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A "White-Collar" Recession

No one appears more fearful of a potential economic recession than big tech companies. Amazon, Google, and Disney are among many issuing significant layoffs in response to interest rate hikes, leading to a substantial number of recently unemployed white-collar workers.


Studies show demand for technology, legal, scientific, and finance professionals has fallen sharply. Companies that added staffers during the pandemic, most notably tech firms, are slowing down hiring or cutting jobs altogether as they close down projects or scale back others. 


Amazon is cutting roughly 3% of its staff in its retail, devices, human resources, and other divisions, but its hundreds of thousands of warehouse workers have seen no threat to their jobs. Similarly, Facebook parent Meta Platforms is concentrating on its recruiting and business teams as it cuts 13% of its workforce. Ford Motors, Walmart, and H&M also focus their discharges on salaried and office staff rather than production or retail. 


Experts call this targeted response to a looming recession a “white-collar recession” in demand for labor. Scott Galloway, a New York University marketing professor, on a recent episode of a podcast he cohosts, called the current slowdown a “Patagonia vest recession,” referring to the garment popular among Wall Street and Silicon Valley professionals.


Economists put the probability of a recession in the next 12 months at 63%. The Federal Reserve seeks to lower this risk by raising interest rates enough to cool inflation without inducing higher unemployment and an economic downturn. In facilitating this “soft landing,” the Fed has businesses anticipating what will happen when the high-interest rates finally trickle down through the economy, hence the significant staff cuts. They fear the Fed may have implemented an overreactive policy and are preparing for the worst. 


History tells us that in previous economic downturns, the first workers to lose their jobs were those employed by capital-intensive industries, such as mining and manufacturing, or highly cyclical businesses like air travel and hospitality. As the slowdown deepens and the recession seems likely, companies begin to lay off their white-collar professionals.


Now, the pattern has changed. According to a ZipRecruiter analysis, the most significant decrease in job postings has been in industries dominated by white-collar workers. Since the Federal Reserve accelerated its interest-rate hikes in June and subsequently caused market concern, tech job postings have fallen by 36%, business services by 32%, and science and legal jobs by 31%. By contrast, travel, food, and retail jobs have experienced only single-digit declines, proving somewhat impervious to this market contraction.


However, in the most recent federal employment data, a white-collar slowdown has yet to be recorded in a market that exhibits strong hiring. Friday’s report showed a gain of 200,000 jobs in November, and job openings remain plentiful. Federal Reserve Chairman Jerome Powell said the overall labor market shows “only tentative signs of rebalancing,” citing wage growth higher than expected at 2% inflation, the Fed’s target.


While job cuts are up sharply from earlier this year, 2022 has seen fewer job cuts than almost any year since at least 1993, according to a recruiting firm. On the other hand, the tech sector has seen more layoffs through November than any year since 2002, around their time or origin.


Many companies issuing job cuts are in industries that boomed despite the pandemic. DoorDash plans to cut 7% as deliveries slow, Snapchat is cutting 20% of its workforce, and AMC Networks foresees a 20% labor cut of U.S. employees following failing streaming sales.


In an interview with the Wall Street Journal, longtime technology executive Myrna Soto said “a calibration was needed” after “tech companies continued to balloon in value and demand, and they hired at a rate that was just well above a logical consumption rate for productivity and output” during the pandemic.


Companies may be favoring front-line workers now because they were few and far between during the pandemic shutdowns, but white-collar workers will likely not be unemployed long. They may be forced to accept lower pay, but demand for their skills will return once the economy traipses back to normal.

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