Despite a wave of headlines covering layoffs, particularly at tech companies, the U.S. labor market remains tight and hiring remains difficult. Layoffs are actually at a relatively low rate by historical standards, largely due to Covid deaths and the long-term effects of Covid. As long as workers are scarce, it will remain a labor market and recruitment will be a challenge.
The recent layoff announcements by Google, Amazon, and Microsoft affecting a total of 40,000 employees have many worried about the job market. Since April last year, I have seen an explosion of headlines about layoffs and warnings about the labor market being weaker than it appears. A recent headline asked “Are we on the cusp of a tsunami of layoffs?” But these headlines don’t match what I, as a recruiter, experienced on-the-ground or even official labor market statistics.
In fact, the economy in early 2023 is not disturbed by layoffs – which is currently not normal. UNDER compared to historical standards. This means that the labor market remains tight, despite arguments to the contrary. As a result, hiring will remain difficult, and this may mean that central banks will have to keep interest rates higher for longer.
I had a lot of time to think about these topics on a recent business trip back from Atlanta. I was standing in the airport security line for TSA PreCheck. The line used to last before the pandemic was less than 5 minutes, but here I am standing 40 minutes later because the airport only has enough staff to cover two of the dozen or so idle scanners. If the months of headlines about layoffs were true, I wondered, why couldn’t the airport find enough staff? And should the other business travelers standing in line with me rush back to their HQs to plan for layoffs or should they redouble their recruiting efforts?
I decided to look at macro trends to answer these questions. The Bureau of Labor Statistics (BLS) has tracked the share of the labor force that has been laid off in any given month since the end of 2000. In an average month about 1.5 percent of the non-farm private labor force was laid off or laid off. work. If this number approaches 2.0 percent or more, I call it an employer’s market and if it approaches 1.0 percent, a candidate’s market or a tight labor market. Since the beginning of 2021 it has always been a tight labor market.
Some people I spoke to argued that there was a lag in the data and that the latest headlines were not yet reflected in the numbers. I have heard this argument since April of 2022, however, every month as lagged data is reported the Layoffs remained at a historic low of 1.0 percent. It is worth noting that before 2021, the BLS did not record a month in which less than 1.3 percent of the private labor force was laid off. In the past 12 months, there has only been one month where more than 1.0 percent of the private labor force was laid off. By any objective historical standards, we are therefore still in an extremely tight labor market.
Layoffs, of course, are not the only measure of labor market tightness. Voluntary layoffs, for example, reached a historic high at the end of 2021. This indicator is still high compared to pre-pandemic levels, but it has cooled compared to last year.
This is not to say that the labor market won’t cool off at some point soon. The Fed has signaled that it will keep interest rates high until inflation cools and higher interest rates soften demand in other sectors of the economy. In the long run, low demand in the economy leads to a sluggish labor market. But don’t expect a repeat of the 2008 employer market anytime soon. The first reason I am confident about the labor market continuing to be strong is that there are not enough workers out there. In the Great Recession of 2009, companies had seas of applicants for every job opening. At this time, when the economy is weakening the impact on the availability of talent is extraordinary. Instead of having a large talent pool to recruit from, companies find themselves fighting a smaller talent pool.
The civilian labor force in the US at the moment just shy of 165 million people. While others point to that this brings us to the pre-pandemic number of working Americansit translates to a a percentage point drop in the labor force participation rate due to population growth. At a pre-pandemic labor force participation rate of 63.4 percent, America’s workforce will be less than 168 million individuals. So the civilian labor force has been short by three million people since the start of the pandemic.
Let’s review where the three million lost workers are now. The US has 1.1 million died of Covid-19. An estimated 35 percent of Covid deaths are among current workers. This translates to almost 400 thousand workers lost, just because of Covid deaths – not a small number.
In addition, the Brookings Institution estimates that there are 4 million workers with prolonged Covid. Some of these workers are still working, albeit on reduced hours. Taking into account individuals working reduced hours, about 1.6 million full-time equivalent (FTE) workers will be out of work due to high Covid. So perhaps not so surprising, in some government estimates The disease leaves in the US doubled compared to historical standards.
Estimated Covid death tolls and reductions in FTE workers due to prolonged Covid can only explain two of the three million reductions in the civilian labor force. There are also other factors, such as the increase in early retirement and low immigration to mention a few, which has affected the availability of work since the beginning of the pandemic. Add to this the long-term trend of a decrease in the labor participation ratedriven by factors such as the increasing share of young men opting out of the labor force and the high cost of childcare putting American women out of work.
The sudden decline in job availability led to an uneven recovery. While others industries and geography returned to being fully staffed, many are still struggling. I’ve experienced it in the airport security line, and you’ve probably experienced it anywhere from waiting a table at a restaurant to trying to get hold of a customer service representative at a call center.
In a recent report, the National Federation of Independent Business indicated that the hiring struggles of high street business owners are still real. To those hiring, 90% do not report some qualified applicants for their open positions. And the BLS is still reporting 10.5 million unfilled jobs38 percent higher than the pre-pandemic record of 7.6 million.
Due to the current backlog of vacant roles combined with declining labor force participation, American businesses will likely continue to struggle to hire in the coming months. And I had to learn to be patient when waiting in the TSA PreCheck line.
