Over the last five decades, corporations heavily relied upon layoffs when times got rocky and there ... [+]
In the financial markets, you are admonished when saying, “This time is different.” Experienced Wall Street professionals and economists look to the past to plan for the future. Most often than not, history repeats itself—or at least rhymes. This time may be different.
Over the last five decades, corporations heavily relied upon layoffs when times got rocky and there was a need to cut costs. There have been several downsizings recently; however, they’ve been concentrated in the tech and crypto spaces.
These sectors disproportionately benefited from the Federal Reserve Bank and the federal government's policies and programs of flooding the economy with trillions of dollars in stimulus. Access to cheap, free-flowing funds enabled the tech space to create unsustainable valuations. The real estate field also enacted layoffs, as interest rates made purchasing homes more expensive and the home-buying frenzy subsided.
Why It's Different This Time
Two years later, the economy has not fully recovered all jobs lost from the pandemic. Despite some downsizing, the United States boasts 11.3 million jobs available. This equates to around two jobs for every unemployed person. It doesn’t mean that each person is a perfect match, but the enormity of the job openings reflects the nation’s need for workers.
When you go to a restaurant, stay at a hotel, try to fly on a plane or shop at a big-box retail store, you notice that there are not enough workers. The remaining employees are forced to do the work of two or three people. Since jobs are plentiful, they’ll quit in pursuit of a better opportunity. About 4 million Americans have been leaving their positions on a regular monthly basis.
Businesses have learned how hard it is to find, attract, recruit, hire and retain workers. Experienced managers and executives know that even if the U.S. is in a recession, it will ultimately pass over time. It is a prudent decision for companies to hold onto their employees tightly. They’ve learned through experience how difficult it is to find and replace people. In an inflationary environment, the prospective candidates will demand more money than those who previously held the role.
Executives recognize that without an entire workforce, it could cause significant damage to the firm’s brand and reputation. For example, look at the airlines. Without sufficient staff, there have been a plethora of canceled flights inconveniencing and infuriating customers who most likely will never use their services again. The pilots and other employees are equally perturbed over the mess that’s been made, primarily due to the lack of personnel.
Changes In The System
The pandemic has made people change the way they look at their lives. People desire a balance between work and life. They also want their companies to hold certain values and principles. If a company enacts a massive downsizing via an online, one-sided video call, it will invoke anger and there will be a social media backlash, calling out the tone-deaf and callous attitude of the company’s management. Some of these organizations may never recover from the adverse publicity. Lessons from Better.com show that it's wiser to hold onto people and hunker through the rough patch.
Costly childcare, caregiving, low birth rates, an aging population, doors closed to immigration to the U.S., a low participation rate in the labor market and the propensity to rapidly switch jobs causes fewer people to be in the job market.
There are more than 22 million people 60 years of age and older who are still employed. There are reports of new strains of the virus and the costs of commuting have skyrocketed, due to inflation and higher gas prices. Older workers, on average, tend to earn more than their younger counterparts due to their seniority. The arbitrage between the compensation of a Baby Boomer and a Gen-Zer is not lost on the experienced professionals.
They have been around long enough to know that they are a target when budget cuts are announced. It's reasonable to believe that a sizable percentage of the Boomers and older Gen-Xers may elect to call it a day and take early retirement. They’ll rationalize that they can always sit on the beach for a while, see how things go and maybe come back again, if—and when—the economy and job market improves.
There Are Other Options
Letting go of employees doesn’t have to be at the top of the list for companies. There are numerous other options. Businesses can overcome temporary furloughs with an invitation to return once things improve. Companies can offer temporary or contract assignments for the short term until the economy turns around. Instead of layoffs, employers can cut the lush salaries of C-suite executives, temporarily prune the staff's pay, reduce hours, put in place a four-day workweek, offer sabbaticals, and work-sharing programs hiring freezes, attrition and train new skills to people to take on multiple tasks. Corporations may elect to go fully remote, sell off their real estate or opt out of renewing their rental leases when they expire, dramatically cutting costs to save jobs. These measures would also help with turnover, as employees will feel that they are being looked after and have a home.
This time around, downsizing may not be as bad as most experts predict. The frustration of finding and keeping workers has been etched into managers' minds. They don’t want to fire people, only to have to embark upon the arduous, time-consuming and expensive process of onboarding and training new employees. The mindset and demographics of people have shifted, making it harder for employers to hire and retain workers. There are other tools for corporations to cut costs and not people. There most likely will be layoffs in the near term, as the Fed follows through with its program to cool down the economy and battle inflation's pernicious effects.
