The strength of the labor market for white-collar professionals is slowing.
There is still a debate over whether or not there will be a recession in 2023. According to Goldman Sachs Research, Wall Street’s consensus estimate on the probability of a meaningful downturn in the American economy within the next 12 months is at 65%, whereas the investment bank contends that the probability is much lower—35%.
Typically, the working class and blue-collar workers are the most impacted in challenging economic climates. However, this time, it's different. The wealthy and high-paid, white-collar professionals are facing what is being called a “richcession,” according to the Wall Street Journal.
The strength of the labor market for white-collar professionals is slowing, according to data from LinkedIn’s State of the Labor Market. The new report conducted by the professional social network shows hiring on LinkedIn dropped by 23% year-over-year in the United States in January.
The data shows that the number of posts by members mentioning the words “layoff” or “retrenchment” on LinkedIn soared. Posts referencing “open to work” increased by almost 20%. These indicators reflect that the labor market is cooling, beyond the ongoing layoff announcements from industries that saw massive overhiring during the pandemic, Rand Ghayad, head of economics and global labor markets at LinkedIn, reported.
There was a drop in the ratio of job openings to active applicants over the past few months, evidencing a hiring slowdown. For instance, any active LinkedIn user over the last six months has seen a daily flurry of people with an #OpentoWork banner on their profile, sharing their heartbreaking stories of being laid off and asking for help in finding a new job.
In 2023 alone, more than 400 tech companies have laid off over 110,000 white-collar professionals. The white-collar recession started with tech and then moved to Wall Street, media and other sectors. On Friday, telecom company Ericsson confirmed to Forbes that it is planning to cut 8,500 jobs. This week, it was also reported that NPR and McKinsey will conduct reductions to their respective headcounts. John Lansing, president and CEO of the nonprofit media organization, attributed his staff cuts to declining advertising revenue and the “uncertain” economy. According to Bloomberg, McKinsey is expected to lay off around 2,000 people at the management consulting firm.
The layoff contagion first impacted software developers and other specialized technologists who earned lofty pay packages. The median worker at Meta earned nearly $300,000 in 2021, and more than $230,000 at Twitter, according to securities filings.
With the wave of layoffs and threats of more to come, the upper-middle class is stagnating. These people tend to own stocks, bonds and other securities that have recently seen large swings in value. Real estate, representing a large portion of a family’s wealth and net worth, has dropped prices due to significantly higher interest rates than a year ago. When interest rates rise, mortgage costs increase, deterring many people from buying homes, and drive the prices lower.
As companies are downsizing and enacting hiring freezes, they are not inclined to increase the pay of already well-paid professionals. The rising costs of everything eat into people’s salaries, making them feel as if they are earning less.
These and related matters create a reverse wealth effect. When people are confident in the future, they are more apt to purchase expensive items, dine out more frequently, take vacations and spend more freely. Now that white-collar professionals in tech, finance, real estate and media are seeing their colleagues get downsized and the future looking uncertain, they start cutting back on costs, just like the companies are doing. When this happens at scale, the economy slows down, causing a self-fulfilling prophecy.
Blue-Collar Workers Are Doing Well
The working class has held up relatively well. This cohort saved money as the federal government spent trillions of dollars on stimulus checks, enhanced unemployment benefits and other programs designed to help families weather the economic storm created by the pandemic. As the need for workers skyrocketed, wages rose for people working in travel, restaurant, leisure, warehouse, fulfillment center and other sectors.
Lots Of Jobs For The Frontline Workers
Out of the 517,000 new jobs added to the U.S. economy in January, the majority was in leisure and hospitality (128,000), according to the Bureau of Labor Statistics’ monthly employment summary. The service sector contributed 397,000, according to an analysis by ZeroHedge. Another sector that added the most jobs since September was food and beverage, with almost 100,000 new hires. Additionally, government jobs increased by 74,000.
The number of people employed part-time for economic reasons was 4.1 million. These individuals were characterized by the jobs report as people “who would have preferred full-time employment, were working part-time because their hours had been reduced or they were unable to find full-time jobs.” The leisure and hospitality sector has around 1 million more open jobs than before the pandemic. These positions boast higher wages too.
