Opinion: Why a recession might not mean huge job losses

There were 10.7 million job vacancies in the United States in June, many in service industries including health care, hotels and restaurants, retail and professional services. If the United States enters a recession this year, companies are likely to withdraw from aid-seeking announcements. However, instead of drastically reducing the workforce, as in most recessions, companies can retain their talent.
The unemployment rate, currently at 3.5%, now matches the 50-year low last seen in February 2020 before the pandemic hit. Non-farm payroll additions averaged 471,000 per month during the January-July period. And in July alone, there was a huge gain of 528,000 jobs. These are staggering numbers in any economy, but even more so when the labor market is at full employment. Businesses know this means the labor market is tight and it will always be difficult to find and keep workers.

Wages continue to rise

In addition, wages are rising for many workers. Average hourly earnings rose 5.2% from a year ago, with the largest gains in recreation and hospitality, education and health care services, and professional services. In addition, wages and salaries for civilian workers rose 5.3% in the year ending June. These data are another signal for companies that the labor market is still tight.

Labor shortages are likely to last

Labor shortages persist and will likely persist even if the United States enters a brief and potentially moderate recession. Even if companies start to cut production, they know they will still need to find more workers.

For one, the growth of the working-age population (25 to 54) is slower than the growth of those of retirement age, according to the Congressional Budget Office. Moreover, many people who retired early during the pandemic are unlikely to return, as evidenced by continued low labor force participation rates among workers 55 and older. In addition, there were about 888,000 fewer immigrants in 2021 compared to 2016, in part due to stricter immigration laws enacted even before the start of the pandemic, according to net migration data from the United Nations. .
Additionally, many people are unwilling or unable to work due to the lingering effects of the pandemic. Some still fear infection or have “long-covid” symptoms that impair their ability to work. Others still have childcare and adult care issues. And many workers continue to quit to find better jobs and opportunities. This is because fewer people are willing to hold two or more jobs given rising wages, especially for job changers.

How companies could cope

The Conference Board predicts that the United States will experience a recession this year that could extend into next year, but that it could be much less intense than the downturns at the worst of the pandemic and the Great Recession. This recession will likely be triggered by the Fed raising interest rates above 3% this year, which will make borrowing more expensive and support a drop in domestic demand that will help subdue inflation.

Typically, slower domestic demand means companies first cut hiring plans and then lay off workers. This time, companies will likely rescind job offers and cut unnecessary costs, while trying to retain many of their best workers they have struggled to attract and retain over the past two years.

Service businesses, many of which have never fully recovered all of the workers lost during the pandemic shutdowns, may be the most likely to keep their employees on the payroll, and they may cut hours or wages instead of cutting the costs. Some employers may furlough workers with benefits and possibly a promise to make up lost wages later. Others may defer merit increases, promotions and future discretionary pay, or may encourage voluntary early retirement or terminations. Employers can also institute job sharing, where two people work one job, to keep their best employees amid lulls in demand.

The bottom line is that mass layoffs don’t seem to be on the horizon. While the impending recession is likely to be shallow and last a few quarters or at worst a year, companies are likely to retain their hard-earned workers amid a shrinking working-age population. For these reasons, the US economy could escape a spike in unemployment that is hurting millions of households, especially low- and middle-income families.


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