Companies that hoard employees can keep the labor market strong

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Employers facing labor shortages may be more wary than usual about laying off people, even as economic demand slows.

Why it matters: If companies keep people on payroll, the economic slowdown would be milder and less painful for workers than in recent recessions.

What they say: In recent wage calls, some employers have said they are hesitant to cut workforces even as growth deteriorates.

  • “It’s honestly been a challenge to be in the hiring market in this surge in recent years,” Chris Gorman, CEO of bank holding firm KeyCorp, told analysts. That’s why, in certain areas of the business, the company will hire more staff “in a kind of flat or down” environment than in the past.
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By the numbers: In June, only 1.3 million people were laid off or laid off, according to government data. That number averaged 1.8 million in 2019, indicating that employers are more cautious now than they were then.

Between the lines: Most analysts think a possible recession will be mild, says James Knightley, economist at ING. Companies may be “reluctant to lay off staff that they may have to rehire six months later.”

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That’s what happened at the start of the pandemic. Perhaps fearing that the pandemic recession would be a painful blow, as was the aftermath of the financial crisis, companies let workers go quickly — only to make a rapid economic comeback without enough workers to meet demand. Companies may not want to repeat that mistake.

  • “A long, painful recession produces one set of responses, while a very short recession produces another,” said Julia Coronado, founder of economic research firm MacroPolicy Perspectives.
  • “The scar this time could be that employers are prone to hoarding labor. They might say ‘we’re going to sacrifice a little bit of margin and not cut costs as aggressively’ because it was really painful to re-staff for a year and a half.”
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Where it says: Since the pandemic struck, Coronado follow solicitations expressed by publicly traded companies on quarterly earnings calls.

  • In the most recent quarter, about 18% say they are still adding workers, while only 3% are talking about layoffs. (The rest is unspecified.)

What’s next: Tomorrow’s latest labor market snapshot is expected to show the economy added a healthy 260,000 jobs last month, a fast (though slower) pace.

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