Mass layoffs, especially in the tech industry, are all over the news. Inflation is still hovering around 40 year highs despite huge interest rate hikes. And according to most surveys and reports, companies have high levels of recession fears.
Based on the news, the economy should be in a serious downturn, but the opposite seems to be true. Employers keep hiring at a record pace and the U.S. added 1.1 million jobs over the past 3 months alone!
But how is this possible? If some of the richest mega corporations in the world are conducting mass layoffs, how are small, local businesses still hiring? If the economy is cooling down and consumers are spending less, why are businesses seemingly taking risks by bringing in more staff?
The answer is twofold: It is due to the unique economic circumstances of today and the job sectors that are conducting most of the hiring.
Where is the economic contradiction coming from?
As explained above, there are 2 reasons for the increase in jobs and simultaneous mass layoffs and recession fears:
1) Type of jobs being introduced
The majority of the 1.1 million jobs that the economy gained over the past 3 months were in the service, health, and education sectors. Restaurants, hospitality, child and elderly care, education, and general service type jobs (which make up about 36% of all private-sector jobs) are making a tremendous comeback, as those who were laid off, quit, or were on unpaid leave during the pandemic are coming back.
Amazon and Google (on the other hand the tech sector is only about 2% of all private sector jobs) laying off tens of thousands of employees is big news, but hundreds of thousands of people being hired across different service sector industries is less newsworthy. Therefore, job openings in the service sector are more than making up for the relatively small amount of tech layoffs, but the news may make it seem otherwise.
2) Unique economic circumstances
The economy might not be in growth mode in the traditional sense, but we have to remember why unemployment, inflation, and supply chain disturbances happened in the first place: fiscal policies as a response to the pandemic. The increase in jobs being introduced to the economy are mostly just the job market correcting itself back to pre-pandemic numbers in the most hard hit industries- namely restaurants, hospitality, education, and other services.
Even though most unemployment benefits have been over for a while, many employees in this sector took the pandemic as an opportunity to switch jobs, stay home with kids, or retire early. Now with the economic downturn, many people are finding their way back to the workforce, and these job openings are getting filled again. In essence, the reason for the downturn, is also the reason for optimism. The economy is not in great shape, but the upside is that it is forcing employment levels back to its more natural numbers from before the pandemic.
Where is the economy headed?
Economists are calling this the last step in the fiscal policy corrections of the pandemic era. With employment numbers in the service industry approaching (or even passing) pre pandemic numbers, many executives and business owners in services industries say they are finding it easier to recruit and fill jobs.
January’s jobs report showed employers added 517,000 jobs—nearly triple what economists had estimated—and the unemployment rate fell to 3.4%, the lowest in more than 53 years.
The better-than-expected numbers are also causing many employers in these industries to lower or cancel the inflated bonuses and benefits that were common in the past few years to attract employees. While this is not great news for people returning to work in these businesses, it is another small step in reducing salary and overall inflation.
Where the economy is headed is a question that nobody seems to be able to answer. Economic experts from Goldman Sachs to the Fed themselves can’t seem to be able to pinpoint exactly where and what will happen with inflation, unemployment, and recession fears. Will the job openings in the service sector be enough to avoid a recession or will the openings eventually run out and cause unemployment numbers to rise? Although inflation seems to have peaked, will it go down enough to avoid more of an economic mess?
One thing that is certain is that companies have been, and will continue to double down on preparing for the unknown. This involves making sure they have the right people and technology in place that will help them reduce expenses, improve efficiency, and cover all different types of scenario planning.