Fears of a white-collar recession are overblown

A tired cartoon businessman on an escalator.
White-collar layoffs are getting lots of attention, but don’t mean everyone’s job is doomed. | Getty Images/fStop

Layoffs in media and tech don’t mean you’re getting laid off, too.

It’s hard not to notice the recent stream of headlines about high-profile layoffs.

In tech, they’ve hit big names such as Amazon, Salesforce, and Facebook parent Meta, as the years-long boom in the sector appears to be over. In finance, Goldman Sachs, Morgan Stanley, and Barclays are among those cutting staff. (HSBC wants the people who work at those places to know they’re hiring.) Media layoffs, which seem to always be happening, are here once again. NBC News and the Washington Post are getting rid of staff, and you’ve also got whatever is going on at CNN.

The whole thing is quite unnerving. The economy has felt off for months now, amid high inflation, supply chain kinks, and other pressures. Job cuts aside, white-collar workers may be feeling the squeeze in ways they haven’t experienced before. Given the Federal Reserve’s impetus to cool down the hot economy and slow the job market, a recession could be on the horizon.

If a whisper of a layoff is the thing that goes bump in the night, multiple news stories about thousands of people at Big Important Companies being out of a job feels like the giant monster standing in your door ready to eat you. But all is not as it seems. Rumblings of a looming white-collar recession are overblown. As the Economist recently put it, “Don’t despair for the Patagonia-vest set just yet.”

It’s bad for anyone to lose their job, full stop. It’s painful, it’s scary, it’s disruptive. Still, the unemployment rate for college-educated workers, many of whom occupy these types of white-collar jobs, is very, very low — I’m talking under 2 percent, here. Turmoil in areas like tech makes more noise than actual macroeconomic impact.

“They’re a large section of the discourse, they’re not a large section of the US labor market,” said Nick Bunker, economic research director at Indeed. Indeed, these high-profile layoffs are just a small slice of the labor market compared to, say, leisure and hospitality or construction, both of which are humming along fine for now.

Some white-collar layoffs are not a sign that the economic sky is falling, experts say. If the sky does fall, it will likely be blue-collar workers and those who always lose out most who will pay the biggest price once again.

A little look under the hood

The job market, in general, is pretty solid. The unemployment rate in the US in December fell to 3.5 percent and has been in the 3.5-3.7 percent range since March. The number of job openings remains elevated, workers are still quitting their jobs at higher rates, and layoffs are lower than they were pre-pandemic. Wage growth is slowing down — and in many cases is not keeping up with inflation — but it’s still happening, much to the Fed’s chagrin.

“I wouldn’t call it a recession for anyone,” Bunker said. “There are pockets of the labor market where there are some sectors that tend to hire college-educated workers or really educated workers, like the tech sector, and layoffs have picked up there, but that’s one high-profile section of the labor market.”

Meta laying off 11,000 people and Goldman Sachs 3,200 sounds like a lot. But when you put it in context, it’s quite tiny — there are some 165 million people in the workforce. It’s also important to keep in mind when looking at websites like layoffs.fyi, which tracks tech sector layoffs, that in the grand scheme of things, some of these totals are not that much.

“You look at unemployment insurance claims and you say, ‘Well, there really isn’t too much here,’” said Matt Darling, employment policy fellow at the Niskanen Center, a think tank.

Examining unemployment for workers across education levels, which we’ll use here for an imperfect proxy for white-collar jobs, the unemployment rate for those with a bachelor’s degree or higher is 1.9 percent. For people with some college, it’s 2.9 percent, for high school graduates, it’s 3.6 percent, and for people with less than a high school diploma, it’s 5 percent.

So what’s going on with these newsmaking layoffs? There are a lot of factors in play. Some finance companies, in the face of economic uncertainty, are pulling back before things potentially get bad. Some in tech just can’t depend on the explosive growth they’ve seen in the past 20 years. Across the board, some companies have simply made miscalculations.

“For tech and finance in particular, many of the layoffs we’re seeing are coming from companies that were trying to ride a shift from the pandemic. You have tech companies that overhired during the pandemic because they misread pandemic-era shifts as long-term structural change,” said Daniel Zhao, lead economist at Glassdoor. “You have the Pelotons of the world who maybe didn’t think that people would go back to gyms in person as opposed to working out from home.”

Some of the layoffs are renormalization of the economy as we’re unwinding the effects of the pandemic, or companies downscaling after getting out a little over their skis in terms of headcount.

“In many cases, they’re resetting to the size of their employee base,” Zhao said. “It’s not that these companies are shutting down or falling off a cliff, it’s often that they’re resetting to a size that’s a little more sustainable.”

When you’re used to winning by a lot, winning by slightly less looks like a problem

Despite the strength of the labor market, there are many ways in which the economy for a lot of people, at the moment, is not fun. Inflation, while appearing to ease somewhat, takes a real bite out of paychecks. The Fed’s fight against inflation is going to be tough. In investing, the stock market’s bad, bonds aren’t great, and crypto is a disaster. The housing market’s in trouble, too.

People in the higher echelons of the economy, income-wise, are feeling some pain. Their wages haven’t kept up with inflation, nor have they increased at the same rate as the people who make less than them. Prices are rising, and last year, they didn’t get much of a pay bump, if any, comparatively.

“There has been a real difference in the trajectory of real wages between different populations. The bottom quartile, the second quartile, have seen real wage gains, and the top half have seen losses,” Darling said, pointing to upcoming research by economists David Autor, Arindrajit Dube, and Annie McGrew. “A lot of folks who are professional white-collar workers … are people who maybe haven’t gotten a wage increase but have seen big cost-of-living increases, so they’re a bit more frustrated with the economy in general.”

Going to a restaurant or a coffee shop or going on vacation is more expensive. Even if those are extra expenses people at the higher end of the income range may still be able to afford, they’re not extra expenses they like or are used to. And amid recession fears, it’s hard to shake the feeling that something even worse might be on the horizon.

“White-collar industries are used to the economy being good for us, and maybe it isn’t right now, and maybe it’s not going to be going forward,” Darling said. “There’s a lot of stress about that.”

Workers in service and construction jobs that keep the economy running are making more money, and in some places that’s showing up in prices that other people pay, including the people paying to go to those restaurants and hotels and build those houses. “You’re seeing this effective redistribution, and it’s a little bit painful,” Darling said.

It may be subconscious in many cases, but white-collar workers are also accustomed to things being quite a bit better for them, economically, than their blue-collar counterparts, and there can be some discomfort in that being somewhat less the case. The gap in the unemployment rates between higher-educated and lower-educated workers has historically been larger than it is right now in many moments of economic stress. In December 2012, for example, the unemployment rate for college-educated workers was 4 percent, and for workers with a high school education, it was 8 percent.

Many higher-income, white-collar workers are not in the most dire situation on the job market, but they don’t have as many choices as they’d like.

“Employees with technical skills are still going to be in high demand. Now, they might not be able to get as lucrative a job as they got maybe a year ago, but in general, technical skills are in high demand,” Zhao said. “Anecdotally, people feel like there’s more competition right now because of the wave of layoffs that have come about. It’s harder to find that perfect job.”

Conversely, people in lower-income sectors are still getting to be a little bit choosy.

“One thing that’s held up more than expected has been quitting; the rate at which people are leaving their jobs, particularly for low-wage sectors that saw high rates of quitting in 2021,” Bunker said. “If that keeps up, that is an indicator that some of the leverage that workers in those industries had is going to be a bit more resilient than we thought.”

If the economy tanks, everyone will suffer, and the people at the bottom the most

In many ways, the economy has been better for lower-wage and less educated workers recently than it has been in years. They were hit hardest when the pandemic took hold, but as the economy has rebounded, they’ve reaped some real benefits. They really have been able to hop jobs more and, in turn, drive up their wages. Businesses may also be hesitant to lay them off, because hiring them back in the first place was hard.

If there is an economic recession on the near-term horizon — and that really is an if — it will not be good for workers across the board. However, the workers that will likely be hardest-hit will be the ones who are always hardest-hit — workers in areas such as construction, retail, leisure and hospitality.

As the Wall Street Journal notes, blue-collar workers saw bigger job losses than white-collar workers in the 1990-91, 2001, 2007-2009, and 2020 recessions. In 2020, blue-collar companies cut staff at twice the rate of white-collar companies. It’s unlikely the next recession will be an exception to the historical rule.

“If we do see a recession, yes, it will be bad for lots of folks, but I would expect the unemployment rate for people with college to get up to 5 percent and people with high school, no college, up to 10 percent,” Darling said. “There will be a lot more pain, and it won’t be evenly distributed.”

The construction sector has been resilient despite the slowdown in the housing market, but how long that will last is an open question. Eventually, weakness in housing will trickle through. “There’s this huge backlog of work that needs to be done,” Zhao said, “but at the same time, that backlog can’t sustain employment forever if the housing market does remain depressed and there’s less demand for construction in the future.”

The same goes for leisure and hospitality. People are still going out and about and traveling, but if the economy gets bad enough, they’ll stop. “If there’s a broad slowdown in the economy, people are just like, ‘Okay, I’ll go out to eat less,’” Bunker said. That’s going to hurt the guy who works at the restaurant down the street, not an engineer at Facebook.

Employment in transportation and warehousing, which got a pandemic bump because of increases in ecommerce and delivery, is already starting to cool off, Zhao noted, as consumer behavior normalizes. “In that industry, we have seen jobs come down quite significantly over the last few months. It’s not back to pre-pandemic levels, but we have seen a slowdown there,” Zhao said. That doesn’t necessarily mean companies in the sector are doing mass layoffs — many can just depend on attrition to whittle their workforces down.

The possibility of a recession has everyone a bit on edge, whatever their income level, and again, if and when the next downturn comes, it won’t be fun for anyone. White-collar layoffs at some big-name companies are not the death knell they might sound like. There are real risks ahead, and if they come to fruition, their effects will stretch far beyond Salesforce and Morgan Stanley.

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