December marked the 24th straight month of robust, often sizzling job growth that shifted the balance of power in the labor market, giving workers more options to seek better jobs and higher wages. Bigger companies with deeper pockets often had the upper hand in this dynamic, but as the economy cools, the dynamic is changing.
Mass layoffs by some large and high-profile employers have sounded alarms in the tech sector, as well as advertising, media, finance, and professional services, in the lead-up to the holidays and into the new year. This week, Amazon and Salesforce announced massive cuts in their corporate workforces, citing economic uncertainty and rapid hiring during the pandemic. Stitch Fix, the retail subscription service and one-time Wall Street darling, said Thursday that it would lay off 20 percent of its staff.
The softening in the labor market appears to be benefiting small- and medium-sized employers that had spent much of 2022 scrambling for workers, with the limitations of a smaller labor pool shaped by the pandemic. More of these companies are now finding the employees they need.
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“There has been an ongoing hunt for talent — and larger firms won that competition last year,” said Nela Richardson, chief economist at payroll processing firm ADP. “They were able to offer more benefits and higher salaries. But as larger firms realized that they may have hired too aggressively, we’re seeing them back off, which is creating new opportunities for smaller firms.”
Indeed, ADP’s latest survey of private payrolls found that large employers cut 151,000 jobs in December, while firms with fewer than 500 employees added nearly 400,000 new jobs that month.
“It’s a very fragmented job market, and firms and industry are no longer moving in lockstep,” Richardson said.
Similarly, the December jobs report showed that some of the largest gains were in leisure and hospitality, which rose by 67,000, with big increases in food services, drinking establishments, amusements, and gambling. The sector has struggled to recover jobs lost during the pandemic and is about 6 percent below its February 2020 level.
Health care gained 55,000 jobs, with a boost in ambulatory health care services, hospitals, and nursing homes. Construction grew by 28,000 jobs, even as higher interest rates have hurt the real estate sector.
Coming out of the pandemic, consumers have shifted their spending away from goods and e-commerce purchases toward experiences and services. And the easing labor market is leading more workers into these jobs.
In Georgia, diner owner Ronda Sherwood said it has been extremely tough to find workers for the past couple of years. The “help wanted” ads she posted on jobs sites like Indeed and Facebook went largely ignored — at least until a few weeks ago. All of a sudden, she began getting multiple applicants for each job, she said.
She filled her last open position last week and is now fully staffed with 22 employees.
“When the economy is great, it’s very hard to staff restaurants and lower-wage jobs,” she said. “But when the economy is getting worse and companies do start laying off, that’s when we’re able to staff better-quality people.”
Still, economists say the labor market remains quite strong. Unemployment insurance claims for the final week in December fell again to a low level more common before the pandemic, according to the Labor Department. In November, workers continued to quit their jobs at historically elevated rates, although at a slower pace than a year earlier, according to labor turnover data from the Bureau of Labor Statistics.
“There’s a pretty sharp disjunction with some sectors bearing the brunt of the cooling we’ve seen in the labor market,” said Guy Berger, principal economist at LinkedIn. “There are parts of the economy like health care and education and the government that is overall holding in there. And other parts of the economy are struggling.”
Much of the recent layoffs have been concentrated among major tech companies that hired aggressively during the pandemic. Those job cuts, combined with stock market drops and back-to-office mandates, have given an upper hand to smaller players in the sector, according to Quinton Newman, who owns a small business that connects start-ups with software developers. Among recently laid-off tech workers, nearly 40 percent found a job within one month and roughly 80 percent did so within three months, according to a Zip Recruiter report.
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“During the pandemic, Big Tech provided what a lot of smaller companies couldn’t: Large compensation packages that were tied to the stock market and quarterly earnings,” Newman said. “But as values went down and companies started doing layoffs, people are realizing there’s still a lot of opportunity in the small and medium space.”
As a result, he said, many small businesses that had been unable to attract experienced developers, managers, and executives are finding that they’ve become an attractive option, particularly if they allow employees to work remotely.
“You have these layoffs, plus companies like Twitter, Amazon, Facebook, and Microsoft saying remote workers have to start coming back in, and there is suddenly a lot of motivation to go from a bigger company to a smaller one,” Newman said. “People are willing to make that trade-off now.”
However, economists predict the slowdown in the labor market will deepen this year because Federal Reserve officials plan to keep raising interest rates to get inflation more under control.
“There is reason to be pessimistic about where the job market is headed in 2023,” Berger said. “[But] we’re still in the point where the job market is pretty tight. Maybe the options aren’t as good as they once were, but people can still find jobs quickly.”
Some recently laid-off workers are worried about finding a new job before the economy worsens.
Two days before Christmas, Connor Crouch, a sales team member at a tax preparation service in Montclair, Calif., lost his job without warning. While he looks for new work, Crouch plans to expand on his side hobby, selling trading cards for extra income. But without a college degree, he said he will have a hard time finding a new job that pays as well and worries that he will struggle to afford basic needs for his three children, including a 3-month-old.
“It’s bad timing for sure. Money moves extremely fast in this current economy if that makes sense,” Crouch said. “If I can get an interview, I will nail it, but the hard part is securing the interview.”