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Business News/ Companies / News/  As white-collar layoffs rise, blue-collar resilience faces test in 2023

As White-Collar Layoffs Rise, Blue-Collar Resilience Faces Test in 2023


Manufacturing and leisure could resist pattern of bearing brunt

Layoffs at white-collar companies are starting to rise. Now the question hanging over the economy in 2023 is whether that trend spreads to blue-collar industries as interest rates bite.

Average layoffs in finance and insurance from September to November nearly doubled from a year earlier, according to Labor Department data released this past week. Job cuts picked up by more than 20% among real-estate lessors, brokers and agents over the same period, and by about 14% in the tech-heavy information sector.

Layoff rates in these white-collar industries are still historically low, at 1% of total employment in November, according to the Labor Department, compared with 0.9% in February 2020. Their recent rise, however, contrasts with industries where manual labor is more prevalent and pay lower. Manufacturing, leisure and hospitality and retail all laid off fewer workers on average in the three months through November compared with a year earlier.

Job growth slowed to a still-robust 223,000 in December, a two-year low, and could fall further this year thanks to higher interest rates engineered by the Federal Reserve to push down inflation.

Even so, many blue-collar workers might fare better than they did in previous downturns. Demand for goods and services, while softening, is still too high for many employers to consider layoffs. If demand does soften, industries such as leisure and hospitality might hesitate to fire the front-line workers they struggled to hire and retain during the pandemic rebound, some economists contend.

Adjusted for inflation, consumer spending on durable goods has cooled over the past year, but is still running 26% above prepandemic levels. That is helping drive manufacturing hiring despite elevated interest rates, said Andrew Flowers, lead labor economist at recruiting software firm Appcast.

“I expect eventually the construction labor market will probably start to bend but not break. The manufacturing labor market will start to bend but not break," Mr. Flowers said. “We actually have a better economy than a lot of people think."

Carl Tannenbaum, chief economist at Northern Trust, doubted white-collar layoffs would quickly spread to blue-collar industries. Travel, leisure and entertainment firms “have struggled mightily to rebuild their head-count levels and now, having gotten close, I think they’re reluctant to lay people off," he said.

If the economy goes into recession and layoffs remain concentrated in white-collar sectors, that would mark a departure from previous downturns.

Blue-collar workers—including those in hospitality, manufacturing, construction and retail—experienced steeper job losses than their white-collar counterparts during the recessions of 1990-91, 2001, 2007-09 and 2020, an analysis of Labor Department data shows. Amid pandemic shutdowns in early 2020, blue-collar employers cut payrolls at well over twice the pace of white-collar ones.

Lower-wage workers were hit hardest during the pandemic downturn, said Nela Richardson, chief economist at ADP. “Firms in tech and in finance leaned into the pandemic economy and hired aggressively," Ms. Richardson said. Now, “they have to recalibrate their hiring strategy to accommodate a slowing economy."

The current economic situation is unlike any that many tech companies have confronted, Ms. Richardson said. Many weren’t around 40 years ago, meaning they haven’t seen inflation this high, she said.

Companies are less likely to invest in a new product or idea when interest rates rise, said Aaron Terrazas, chief economist at Glassdoor.

“A lot of business ideas that may have seemed feasible under a low-interest rate world suddenly don’t look profitable," Mr. Terrazas said.

That helps explain a large share of the layoffs in white-collar industries such as tech and finance, whose businesses tend to be riskier and reliant on innovation, he said. Further, businesses seeking to cut costs often first look to support roles in human resources, legal and management.

Job postings for human-resources positions on were down nearly 36% at the end of December from a year earlier, compared with a decline of about 9% among all postings.

One blue-collar sector that is particularly vulnerable to rising interest rates is construction. James Knightley, ING’s chief international economist, said, “We seem to be going from a situation of huge excess demand for home purchases to one of excess supply in the housing market."

Mr. Knightley said that there could be large job losses in residential construction and retail related to housing, such as furniture, household appliances and building supplies. One early sign: Average construction layoffs rose 14.4% in the three months ending in November compared with a year earlier, outpacing the 2% increase in all private-sector layoffs.

Losses in other blue-collar industries could be muted, though, because employers haven’t been able to find enough employees following layoffs during the recession in spring 2020. In December, the leisure and hospitality industry, for example, was still 932,000 jobs short of its February 2020 level, and vacancies in November were 551,000 higher.

“Our traditional thinking is that lower-paid workers are the most vulnerable," Mr. Tannenbaum said. “Some of those lower-wage occupations actually have a lot more leverage than they used to because quite a number of people who were working in those sectors left them during the pandemic."

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