Massive layoffs are not a sign that the labor market is collapsing, but they do highlight the excessive hiring by American major businesses during the epidemic. Big, publicly listed corporations hired like crazy once the epidemic began, which has contributed to the tight labor market in America. It appears that a tsunami of unemployment is currently underway as a result of many people smashing into reverse.
Amazon, Disney, and Facebook’s parent company Meta Platforms are all terminating employees when they suddenly realize they employed too many people. Job losses are terrible for those who are impacted. However, when it comes to the job market, instead of viewing these layoffs as a sign that things are deteriorating, they could be a sign that things are about to get more balanced.
Securities filings for Amazon.com’s fiscal year that concluded in December 2019 reveal that the company employed 798,000 people. By the end of the previous year, that number had increased by 810,000, reaching more than 1.6 million. North Dakota, is the fifth-smallest state in terms of population, with roughly 750,000 people.
Although Amazon’s gain was the largest of any firm in terms of absolute value, it wasn’t the only one that saw a significant rise in employee numbers. Over the same period, Meta’s workforce increased from 44,942 to 71,970, and by the conclusion of the third quarter, that number had risen to 87,314. Salesforce, which has also announced layoffs, increased from 49,000 to 73,541 personnel during the fiscal year that concluded in January 2020.
In reality, according to FactSet, between their last pre-pandemic fiscal year—defined as the fiscal year that concluded in March 2020 or earlier—and the most recent fiscal year for which data is available, more than 100 S&P 500 corporations increased employment by more than a fifth. Between the pre-pandemic and most recent fiscal months, the headcount of the 484 S&P 500 businesses having data showed an increase of nearly 2.1 million, or 8%, from around 26.4 million to 28.5 million employees.
Of course, there are several caveats. For instance, many multinational corporations have a sizable international workforce. Additionally, businesses that make acquisitions can grow their workforce without adding any new employees. Even so, the improvements are significant in light of the state of the labor market as a whole.
According to the Labor Department, there were 131 million seasonally adjusted private payroll workers in October, up 1.3 million (or 1%) from the prepandemic peak reached in February 2020. In the absence of employment growth at large publicly traded corporations, America may still have fewer jobs than it did before the Covid-19 crisis.
The hiring they did show how well-prepared many people were for the increase in activity brought on by the outbreak. Many people produce and market goods. According to FactSet data, the 213 manufacturing and retailing businesses in the S&P 500 account for more than half of employment in the index. This classification scheme is utilized by the Labor Department. In comparison, such industries only make up around a fifth of total private employment in the United States.
The additional time Americans spend at home benefitted a wide range of businesses, including Meta, Netflix, and Electronic Arts. Surprisingly, some businesses in sectors of the economy that were severely impacted by the epidemic also employed a large number of employees. Both Domino’s Pizza and Chipotle Mexican Grill hired more staff to weather lockdowns and capitalize on the rising take away demand. Unfortunately, many mom-and-pop restaurants cannot make this claim; generally, restaurant employment in the United States is still below its pre-pandemic peak.
A company’s expansion doesn’t guarantee that layoffs will follow. For instance, at Moderna, employment increased from 830 employees at the end of 2019 to 2,700 employees by the end of 2021. However, it doesn’t seem unreasonable given that it was one of the businesses to create a vaccine for Covid-19 and is currently attempting to use its messenger RNA technology to create vaccines for other diseases.
And at certain businesses, rises in demand outpaced employment growth. For instance, Etsy nearly doubled its employees between 2019 and 2021, and it has subsequently added to that number, but its sales approximately tripled while its net income quadrupled.
Even still, given the number of new hires, significant layoffs may follow, especially because consumer spending tastes have been turning back toward services rather than goods as interest rates increase and the pandemic caution wears off.
However, eye-catching layoff notices do not always indicate that the employment situation is set to deteriorate. They now mostly impact workers with higher incomes and more education, who, while definitely in worse shape than if they hadn’t been dismissed, can frequently find work elsewhere.
For instance, the average Meta employee made $292,785 last year. The average Amazon employee earns significantly less, $32,855, but corporate staff rather than warehouse workers are the ones being laid off. Although there have been numerous layoff announcements, the number of persons submitting new claims for unemployment benefits has remained remarkably low. This may be due to their capacity to reintegrate into the job market.
Many sectors that are underrepresented in the stock market are also having problems filling positions. Labor Department statistics reveal that employment has just recently reached its pre-pandemic level in the private education and health services sectors, for example, while the job-opening rate—the number of vacancies as a percent of filled and unfilled positions—is at an all-time high. More than a million fewer people were working in the leisure and hospitality sector in October than in February 2020, and there are many “help wanted” signs in this industry as well.
Therefore, what may truly be on the horizon is a reorganization of the labor market, with many of the employees who were taken in by public firms when the epidemic struck finding employment elsewhere. For many of those impacted, that won’t be a significant setback, and it might not even be detrimental to the economy.
Thousands of people are already being let go by some of the largest companies in the globe due to the faltering global economy. The good news is that workers this time have a higher chance than usual of keeping their employment if a recession hits. Nearly three years after Covid-19 debuted, businesses all across the world continue to lament their inability to get the talent they require. They are concerned about labor shortages that will probably last through the epidemic and the next recession. The pool of candidates they may choose from for employment is getting smaller due to deeper dynamics like demographic shifts and immigration.
All of this indicates that many firms are attempting to keep existing personnel rather than letting them go to stockpile labor that they will need once the economy picks up speed again, even though demand for their goods and services is declining. Recent announcements of high-profile layoffs from companies like Amazon.com Inc. and Goldman Sachs Group Inc. But they could turn out to be an anomaly. That would make the upcoming economic downturn significantly different from the ones the world is used to, and perhaps even less severe.
In developed nations, according to Bloomberg Economics, there will be an increase in unemployment of around 3.3 million by 2024, a time when most are predicted to experience recessions. Even though there have been a lot of job losses, the size of the two most recent global recessions dwarfs that number, which is less than the 5.1 million jobs lost during the comparatively moderate downturn that started in 2001.
Additionally, the employment starting point is historically good. According to the Organization for Economic Cooperation and Development, the unemployment rate in the world’s largest industrialized nations dropped to 4.4% in September, the lowest level since the early 1980s.
White-collar sectors including business services, technology, finance, and real estate, where employment levels are far higher than before Covid and layoffs have already started, may be more susceptible to job losses this time around From his vantage point as the CEO of ManpowerGroup Inc., a multinational employment firm, Jonas Prising anticipates seeing businesses make an effort to retain personnel even if activity slows.
He claims that they “will absorb a decline in demand for their goods and services but preserve their workforces.” They won’t be hiring, they said. However, I believe that payrolls will continue to be strong. That is the message central bankers are receiving, at least in the US, as they work to contain sky-high inflation and lower demand in the economy and labor market without triggering a recession.
Because it has been so challenging to both recruit and keeps employees over the past several years, business contacts have informed the Cleveland Federal Reserve Bank of their intentions to do so, according to Loretta Mester, the bank’s president, on Nov. 10. That would be advantageous since it would prevent a significant increase in the unemployment rate.
When the government issues its payrolls data for November on Friday, the Fed will have the most recent snapshot of the amount of progress it is making. Bloomberg questioned economists who forecast a rise of 200,000 jobs. More than 500,000 jobs are expected to be lost in the UK during the next two years, and the government and the majority of analysts claim that the country is already in a recession. But doing so would only result in a 4.9% increase in the unemployment rate.
On November 16, the government’s fiscal watchdog released its warning forecast, but business leaders were already battling a lack of qualified employees in fields like hospitality and retail. According to Sharon White, head of the John Lewis Partnership, “we all know that every firm is suffering increased expenditures because labor is so much scarcer.” “I believe there is a lot larger discourse about the employment market, jobs, and how we get people back to work,” the author says.
In the eurozone, unemployment is at its lowest point ever in the history of a single currency. Official European Union predictions, which were issued at the end of October, suggest that employment growth will continue through 2024 despite a considerable slowdown in 2023 and a little increase in unemployment. Officials attribute such to aging demographics and government initiatives promoting employment retention. Increased protection for European workers might conceivably prevent corporations from making workforce reductions.
The largest public health crisis the world has seen in a century undoubtedly affected labor markets, leading nations like Australia to want to increase immigration. Additionally, it reduced employment, with rates in the US and UK remaining below those before the epidemic. After hiking interest rates by a record-breaking 75 basis points on November 23, Orr told reporters, “It’s an extraordinarily competitive market.” “The labor market has a very high level of turnover. The market is highly competitive.
In addition to taking more than six million deaths, the global pandemic left millions of people with long-term COVID or other impairments that prevent them from working. Many others also decided to retire early, take care of their children, or further their education. A longer-term structural trend toward tighter job markets as the massive baby-boom generation retires and leaves the workforce was preceded by that labor pool shrinkage brought on by the epidemic.
According to a recent assessment of labor markets in the US, Canada, France, UK, Germany, Australia, Japan, and China by Glassdoor Inc. and Indeed Inc., aging populations will reduce workforces in many nations if policies like ongoing immigration are not implemented. According to Cynthia M. Sanborn, chief operating officer of Norfolk Southern Corp., “we have to make sure we manage through downturns in such a manner that we’re in an excellent condition to handle the upturns.” Wall Street analysts heard her remarks on October 26.
We know that we must be strengthened by having a robust hiring pipeline or a line of sight to that hiring pipeline so that we can manage the upturn, but we also have levers like attrition that can aid us if we need it. In some of the sectors most severely affected by the epidemic, there are severe labor shortages. The US leisure and hospitality sector’s payrolls are more than one million below their pre-Covid-19 shock levels.
There is also fewer personnel working in restaurants. Because of this, economists believe that layoffs in such industries won’t be nearly as significant as they have been in previous recessions, according to Betsey Stevenson of the University of Michigan.
According to a succession of recent high-profile layoff announcements, white-collar professionals may not fare as well. Elon Musk made significant layoffs at Twitter, while CEO Mark Zuckerberg is laying off 11,000 workers at Meta Platforms Inc. Until 2023, Amazon will lay off a comparable amount of employees, while HP Inc. will cut up to 6,000 positions during the following three years. According to a consulting company called Challenger, Gray & Christmas Inc., the tech industry as a whole announced 9,587 job cuts in the US in October, the highest monthly total since November 2020.
Investment bankers are on high alert in the banking industry due to a dramatic decline in dealmaking and debt issuance revenue. With plans to cut several hundred positions, Goldman Sachs is starting its largest wave of layoffs since the epidemic began. Early in November, Citigroup slashed scores of employees, while Barclays in London has started cutting positions that are likely to eventually number approximately 200, according to sources familiar with those actions.
No one is anticipating a massive wave of layoffs like what occurred in 2008, even though the cuts in tech and finance are dramatic. ADP Research Institute estimates that just 2% of US employment is in the technology sector. According to Tom Gimbel, CEO of Chicago-based recruitment service LaSalle Network, many of the information technology professionals receiving pink slips at larger organizations may wind up being hired by smaller businesses that have trouble attracting such expertise. The good news, he said, is that small and medium-sized businesses are no longer required to pay the outrageous salaries that large businesses did.
The aftermath of the pandemic has also made it more difficult for businesses to retain their employees, with workers appearing more eager than in the past to look for better opportunities elsewhere. According to the most recent high-frequency data from decision intelligence company Morning Consult, one in five US workers aged 25 to 54 reported actively applying for new jobs last month. According to LinkedIn Corp. CEO Ryan Roslansky, “there is a big talent reshuffle going around the world.” “People are looking for new chances, jobs, and upskilling.”
Although Federal Reserve officials seem prepared to start reducing the rate at which interest rates are raised, if inflation persists, all bets are off. This is especially true if self-assured workers want greater pay, which drives up prices. Rate increases from the Fed and other central banks could cause a severe downturn in those countries’ economies, and businesses would probably be forced to make significant layoffs as their profits declined.
However, jobs are remaining steady in many nations that have sharply increased rates, much as in the US. While earnings increased by the highest since the series began, New Zealand’s unemployment rate is still very close to a record low. Australia was compelled to relax its immigration policies to allow up to 35,000 more workers to immigrate there each year. According to Frederic Neumann, chief Asia economist at HSBC Holdings Plc, “the great-opening’ has stoked demand for workers in the services sector, particularly hospitality, while manufacturers are still scrambling for workers to catch up with their order backlogs.”
Employers who have been short-staffed over the past year are also likely to be hesitant to aggressively reduce their payrolls for fear of finding it difficult to fill positions once growth picks up, according to Neumann. Therefore, central bankers may have limited room to become accommodative once growth starts to falter because labor markets may prove to be significantly more resilient in this cycle than in the past.
