Mass tech layoffs don’t signal a recession, but this trend could
The recent mass layoffs in tech companies have caused concern among workers, who fear these job losses may signal an economic downturn. However, economists say these layoffs are not a sign of a recession. While the job losses are disruptive to those impacted, they are not widespread enough to signal a recession, and the national unemployment rate remains low.
The labor market has been tight for most of the pandemic, with millions of job openings and a shortage of workers. This has led recruiters to extreme lengths to court high-earning tech, finance, and real estate, workers. The sudden layoffs in well-known tech companies have a disproportionate chilling effect, as they are household-name companies that experienced rapid growth. A slowdown in the tech industry can cause job-seekers more broadly to worry that jobs are becoming less available.
However, while white-collar layoffs may cause ripples in the job market, they are not yet waves that signal a recession. According to ADP chief economist Nela Richardson, tech companies may be “pruning” their headcount, but they are still investing in building future technology and workforces. For example, Microsoft recently announced it was laying off 10,000 workers but days later unveiled a multi-billion dollar investment in ChatGPT-maker OpenAI.
Meanwhile, small businesses continue to struggle to find qualified workers. According to ADP’s small business clients, their biggest challenge is finding skilled workers, and they do not think it will get much better in 2023. These employers “have a white-knuckle grip on their workers,” who know they are in demand and can ask for better working conditions.
Layoffs concentrated in white-collar jobs could filter into blue-collar work, particularly in manufacturing, where recessions start. In late 2022, an index measuring factory activity showed a contraction for the first time since 2020, which could signify an impending recession. Employers cut 110,800 temp workers in the last five months of 2022, including 35,000 in December, the most significant monthly drop since early 2021.
However, even if the U.S. formally enters a recession, it may differ from what we are used to. It may be a period of stagflation, an “anemic economy” with persistent inflation. Stagflation means the Fed raises rates and then holds them there, and inflation moderates but does not reach its goal of 2%. This could result in sluggish growth, with no light at the end of the tunnel. According to Richardson, “we’re sitting in the messy middle.”
The article is “Mass tech layoffs don’t signal a recession, but this trend could.“