Are companies really waiting for unemployed workers? One former small business owner and Wall Street economist is more skeptical.
“I don’t buy the argument that companies are hoarding workers,” said Eugenio Alleman, chief economist at Raymond James in St. Petersburg, Florida. “Why do you stop the workers from doing anything?”
With economic slowdowns, rising interest rates and talk of recession, the so-called labor pool has become a surprising explanation for why companies haven’t laid off more workers. The unemployment rate still sits at a half-century low of 3.6%.
It’s hard to find talent amid the worst labor shortages in decades, with companies unusually reluctant to lay off workers. They worry that they won’t be able to hire people back once the economy improves because of labor shortages.
Most businesses don’t have the luxury of retaining employees if there isn’t enough demand for their goods and services, especially since labor accounts for up to 70% of their total costs. Either profits sink or start losing money.
It’s Aleman’s experience as the longtime owner of a family-run Argentinian grill restaurant in Puerto Rico. “If business goes down, the first thing to cut costs is to lay off your employees,” he said.
He said hoarding workers makes more sense if a recession looms.
“If you know a recession is coming, why would you lay off workers if you know it’s going to get worse?”
Alleman is one of Wall Street’s no.
DJ
Economists who think the recession could be caused by a coordinated rate hike by the Federal Reserve to bring down high inflation.
But there is growing evidence that companies are willing to part with workers if business slows down enough. He pointed to somewhat higher U.S. jobless claims and a decline in job vacancies from last year’s highs.
They admit that some businesses may be more inclined than others to keep their employees as long as they can if they think the economy will improve soon. The cost of retraining future employees can be greater than retaining current ones.
Economists say manufacturers in particular are wary of layoffs because of a shortage of skilled blue-collar workers.
Yet for most organizations, the world, the solution to falling sales is obvious.
“You can’t burn a machine. You pay for life and you have to keep it. Therefore, businesses must take other steps to reduce costs.
Few companies or executives publicly admit to keeping unemployed workers on the payroll, Alleman said.
“It doesn’t make economic sense. It doesn’t make business sense,” he said. “If you tell Wall Street you’re saving workers, investors will punish you.”
If labor hoarding is not really taking place, what explains America’s very low unemployment rate and low job losses? A stable economy.
Although the economy slowed last year, interest rates are still high.
“My corner sports bar is now open Sunday and Monday,” Richmond Federal Reserve President Thomas Barkin said recently.
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