Announcements of layoffs are picking up amid experts' forecasts of a recession next year. But for now, at least, most Americans shouldn't be too worried about job security.
Meta is expected to cut thousands of jobs this week. Last Friday, Twitter laid off approximately half of its entire workforce. They joined the likes of Microsoft, Netflix, Snap, Lyft, Stripe, Peloton, and Shopify, companies that have also announced layoffs in recent months.
As the Federal Reserve raises interest rates to slow the economy and bring down inflation, more layoffs are likely to follow. But there are few signs of widespread layoffs in the short term. And even next year, when the US is expected to enter a recession, the vast majority of Americans are likely to come out unscathed.
"There have been several thousand high-profile layoffs in the tech sector in the past couple of weeks," Bledi Taska, chief economist at the labor market consulting firm Lightcast, told CNBC. "While this is unfortunate, it is useful to keep in mind that the labor market is significantly larger and has been overall healthy."
The US unemployment rate rose to 3.7% in October, but it remains near the lowest level in the past 50 years. The number of Americans filing new unemployment claims fell last week. And job openings increased in September to 10.7 million.
While the most recent layoffs, for instance, have yet to be reflected in most up-to-date economic data, the US economy is far from shedding jobs. That's because many of these layoffs have been concentrated in the tech industry, which only accounts for only a modest part of the American economy.
The upcoming recession is expected to see lower levels of unemployment
While more layoffs are expected to come to the tech industry over the next year, other industries are likely to be impacted also. That's because the unemployment rate is expected to tick up during the recession that could be on the horizon.
While the coronavirus recession in 2020 primarily harmed service-industry workers, some signs point to a "white-collar recession" this go-round, in which white-collar — or high-income office workers — are exposed to a higher risk of job loss than blue-collar workers. The housing sector, which is particularly sensitive to interest rate hikes, is already being impacted as well.
The Fed is projecting the unemployment rate to climb in 2023 from 3.7% to 4.4%, which would lead to roughly 1.5 million Americans losing their jobs.
It could be even worse. Bank of America is projecting the unemployment rate to reach 5.5% by the end of next year. In September, former Obama economic advisor Jason Furman said the US would need unemployment to reach 6.5% to bring inflation down to desired levels.
But even if the jobless rate does reach 6.5%, that would remain well below the roughly 15% rate in April of 2020, and the near-10% reached during the depths of the Great Recession.
Any uptick in unemployment would be painful for the millions of Americans who would face hardships like lost wages and housing insecurity. If these projections hold, however, the state of joblessness would be much less severe than the last two downturns.
And as long as job openings remain abundant, there will be opportunities for many laid-off workers to find jobs elsewhere.
A wave of lay-offs in middle management has raised fears the US is heading toward a “white-collar recession”, according to economists and recruiters. In previous downturns, blue-collar employees including construction workers and truck drivers have tended to be the first to lose their jobs, but this time American companies have been focusing headcount reductions on middle managers working in office jobs. In recent weeks, a number of companies including Walmart, Ford, Gap, Zillow, and Stanley Black & Decker have announced they plan to cut jobs at their head offices. William Lee, the economist at the Milken Institute, suggested that companies may now have more people in middle manager roles than they require or can afford after rushing to hire as much professional talent as possible when the economy bounced back from the Covid-19 pandemic. In the past two months, recruitment firm Challenger, Gray & Christmas, which specializes in helping mid-level managers who have been laid off find jobs, has recorded an uptick in work positions that have been done away with. “Those big, big salaries catch people’s eyes when they have to make those horrible decisions about who to let go,” said Andy Challenger, senior vice president. Although lay-offs have hovered near record lows for more than a year, some economists suspect the job cuts Challenger observed are the first sign of a “white-collar recession” where mid-ranking office workers have their jobs eliminated at higher rates than counterparts working in manufacturing, service, and transportation. “People are saying this will affect white-collar workers more than the past recessions because it’s very much driven by rising interest rates and by declining stock price valuations,” said Julia Pollak, chief economist at jobs site ZipRecruiter. She added: “Because in many blue-collar industries there are still labor shortages, there are a whole lot of industries that would just not be able to shed workers because they’re already understaffed.” More than half of US chief executives say they are considering workforce reductions over the next six months in preparation for a potential recession, according to a KPMG report. “I wouldn’t at all be surprised if white-collar workers do end up being the first to be let go in a recession scenario,” said Dave Gilbertson, a vice president at HR software maker UKG. “If you look at where the lay-offs have been already, it really hasn’t driven to the blue-collar markets yet. That is because there’s such a severe labor shortage in these blue-collar roles.” Meanwhile, companies in Silicon Valley and on Wall Street that employ large numbers of people in professional roles have rushed to implement redundancies. Netflix has laid off nearly 500 workers this year, most recently 30 members of its animation team in September. Snap cut 20 per cent of its staff, about 1,300 workers, in August. Elon Musk laid off thousands of Twitter employees on Friday after closing his buyout of the social media company. Before the cuts even started, Musk said he planned to take aim at middle management. “There seem to be 10 people ‘managing’ for every one person coding,” the self-proclaimed “Chief Twit” wrote on the platform. Meta is also planning its first large-scale lay-offs, The Wall Street Journal reported on Monday. Denis Coleman, Goldman Sachs chief financial officer, said in July that the bank would “probably [be] reinstating our annual performance review of our employee base at the end of the year”, after suspending the scheme before the pandemic. There have also been widespread cuts for realtors, mortgage brokers, and appraisers since rising interest rates in March resulted in home sales slowing to a crawl. Conversely, job cuts for blue-collar workers and others earning lower salaries, like those employed in leisure and hospitality, have been less pronounced. Recommended Technology sector Tech groups cut jobs and pause hiring amid ‘leaner times’ Low-wage staff in stores, restaurants and hotels were the first to lose their jobs after the Covid crisis took hold in March 2020. But now these are the very people in short supply. The leisure and hospitality sector employs 1.1mn fewer workers compared with the level in February 2020. Many chief executives had been considering thinning out management ranks even before persistent inflation raised recession fears and pushed them to cut costs. The stereotypes of unhelpful bureaucrats inspired what McKinsey senior partner Bill Schaninger calls a “30-year assault” on middle managers. The pandemic accelerated it by demonstrating that senior leaders could quickly make strategic and operational shifts without the support of their broader teams, he said. Gilbertson at UKG said: “There’s a significant portion of the population who will have to delay the American dream because they can’t find the role that they want.” But even if new managerial roles do dry up, Gilbertson expects employers to continue hiring for blue-collar roles. The so-called laptop class might find those jobs more appealing than before the pandemic, he said, as they’ve recorded strong wage growth over the past two years. “As an economy, there should be plenty of jobs available,” Gilbertson said. “They just might not be the kinds of jobs that workers want.”