Companies that hoard workers could keep the labor market strong

Employers who have struggled with labor shortages may be more reluctant than usual to lay off, even if economic demand slows.

Why is this important: If companies keep employees on their payroll, it would make the economic downturn smoother and less painful for workers than in recent recessions.

What they say : In recent earnings calls, some employers said they are reluctant to cut staff, even if growth deteriorates.

• “It’s been tough, frankly, to be in the hiring market on this climb over the past two years,” Chris Gorman, CEO of bank holding company KeyCorp, told analysts. This is why the company, in certain areas of the business, will recruit more staff “in a kind of flat or low environment” than it has in the past.

By the numbers: In June, just 1.3 million people were laid off or fired from their jobs, according to government data. That number averaged 1.8 million in 2019, suggesting employers are more reluctant now than they were then.

Between the lines: Most analysts think any recession will be mild, says James Knightley, an economist at ING. Companies may “be reluctant to lay off staff that they might end up having to recruit maybe six months down the line.”

That’s what happened at the start of the pandemic. Perhaps fearing that the pandemic recession would be a painful drudgery like the aftermath of the financial crisis, companies let workers leave quickly – only to face a rapid economic comeback without enough workers to meet demand. . Companies may not want to repeat this mistake.

• “A long, painful recession provokes one set of reactions, while a very short recession provokes another,” says Julia Coronado, founder of economic research firm MacroPolicy Perspectives.
• “The scar this time could be that employers are prone to hoarding labour. They may say ‘we’re going to sacrifice some margin and not cut costs so aggressively’ because it was really painful to spend a year and a half recruiting.”

Where is it : Since the pandemic hit, Coronado has been followed hiring actions expressed by publicly traded companies in quarterly earnings calls.

• In the last quarter, about 18% said they were still adding workers, while only 3% said they were laying off. (The others did not specify.)

And after: Tomorrow’s latest labor market snapshot is expected to show that the economy added 260,000 healthy jobs last month, a rapid (albeit slower) pace.