The nation’s healthy employment outlook has dominated the headlines in the past two years. Never before has the U.S. seen such a long period of remarkably low unemployment. Employees who were laid off or in unstable, temporary jobs in 2020 have come out swinging in a new economy driven by employee demands and preferences.
Now, employment is inching toward a 50-year low of 3.5%. And in March 2023, the U.S. economy added 236,000 new jobs. There’s no questioning the job market’s strength, but can it last?
The argument over whether or not a recession is looming is tired. Some economists say yes, and others disagree, leaving the American population to watch in wonder as the CPI continues to climb. The real question is, is this labor market sustainable?
An unemployment rate of 3.5% can’t last—and it shouldn’t. A healthy unemployment rate, which balances power between job seekers and hiring managers, is anywhere from 4 to 6%. The U.S. unemployment rate was last above 4% in January 2022, nearly 18 months ago.
But there’s more to the labor market than unemployment. Something is happening to white-collar jobs in America that these numbers don’t show.
White-collar work by the numbers
Of the 236,000 jobs the U.S. economy added in the first quarter of 2023, how many were for white-collar professions? According to the Bureau of Labor Statistics, 39,000 (16%) positions were in the professional and business services sector. Yet, in the same quarter last year, 33% of the new jobs were for professional and business services.
Not surprisingly, hiring for white-collar jobs has slowed considerably in the last 12 months. According to Indeed, job listings for tech positions are down 55%, banking positions are down more than 40%, and insurance positions are down 18%.
There are fewer and fewer white-collar vacancies. In some cases, job openings simply aren’t being filled. In others, positions are being eliminated to lower overhead and become leaner. These decisions have resulted in a torrent of layoffs among Fortune 500 companies.
Here are a few of the job cuts announced in
the last six months:
Facebook: 21,000 employees
Microsoft: 10,000 employees
Google: 12,000 employees
Boeing: 2,000 employees
Amazon: 18,000 employees
Citigroup: 2,400 employees
Intel: 544 employees
HP: up to 6,000 employees
Johnson & Johnson: 350 employees
Phillips 66: 1,100 employees
Walt Disney: 7,000 employees
Kraken: 1,100 employees
Morgan Stanley: 4,200 employees
Twitter: 5,500 employees
Stripe: 1,000 employees
Salesforce: 8,000 employees
Goldman Sachs: 4,000 employees
Now, tens of thousands of people who once thought they had secure positions with solvent companies find themselves looking for work, and they aren’t having much luck. Department of Labor data reveals that the number of workers collecting unemployment is increasing steadily because more people are looking for work, and it’s taking longer to find a job.
And yet, the economy remains hot. Although growth has slowed in recent months, the U.S. reported a 1.1% GDP increase for the first quarter of 2023. This begs the question, why is the white-collar labor market so weak if the economy is still strong?
Companies can do more with less
In 2023, about 30% of all paid workdays will happen at home. This is a notable increase from the 5% of work-from-home days employees enjoyed in early 2020. It’s no secret that the pandemic is to blame, but some workers are questioning whether or not their remote status puts them at greater risk.
Although none of the companies executing mass layoffs have commented on the duty locations of eliminated positions, many believe the majority are work-from-home employees. Because they aren’t in the office, their work productivity and prowess aren’t on display, putting them at a disadvantage to their in-office counterparts.
People who work from home are more fearful of layoffs than any other workforce sector. In fact, a recent survey by GoodHire found that 80% of remote laborers believed working from home made them more vulnerable to layoffs and downsizing.
Their fears may be well-founded. Six out of ten managers admit that remote staff would be first in line for layoffs, should they occur.
Jason Lapp, CEO of Beautiful.ai, put it this way, “Workplace proximity bias could prove to be a troubling issue that managers deal with during this current economic uncertainty. Prejudice against remote workers is obviously not a manager’s intention,” he said, “but sometimes it’s difficult to imagine fair treatment and trust when a batch of employees are working next to you in an office and another group of employees are working at home.”
Businesses today are looking for productivity and results. Unfortunately, when employees aren’t in the office putting a face to their work, their contributions are easily overlooked should layoffs become necessary.
Offshoring is on the rise
As companies change how they do business in a post-pandemic world, many are turning to a tried-and-true yet controversial cost-saver: offshoring.
Previously, overseas outsourcing was limited to manufacturing and most basic customer service positions. But now, with work-from-home technology readily available, and AI support to bridge language gaps, businesses are looking to offshore roles in human resources, payroll, and other office support for the first time ever.
Economics Professor Richard Baldwin made an excellent point, “If you can do your job from home, be scared.” He continued, “Be very scared because somebody in India or wherever is willing to do it for much less.”
Let’s say the typical work-from-home middle manager has a total compensation package, including benefits, worth $100,000. But the latest wave of offshoring allows companies to hire labor that fulfills the same job description for half the price. What’s the better deal?
It doesn’t take a doctorate in economics to observe that the latter option is better. But until recently, using offshore agents for many white-collar positions wasn’t feasible. The technological advancements of the last several years, including AI, have made offshoring a more viable option than ever before.
As it stands, the U.S. offshores about 300,000 white-collar jobs every year. But recent research shows that about 10 to 20% of U.S. service support jobs, including human resources professionals, software developers, computer programming, and data entry specialists, could move overseas in the next ten years.
Artificial intelligence threatens job security
Artificial intelligence is ushering in the next technological age. It’s actively disrupting every market sector, and the economy might not be recognizable when it's done. AI advancements have had a massive impact on white-collar positions, many of which have been or will soon be replaced by machine learning in some way.
The tech takeover has already begun in call centers and other customer service-oriented positions. Large language AI, like GPT-3 and BERT, have changed the game for automated conversations. They’ve become so sophisticated that they’ve successfully replaced human beings to address basic customer service queries.
And the exciting thing about AI is, the more it’s used, the more intelligent it becomes. Which means call centers are only the beginning. Experts believe AI could eventually assist with much more, including office administration and support, architecture and engineering, business and financial operations, legal services, sales, art and design, and healthcare.
AI is still very new, and the jury is out on its actual impact on white-collar jobs. For example, a study from Oxford University claims that as many as 47% of U.S. jobs are at risk of AI replacement. But Goldman Sachs estimates that 300 million jobs will be lost globally to AI in the coming years.
Goldman's research does include some good news. AI keeps costs low and efficiency high, allowing businesses to innovate and create new jobs. In time, Goldman estimates this will lead to a 7% increase in global GDP.
America’s manufacturing renaissance
White-collar jobs aren’t the only ones affected by AI. Manufacturing was one of the first segments of the economy to truly harness the power of machine learning. And, despite early fears that AI would decimate the blue-collar workforce, America’s manufacturing sector is enjoying a renaissance.
But AI isn’t wholly responsible for this resurgence in the industrial economy. Demand, sound policymaking, and less reliance on Chinese manufacturing have all contributed to positive developments in the manufacturing industry.
As of September 2022, U.S. factory production was the highest it's been since 2008, which marked the beginning of the great recession. Foreign demand for American products has been a driving force behind this manufacturing boom. As a result, from 2010 to 2019, the trade deficit for U.S.-manufactured goods doubled, reaching an impressive $883 billion by the end of that decade.
Demand is a considerable part of this equation, as is domestic policy. The CHIPS and Science Act of 2022, passed with overwhelming bipartisan support, is one such policy. This act allocated $52.7 billion for semiconductor manufacturing, research and development, and workforce training and development to incentivize more companies to manufacture microchips in the U.S.
The market responded in a big way. In 2022, the same year the act was passed, companies across the country pledged 200 billion dollars to develop semiconductor, electric vehicle, and battery manufacturing stateside. CHIPS made these investments possible, ultimately creating more blue-collar jobs to manufacture these goods.
Foreign policy has also impacted demand for domestic manufacturing. Since 2018, the U.S. has imposed a 25% tariff on roughly $250 billion of Chinese imports. There is also a 7.5% tariff on another $112 billion of Chinese goods shipped to the U.S.
These tariffs packed a powerful punch on the dominant Chinese manufacturing sector. As a result, manufacturing in China isn’t as affordable as it once was, forcing many companies to bring their operations back to the U.S.
As recently as 2021, 10% of businesses said they were cutting their ties to Chinese manufacturing. But just one year later, in 2022, that number nearly doubled to 19% of companies looking to pull out of the world’s second-largest economy.
The favorable market conditions and impactful domestic and foreign policies have made manufacturing grow in ways most economists didn’t predict. The result is better products and more jobs, but are there enough workers to fill them?
Demand for manual labor remains high
The short answer is no; there simply aren’t enough blue-collar workers in the labor pull to fill every vacant manufacturing position. The explanation for this reality, however, is a bit more complicated.
As the trade deficit soared between 2010 and 2019, American businesses were hard at work expanding operations. During that decade, 1.3 million manufacturing jobs were added to the economy. The dramatic increase in blue-collar factory jobs is a huge deal considering 5.8 million manufacturing positions were lost during the previous decade.
Last year alone, another 467,000 jobs were added to the manufacturing sector. But even if every unemployed person with factory experience suddenly became employed, only 44% of the vacant jobs would be filled.
Not surprisingly, only 55% of blue-collar manufacturing jobs are filled, leaving 803,000 open positions as of January. There’s a very simple math problem here—the demand for workers is greater than the available labor. The result is an unprecedented level of demand for blue-collar employees.
Employers have responded by beefing up their compensation packages, offering more time off, better benefits, sign-on bonuses, and other perks. And yet, the problems persist. Demand for blue-collar labor couldn’t be higher while the need for white-collar work is waning. For the first time in a long time, blue-collar jobs could dethrone white-collar positions as the driving force of U.S. markets.
Historically, the opposite has been true, leaving the American economy in a precarious position; these are uncharted waters. Never before has the demand for blue-collar labor been so consistently greater than the need for white-collar employees. But what does it mean?
Interestingly, this situation mirrors the early days of the pandemic. Most manual labor and low-wage service employees continued to work while white-collar staff were laid off, furloughed, or let go, as companies feared the worst in the first half of 2020.
Even though white-collar hiring rebounded in a big way in 2021 and 2022, could this be the new normal? The markets always decide, and right now, the market is leading the U.S. economy to forge ahead and continue to invest in blue-collar and retool and rethink what it means to be white-collar.
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