Has this distorted labor market forced companies to change the way they think about layoffs?

Examine supply and demand imbalances and structural changes in the labor market, and what this means for employers.

By Wolf Richter for WOLF STREET.

We still have the most distorted labor market ever, but there are big changes, and those changes make sense. We’re going to look at this picture book upside down. So stay with me. We thought a lot about the “why”, but I will stick to the “how”.

The labor supply is very tight.

We can think of the readily available wholesale labor supply as people who are looking for work but don’t have any at the moment. There are different aspects. So let’s go.

The number of unemployed near historic lows. Persons are considered unemployed if they actively sought work during the reference period and do not have a job. People who have not looked for a job are not considered unemployed (retired, students, day laborers, etc.). The number of unemployed rose in October from September, to 6.06 million, but has remained in the same narrow range since January, and remains historically very low. This is particularly interesting because over the decades the population in the United States has increased:

This data today comes from the Bureau of Labor Statistics, which obtained it through its extensive household survey.

Unemployment insurance claims near historic lows. Well-known companies, such as Lyft, Twitter, Carvana, etc., are now constantly in the headlines with layoffs. But the numbers are still small – hundreds or a few thousand per company – “small”, given that even in the best of times there are around 6 million unemployed in the United States. And so far, many people who have been laid off have found jobs quickly or already had a job planned by the time they were escorted out of the building.

So the number of people filing for unemployment compensation, at 217,000 in the week to last Saturday, as the Department of Labor reported yesterday, was down slightly from the week. previous year and remains close to historic lows.

These initial UI claims are weekly and as close to real time as possible. They are based on actual unemployment insurance claims, not surveys.

What this low number means: In the United States as a whole, few people are laid off, and most of those who are laid off find jobs quickly, or already have jobs waiting, and don’t even bother to file an unemployment claim.

When initial unemployment insurance claims begin to increase, it not only means more people are being laid off, but also more people who are being laid off cannot quickly find new jobs and therefore complete the insurance claim stages. -unemployment.

Layoffs and dismissals near historic lows. Meanwhile, the number of layoffs and involuntary layoffs, a later dataset based on business surveys, reported by the BLS three days ago, rose from already low levels to record highs, at 1 .33 million people in September, compared to 1.49 million in August, and down 33% compared to September 2019:

The working population as a whole refuses to recover.

The work force — people who are employed or actively looking for work — fell again in October, to 164.7 million people, according to the BLS today, based on its household survey. It remains surprisingly well below the pre-pandemic trend.

This refusal – I’m using the term loosely here – of the workforce to trend back is the biggest problem in the labor market, and it’s a very complex problem, and a lot of people find reasons to that. But it’s like that :

The activity rate – the above labor force as a percentage of the working-age population aged 16 and over – fell for the second month in a row to 62.2%, the same as in January. It hasn’t improved at all this year:

The activity rate in the prime of life – those aged 25 to 54, removing the effects of retiring baby boomers on the labor force – recovered slightly more than the overall labor force participation rate, but also remains well below February 2020. In October, it fell for the second month in a row, to 82.5%:

people who work.

The total number of people working has stagnated all year. This includes people with all kinds of jobs, gig workers, contractors, freelancers, people with regular jobs, etc. The BLS obtains this data through large household surveys. It is the broadest measure of employment and is very different from the “jobs created” data that the BLS obtains through extensive employer surveys; More on that in a moment.

In October, the total number of working people fell from 328,000 to 158.6 million. It has been essentially stable since December and remains below the high of February 2020.

Thus, the same households that reported that the number of unemployed in their household was near historical lows also show that the number of working people has not increased since December and remains below February 2020. The green line indicates the trend pre -pandemic.

But employers added 261,000 workers to their payrolls in October. In the last three months they have added 868,000 workers. So far this year, they’ve added 4.07 million workers, according to surveys of employers by the BLS today. These are W-2 employees, not gig workers and freelancers.

Over the summer, employer payrolls exceeded the pre-pandemic peak of February 2020 and continued to rise.

This relatively strong continued increase in W-2 payroll among employers has occurred even as:

  • Labor went nowhere
  • The activity rate has not changed
  • The total number of people working has gone nowhere.

This graph shows the moving total over three months of payroll changes among employers. The last three-month period from August to October came in at 868,000 – the lowest since the reopening phase, but still higher than most pre-pandemic periods:

Freelancers move to W-2 payroll. The stagnation in the total number of working people (from the household survey) and the continued strong growth in the W-2 wage bill among employers (from the establishment survey) show that employers are hiring aggressively and offer wages and benefits that attract gig workers and the self-employed to their payrolls — and it makes sense.

This is a big change: while employers have created several million W-2 jobs this year, the total number of workers has remained the same, and we can conclude that a large number of gig workers and self-employed joined the W-2. payroll.

The chart below shows the trend. The total number of workers, according to the household survey, is always greater than payroll alone, because the workers reflected in the household survey include W-2 employees plus all other workers. Since the start of 2022, this difference has narrowed considerably, from around 7.5 million workers in January, February and March to just 5.3 million in October.

Unsatisfied work request.

Job postings increased by 51% compared to September 2019, to an astronomical amount of 10.7 million. We got this data a few days ago from the BLS’s Job Openings and Job Rotation Survey (JOLTS). In the manufacturing sector, the number of vacancies has increased by 84% compared to three years ago!

Which give?

The explosion of vacancies last year, and the huge unmet demand for labor represented by those vacancies today, as well as the very tight labor supply, as data on the active population show, testify to the current imbalances of supply and demand. in the labor market.

We can see the effects of aggressive hiring – like offering higher wages, better benefits, better working conditions – that turns into poaching workers from other employers, which is creating this massive turnover on the labor market which we can see in the historical number of workers who have voluntarily left their jobs because they can then get a better job.

And this aggressive hiring is also bringing the self-employed onto formal payrolls, as we saw in the chart above.

And ADP’s payroll data showed just how huge the wage gains were for people who quit their jobs to get better jobs. For all employees in the private sector, the median annual increase in wages was 7.7% for those “who stay” and 15.2% for those who change jobs:

Has this labor supply forced employers to learn a lesson?

There is now growing anecdotal evidence that many employers are hesitant to fire people at the first signs that they see their revenue growth getting into trouble.

During the pandemic, they very quickly laid off millions of employees. But starting last year, when business started to boom, they had a hard time rehiring people, and they had a huge number of unfilled vacancies, and they ran out of workforce, and they couldn’t grow their business because they ‘wanted to, and they had to offer much higher salaries to attract people to fill the niches they had created by laying people off, and they had to hire people with less experience than they had in those niches before, and that hit labor productivity.

It makes sense that employers who have the financial resources cling to their employees. We’re not talking about the cash-burning machines that have arisen willy-nilly over the past 10 years in the era of free money and are now facing an existential crisis, but companies with solid business models. who see a potential recession on the horizon but are hesitant to lay off, knowing that the labor market has changed structurally, and they will have a hard time reintegrating people afterwards. And that would be good for workers and good for the economy.

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