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Tags: recession | job cuts | economy

White-Collar Workers Could Be Hardest Hit This Recession

White-Collar Workers Could Be Hardest Hit This Recession

By    |   Tuesday, 02 August 2022 03:01 PM EDT

When most people think of recessions, massive job losses among the working class is what first comes to mind. Factories closing their doors, construction work grinding to a halt and blue-collar job loss have been the hallmarks of previous recessions.

But the recession of 2022 will be different than prior ones. “Joe Six Pack” will be spared.

That is according to William Lee, chief economist at the Milken Institute. Lee explained to MarketWatch that the current downturn will be mostly a white-collar recession. “And the blue-collar recession will not be in the same places that we saw in the past,” Lee says, adding, “Joe Six Pack, who used to be the first guy to be laid off, can be less concerned if he has one of those jobs that are in high demand—like the Amazon warehouse worker, delivery guy, the guy who’s working in the ghost kitchen.”

Two key factors are making this recession markedly different for mainstream workers. The first is demand for workers in the trenches remains strong—particularly in the services, trucking, and retail sectors. The second is a continuous labor shortage of workers, as people in many different industries have sought better opportunities since the pandemic.

In June, as the U.S. created 372,000 new jobs, a figure that surpassed expectations, growth was especially strong in these high-demand sectors like manufacturing and transportation, Labor Department data revealed.     

Simultaneously, a sharp uptick in hiring freezes at white-collar companies, including Facebook, Google and Tesla, is bringing new uncertainty to the labor market. Other companies, including Amazon, Uber and Netflix, have announced hiring freezes, a potential sign that the tech industry will be especially hard-hit by the recession.

Automation Threat

As hiring freezes and increased employee expectations affect predominantly white-collar companies, increasing automation during an economic downturn is another high risk for employees as companies look to boost efficiency.

Co-founder of Omniscient Digital David Ly Khim said, “During economic times, we want to avoid adding more operational costs if they don’t contribute to revenue generation. Automation helps us scale without needing to hire.” 

Mark Hamrick, senior economic analyst at Bankrate, agrees with Khim’s sentiment, telling Newsmax Finance that the risk of employees losing their jobs to automation exists because it “provides the benefit of efficiency labor which help businesses achieve their objectives with lower costs.”

This wider threat is complicated by existing labor shortages. “Although there has long been a fear that the replacement of labor could have a devastating impact on society, the fact of the matter is that we still have labor shortages,” Hamrick says. “Globalization has had a more negative impact on American workers than technology, in my estimation. The ongoing labor shortages may compel businesses to search for other technology solutions simply because they cannot find the ‘human power’ they want.”

White-collar workers in their existing positions are feeling pressure to perform amid intensifying economic uncertainty. Meta CEO Mark Zuckerberg told employees on a June conference call, “Realistically, there are probably a bunch of people at the company who shouldn’t be here,” adding that Facebook would be “raising expectations and having more aggressive goals,” The Verge reports.

Similarly, Google CEO Sundar Pinchar told his  employees in a memo: “Moving forward, we need to be more entrepreneurial, working with greater urgency, sharper focus, and more hunger than we’ve shown on sunnier days.”

Discretionary Spending

A tell-tale sign of a recession impacting the broader economy is a decline in both the luxury goods and discretionary purchases sectors, such as housing.

Hamrick says this contraction is already happening. “We’ve seen the impacts of high and sustained inflation force a change in buying decisions on the part of consumers, who have become focused on trying to purchase necessities, sacrificing some discretionary purchases,” he says.

One key sign of this happening is the news Wal-Mart is cutting apparel prices. There have also been reports of middle- and upper-income people switching to generic brands, and Procter & Gamble confirmed on its second quarter earnings call last week that consumers are shunning its coveted brand names for less-expensive, lower-quality alternatives.

“At the top of this hierarchy are shelter, food and transportation,” Hamrick says. “Income and wealth inequality factors remain in place, and that will likely provide some underpinning to the luxury market.”

Certainly, even lower-income people have been able to pad their savings accounts during the 2-1/2 years of the COVID lockdowns. However, U.S. household debt is now at a record $16.5 trillion, as people hit by inflation are racking up credit card and other expensive debt to get byt.

 However, the bear market in stocks and the lack of international travelers in the United States, undermined by the pandemic and the strong dollar, will continue to take [a toll] on the luxury market,” Hamrick says.  

Job Cuts Loom

The old saying “If it looks, walks and quacks like a duck, then it may be a duck,” so far applies to this economic downturn, as well. The housing market is showing broad signs of cooling, household saving rates are at lows not seen since 2008, consumer debt continues to soar, companies are beginning widespread hiring freezes, and small businesses are being hammered the worst by inflation.

However, one key indicator of a recession has not yet manifested itself: massive job losses. The job market, for now, remains stable,  Hamrick says:

Our Bankrate surveys over the past year or so have indicated that a majority of those in the workforce were planning to seek new employment. If we see a substantial weakening of the job market, coinciding with a rise in joblessness, it would be natural to see less willingness to leave current positions. As of the end of May, the quits rate remained elevated with the unemployment rate sticking near a 50-year low. It will take quite some time before we understand the full impacts of the changes in remote work, including how it affects a range of issues including productivity.”

Americans are nervous, and understandably so. Nearly 80% of workers say they worry about the security of their job during economic downturns, and 54% said they’d be willing to take a pay cut to avoid being laid off during a recession, an Insights Global survey found.

With economic alarm bells ringing everywhere, perhaps the economic hurricane that JP Morgan & Chase CEO Jaime Dimon warned about in early June, is just off the coast.

© 2022 Newsmax Finance. All rights reserved.

When most people think of recessions, massive job losses among the working class is what first comes to mind. Factories closing their doors, construction work grinding to a halt and blue-collar job loss have been the hallmarks of previous recessions.
recession, job cuts, economy
Tuesday, 02 August 2022 03:01 PM
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