Despite Layoffs, It’s Still a Workers’ Labor Market

The recent layoff announcements at Google, Amazon, and Microsoft impacting a total of 40,000 employees have many worried about the job market. Ever since April of last year, I’ve seen an explosion in headlines about layoffs and warnings about the labor market being weaker than it appears. One recent headline asked “Are we on the verge of a tsunami of layoffs?” But these headlines don’t align with what I, as a recruiter, am experiencing on-the-ground or even official labor market statistics.

In fact, the economy in early 2023 is not being roiled by layoffs — which are currently abnormally low compared to historical standards. This means the labor market remains really tight, despite arguments to the contrary. As a result, hiring will remain tough, and it may even mean central banks will have to keep interest rates higher for longer.

I had plenty of time to think about these headlines on a recent business trip back from Atlanta. I was standing in the airport security line for TSA PreCheck. The line would pre-pandemic take well under 5 minutes, but here I was standing 40 minutes later as the airport only had enough personnel to cover two out of the dozen or so idle scanners. If months of headlines about layoffs were true, I wondered, how come the airport still couldn’t 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 double down on their recruiting efforts?

I decided to take a look at the macro trends to answer these questions. The Bureau of Labor Statistics (BLS) has tracked the share of the labor force being laid off any given month since the end of 2000. In a typical month about 1.5 percent of the non-farm private labor force is laid off or discharged from their job. If this number approaches 2.0 percent or above, I would 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’s consistently been a tight labor market.

Some folks I speak with argue that there is a lag in the data and that the latest headlines have not yet been reflected in the numbers. I’ve been hearing this argument since April of 2022, yet, month after month as the lagged data is reported the layoffs have remained at the historically low level of 1.0 percent. It’s worth noting that prior to 2021, the BLS does not have a single month on record where fewer 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 therefore still are in an incredibly tight labor market.

Layoffs are, of course, not the only measure for labor market tightness. Voluntary job quits, for instance, reached a historic high at the end of 2021. This indicator is still high compared to pre-pandemic levels, but it has cooled off compared to the year prior.

None of this is to say that labor market won’t slightly cool off at some point soon. The Fed has signaled that it will keep interest rates high until inflation cools off and higher interest rates will soften demand in other economic sectors. Eventually, lower demand in the economy will lead to a softer labor market. But don’t expect a redo of the 2008 employer’s market anytime soon. The first reason that I’m confident about the labor market continuing to be resilient is that there are not enough workers out there. In the Great Recession of 2009, companies had an ocean of applicants for each job opening. This time around, if the economy is weakening the impact on the availability of talent has been strange. Instead of having an abundant talent pool to recruit from, companies find themselves fighting over a tiny talent puddle.

The U.S. civilian labor force is currently just shy of 165 million people. While some have pointed out that this brings us to the pre-pandemic number of working Americansthis translates to a one percentage point drop in the labor participation rate due to population growth. At the pre-pandemic labor force participation rate of 63.4 percent, America’s workforce would be at just under 168 million individuals. The civilian labor force is therefore short of net three million people since the beginning of the pandemic.

Let’s review where these three million missing workers might have gone. The U.S. has had 1.1 million Covid-19 deaths. An estimated 35 percent of these Covid deaths were part of the current workforce. This translates to about 400 thousand workers missing, just because of Covid deaths — not a small number.

Additionally, the Brookings Institution estimates that there are about 4 million workers with long Covid. Some of these workers are still working, even if at reduced hours. Taking into account individuals working at reduced hours, about 1.6 million full-time equivalent (FTE) workers could be out of work due to long Covid. So maybe not so surprisingly, by some government estimates U.S. sick leaves have doubled compared to historical standards.

The estimated number of Covid deaths and reduced FTE workers due to long Covid could alone explain two out of the three million drop in the civilian labor force. There have also been other factors, such as an increase in early retirements and lower immigration to mention a few, impacting the availability of labor since the beginning of the pandemic. Add to this the long-term trend of a declining labor participation ratedriven by factors such as an increasing share of young men opting out of the labor force and the high cost of childcare driving American women out of the  workforce.

The sudden decrease in the availability of labor has led to an uneven recovery. While some industries and geographies have been able to return to being fully staffed, many are still struggling. I experienced this at the airport security line, and you probably experience it anywhere from when waiting for a table at a restaurant to trying get ahold of a customer service representative at a call center.

In a recent report, the National Federation of Independent Business showed that the hiring struggles of main street business owners are still very real. Of those hiring, 90% reported no to few qualified applicants for their open positions. And the BLS still reports 10.5 million unfilled jobs38 percent higher than the pre-pandemic record of 7.6 million.

Given the current backlog of vacant roles coupled with a drop in the labor force participation, American businesses are likely to continue struggle to hire for months to come. And I will need learn to be patient when waiting in the TSA PreCheck line.