There have been stories about job cuts, particularly in the tech industry, but the labor market in the United States is still tight, with employers having difficulty obtaining workers. There is a relatively low rate of dismissals compared to the past, in large part due to the Covid fatalities and enduring implications of the pandemic.
Recently, 40,000 employees have been laid off from Google, Amazon, and Microsoft, leaving many concerned about the job market. Since April of last year, headlines about lay-offs and warnings about the labor market being weaker than it appears have been rampant. A headline recently posed the question, “Are we on the verge of a tsunami of layoffs?” However, my experience as a recruiter and official labor market statistics don’t match up to these headlines.
It is true that the economy in 2023 has not been affected by layoffs that are now lower than what has been seen in the past. Therefore, the labor market is still very tight, which goes against some claims. This makes it difficult to make hires, and it may require central banks to keep interest rates higher for a more extended period.
On a recent business journey back to my hometown from Atlanta, I had time to contemplate the news headlines. While waiting in line for TSA PreCheck, it took me 40 minutes – which would usually take less than 5 minutes pre-pandemic. This made me ponder, if what I had read in the headlines about layoffs was true, how come the airport was still unable to get enough personnel? and maybe the other business travelers in line should rush back to their places of work to plan for lay-offs or should they try to recruit more?
In order to arrive at answers to my questions, I took a close look at the macro trends. The BLS has been keeping track of the portion of the labor force that is let go in a typical month since 2000. Generally, it is around 1.5 percent of the non-farm private labor force. I would consider it an employer’s market when the number is close to 2.0 percent, and a candidate’s market or a tight labor market when it is near 1.0 percent. The labor market has been tight since the start of 2021.
I have had many conversations with people who believe the current data has not yet caught up with the latest news. This has been their stance since April of 2022 and yet, when the lagged data is reported each month, the rate of layoffs remains at the low, 1.0 percent rate reported by the Bureau of Labor Statistics. Before 2021, the BLS did not have a single month where fewer than 1.3 percent of the private labor force was laid off. Over the past 12 months, only one month had more than 1.0 percent of the private labor force laid off. This demonstrates that, objectively speaking, the labor market is still very tight.
Labor market tightness can be gauged by more than layoffs; for example, voluntary job quits in 2021 hit a record high (according to the St. Louis Federal Reserve). Despite the fact that this indicator is still greater than before the pandemic, it has decreased since the year prior.
The Federal Reserve has made it clear that they will keep their interest rates high until inflation slows, which may lead to a reduction in demand in other economic areas, and eventually result in a weaker job market. However, there is little chance of a repeat of the 2008 employers market. The main reason why I’m confident in the labor market’s durability is that there is a shortage of potential employees. During the Great Recession of 2009, businesses had an abundance of people to pick from for each open job. This time, however, if the economy does decline, the impact on the availability of skilled individuals has been peculiar. Companies are now finding themselves vying for a limited number of talented individuals, instead of having a great selection to choose from.
The U.S. civilian labor force is currently just shy of 165 million people. Nevertheless, although this number returns us to the number of working Americans prior to the pandemic, it still translates to a one percentage point decrease in the labor participation rate due to population growth. If the labor force participation rate had remained at its pre-pandemic level of 63.4 percent, the civilian labor force would have been at nearly 168 million individuals. This means that the total number of individuals in the labor force is under three million compared to what it was at the start of the pandemic.
It is worth examining what happened to the three million missing workers. In the United States, there have been 1.1 million Covid-19 fatalities [1]. It is estimated that a third of these fatalities were individuals who belonged to the workforce. This implies that somewhere around 400 thousand employees have vanished due to Covid-19, a notable amount.
[1] https://www.nytimes.com/interactive/2021/us/covid-cases.html
In addition to this, it is estimated by the Brookings Institution that up to 4 million people could be suffering from long Covid, with some still working but at a reduced capacity. This would equate to approximately 1.6 million full-time-equivalent workers being out of work due to this disease. This is seemingly reflected in the fact that, according to various governmental estimates, U.S. sick leaves have more than doubled in comparison to previous levels.
Two of the three million decrease in civilian labor force could be attributed to Covid deaths and FTE workers affected by long Covid. Other factors, such as early retirements and lower immigration since the start of the pandemic, have also influenced the labor availability. This is in addition to the long-term trend of declining labor participation rate, which is a result of numerous causes, including a rising proportion of young men not joining the labor force, and the high cost of childcare that is leading American women to exit the workforce.
The limited availability of workers has caused an uneven revival. Even though some industries and areas have been able to restore their workforce, many are still having difficulties. This can be experienced in different situations, from waiting for a table at a restaurant to attempting to contact a customer service representative at a call center. I personally noticed this when I was at the airport security line.
The National Federation of Independent Business recently showed that small businesses are still facing difficulty when it comes to hiring, with 90% indicating they had no or few qualified applicants. Additionally, the Bureau of Labor Statistics noted that there are 10.5 million vacant positions, a number which is 38% higher than the pre-pandemic record of 7.6 million.
Given the great number of unfilled positions together with a decrease in the labor force, it is probable that US companies will persist to have difficulty recruiting for the foreseeable future. Consequently, I will have to be prepared to be tolerant when queuing up in the TSA PreCheck line.
It is clear that the use of technology has become much more widespread and is now a fundamental part of everyday life. In modern times, technology can be found in almost all aspects of life and is necessary for the functioning of society. The advancements in technology have had a major impact on how we live, work, and communicate. From the convenience of online shopping, to the ability to access information in seconds, to the use of robotics and automation in various industries, technology has revolutionized the way we live.
