Wages are still rising
Labor shortages are likely here to stay
Labor shortages remain and likely will persist even if the US goes into a brief and potentially mild recession. Even as businesses are starting to retrench in terms of production, they know they will still need to find more workers.
How businesses might cope
The Conference Board anticipates that the US will experience a recession this year that may extend into next year, but that it may be far less intense than the downturns during the worst of the pandemic and the Great Recession. This recession will likely be induced by the Fed raising interest rates above 3% this year, which will make borrowing more expensive and promote a downshift in domestic demand that will help cool inflation.
Typically, slower domestic demand means businesses cut back on hiring plans first, and then lay off workers. This time, firms will likely rescind job ads and cut unnecessary costs, while trying to hold on to many of their best workers that they struggled to attract and retain over the last two years.
Services firms, many of which never fully recovered all the workers lost amid pandemic shutdowns, may be the most likely to keep their employees on the payrolls, and they may reduce hours or wages instead to cut costs. Some employers may place workers on furloughs with benefits and possibly a promise to make up for lost pay later. Others may defer merit pay raises, promotions and future discretionary compensation, or may encourage voluntary early retirement or job separations. Employers may also institute job sharing, where two people work one job, to keep their best people amid demand lulls.
The bottom line is that massive layoffs don’t appear to be on the horizon. If the impending recession is likely to be shallow and last a few quarters or a year at worst, businesses are likely to keep their hard-won workers amid a shrinking working-age population. For these reasons, the US economy may escape a surge in unemployment that harms millions of households, especially lower- and middle-income families.