a new job for those looking to relocate. There is a risk that the Fed overshoots on the rise in interest rates and the job market that has remained strong will see a dramatic decrease in the severe recession, and faster than expected by the central bank, and unemployment rising higher than its target. And if that worst-case scenario doesn’t happen, “Employers will get upset and stop offering higher wages and benefits,” Crofoot said. “Employee leverage will be reduced, and they will not be able to demand a higher pay rate, or hiring bonuses. So this is the time to make a move. Make it now,” he said.
Along with labor hoarding, there has been a lot of talk about “quitting quiet.” Some firms can bet that they will be able to avoid layoffs through the return-to-office mandate and some recent data shows. job offers are far down. Employees who do not want to return will leave the organization. Elon Musk exemplifies this CEO mentality earlier this year when he said that workers must go back a minimum of 40 hours a week or quit.
This thinking remains on the margins, but it is a concern within the company. Challenger said that its survey of HR leaders shows that 10% are worried that the C-suite will see the source of this attrition in the head count. According to labor experts, while Elon Kasturi has many good ideas, this is not one of them.
Countless job losses are not the way to go if companies want to risk losing some of their most valuable employees, especially those who can command good positions from companies that still hire remotely. The permanent remote workforce has more than tripled since 2019 to 18% of the labor market.
Any firm considering layoffs should begin by evaluating the most productive workers, and those who are not, and from that evaluation determine who to let go.
“I wouldn’t be surprised if there was some internal discussion around this angle, but employers risk losing their best talent,” says Crofoot. In fact, he adds that this idea is completely at odds with what the entire C-suite has had to learn about the labor market over the past decade.
“I don’t think employers have wiggle room when we are talking about a labor supply that is dwindling. There should be some recognition of the value of employees and not treating them as dispensable.”