With Claims of Mass Workers Shortages and Layoffs in the US, We Must Read Between the Lines
In the midst of the economic recovery from the Covid-19 pandemic, in trying to justify the acceleration in global inflation – even before the war in Ukraine – the mainstream media was flooded with news about the so-called ‘Great Resignation’, blaming an apparent shortage of workers for widespread bottlenecks in the production of goods.
Today, the same media is talking about large-scale redundancies and layoffs by corporations. The explanations offered for this apparent trend could lead one to draw conclusions that barely scratch the surface in terms of understanding the true root causes of these issues. This impacts not just the general public but also, most worryingly, policymakers who could be led to implement poorly designed policies that produce negative effects on people, their livelihoods and the wider economy.
Take two examples: in the first, on 14 December 2022, following a board meeting at the US Federal Reserve, its chair, Jerome Powell, said: “It feels like we have a structural labour shortage out there where there are four million fewer people, a little more than four million, who were in the workforce available to work than there’s demand for workforce.” This statement fails to consider that the federal minimum wage in the US, adjusted in real terms for inflation, is the lowest in 66 years.
And here’s another: less than one month after Powell’s statement, in January 2023 Reuters warned: “Big Tech firms and Wall Street titans are leading a string of layoffs across corporate America as companies look to rein in costs to ride out the economic downturn.” The source of the data at the heart of this story is Layoffs.fyi, a website that tracks global tech job losses. However, the story fails to explain that, without any methodological note on how the information is collected, the layoffs mentioned only occurred in 5 per cent of the 2,000 cases that the site refers to.
Despite representing two extreme points of view, these pronouncements have similar objectives: to push the narrative that labour is to blame for the world’s economic problems.
If inflation is picking up and there are shortages in the supply of goods and services, it is because workers are reluctant to actually work. To explain this, various subjective, personal, and apparently obvious reasons are offered, all of them appealing to common sense and canonical wisdom. As the former US Labor Secretary Robert Reich asserts: “They’re aiming to deal with the ‘labor shortage’ by slowing the economy so much that employers can find all the workers they need without raising wages.”
And when this is not enough, the dismissal of workers serves as a warning with a clear message: “Don’t push for higher wages because you will be fired. Can’t you see what large corporations are doing?”
Dismissal of workers: does the evidence support the assertions?
But is there really a shortage of labour? Is it true that companies can’t find workers? Are we genuinely witnessing mass firings and wholesale job losses? The simple answer is no. All these hypotheses only serve to ‘discipline’ the labour force and suppress wages.
In 2022, net job creation (job creation minus dismissals and job losses) in the US was 4.5 million people (an average monthly gain of 375,000) according to the US Business Enterprise Research and Development Survey, which accounts for all forms of non-farm employment. In December 2022, 223,000 jobs were added to the labour market, according to the Bureau of Labour Statistics.
Although there has been little change to the unemployment figures – from 3.7 per cent to 3.5 per cent in December – long term unemployment (a structural indicator of the strength of the labour market and which accounts for those unemployed for more than 27 weeks) was down by 146,000 people.
What would be a good indicator of labour shortages? Without any doubt, wages. If there is a scarcity of people looking for work, higher wages are the first indicator of labour shortages, especially in periods of inflation, when purchasing power is low.
In terms of earnings, wages increased in December by 0.3 per cent, and 4.6 per cent for 2022, but this value does not match the US inflation rate of 7.5 per cent for 2022.
It is safe to say that the current media narrative on layoffs has no relation to the actual level of dismissals currently taking place, or how many layoffs there are in relation to the overall level of jobs and employment. If one considered all the operations during the last 60 days, there were 30,000 dismissals in 168 enterprises, according to Layoffs.fyi statistics, which can hardly can be seen as representative of the US labour market.
Adjusting to a post-pandemic world
So, what’s really going on? New firms, especially tech companies, app- and web-based enterprises, and new fintech firms (not to talk about crypto currencies) rely on venture capital to finance projects of heterogeneous viability.
These firms, many of them start-ups and others with expansionary policies to create “original products, or new and innovative” services, grab billions from investors with diversified portfolios that devote a small share to risky, promising, greenfield, but theoretically profitable investment.
Unless there are major collapses, such as what we are currently witnessing with the crypto market, or with the dotcom crisis of the 2000s, there is an upward dynamic, even if the company doesn’t generate profits yet (see, for example, Uber, SpaceX, and Meta, to name but a few).
It is also worth exploring the relationship between interest rates and the investment in ‘new ideas’. When interest rates are low, the pursual of windfall gains by investors tends to direct the attention to firms that try to grab the excess of funds that flood markets, with ‘bright and original’ ideas.
As soon as the central banks increase interest rates, ‘herd behaviour’ reduces the inherent risk of these start-ups. This means buying treasury bonds from the US or other central countries, pulling resources from apparently great ideas and good prospects in the medium term.
These ‘new’ companies find themselves with excessive fixed costs, oversized structures, especially in relation to the actual proceeds, and when these figures are public, the value of the shares go down, bringing not only pressure on the overall value of the firm, but also on the chances of ongoing financing.
This is the point when CEOs decide to make public the decision to reduce costs. The easiest, fastest, and most widely acclaimed way to do so in the business community is to fire workers and/or cut salaries. There are many cases of corporations that have seen the valuation of their stocks increase on announcing that they will fire a large proportion of their workforce.
In summation, we could say that labour markets are still adjusting to the post-pandemic world, but in the middle of inflation and more uncertainty.
On the one hand, there are no signs that employment creation has stopped or that there are shortages of workers in the market. But on the other, there are very few signs of significant increases in worker remuneration, especially considering global inflation rates. This is an emerging sign that there are no shortages, otherwise salaries would reflect this, at least in some sectors and industries.
Only those countries where major state interventions, such as minimum wage adjustments, the indexation of wages, or dynamic collective bargaining with broad coverage, show signs of real wage adjustments.
Therefore, it is clear that the popular narrative about worker shortages and layoffs is aimed at building a cultural consensus against workers and the labour movement, and is based on biased, partial, and even contradictory definitions. As trade unions we must encourage the public to go beyond the obvious and read between the lines.