Wages continue to rise
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.
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.