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“In January of this year, Google announced that it was cutting 12,000 jobs worldwide. On April 21, the online ride-hailing platform Lyft announced the layoff of 1,200 employees. On top of the 11,000 layoffs announced by Facebook in November last year, another 10,000 were let go in March this year… According to statistics from Crunchbase, a database website for start-up companies, the number of layoffs in high-tech companies in the United States has reached 118,000 in the first three months of this year. people. In 2022, 140,000 positions were eliminated.
The massive layoffs of American high-tech companies starting from the second half of 2022 once raised concerns about whether the U.S. economy would fall into recession.
However, despite the constant news of mass layoffs, the U.S. unemployment rate has remained between 3.4% and 3.7% in the past 12 months, and the U.S. job market has grown for 28 consecutive months. According to data released by the U.S. Bureau of Labor Statistics on May 5, the non-farm unemployment rate was 3.4% in April, slightly lower than the 3.5% in March, setting a record low since 1969. The labor market added 235,000 jobs, beating economists’ forecast of 185,000. African-American unemployment fell to 4.7%, the first time in U.S. history that it fell below 5%.
The U.S. economy and employment are going through a peculiar phase that is difficult for economists and the media to accurately predict. A large number of layoffs by high-tech companies runs counter to the development of the overall labor market in the United States. The Federal Reserve tried to curb inflation through continuous interest rate hikes, but did not see the expected increase in the unemployment rate. Former White House Economic Council adviser and Princeton University economist Laws pointed out
that “after the recession caused by the pandemic, the labor market has recovered at an unusual speed.”
“I’ve always thought that this time is likely to be different, mainly because there is so much excess demand in the labor market. It’s very interesting that we raised interest rates to 5% in 14 months, and the unemployment rate remained at 3.5%, or even lower than when we started (raising rates).”
Justin Bloesch, an economist at the Roosevelt Institute, told Caijing that he also thinks that “this time is really different.” Economists had worried that wage growth and job vacancies would not ease amid rising unemployment, but new job openings and resignations have both declined and wage growth has slowed down. The current situation seems to be that most job seekers can find new jobs quickly, and there is no pressure on employers to increase wages. “This will greatly help the prospect of a soft landing in the economy.”
Structural changes in the labor market
At the beginning of the outbreak of Covid-19 in 2020, there were large-scale layoffs in the US labor market. Between February and April, the US labor market lost 22 million jobs. Many economists have warned that the pandemic would cause long-term damage to the economy, but the post-pandemic era shows that economists’ initial concerns have not materialized. Changes in labor demand among different industries and changes in Americans’ views on work after the pandemic have led to serious inequality in the labor market.
When there were large-scale layoffs in various industries in 2020, the number of layoffs in the entertainment industry accounted for 42.3%, retail accounted for 8.8%, and other industries accounted for 48.9%. White-collar industries had little change in employment because they could work remotely through the Internet. The pandemic boosted e-commerce, especially online retailing, and high-tech industry also expanded rapidly during this period. The service industry became the industry with most layoffs during this period because it could not work remotely. However, when pandemic eased significantly in mid-2022, consumers shifted from highly dependent on online consumption to offline consumption, and enterprises benefiting from “stay-at-home economy” during pandemic were forced to shrink their scale and labor market underwent a historic reversal.
The online retail leader Amazon’s revenue increased by 44% year-on-year in first quarter of 2021 and its profit increased by 220%, far exceeding expectations of Wall Street investors. Until first quarter of 2022 Amazon hired an additional 175000 people However with outbreak of Russia-Ukraine conflict and slowdown of pandemic revenue growth in first quarter of 2022 only reached 7%. Amazon’s revenue growth did not meet expectations and Amazon faced challenge of controlling costs On April 26 this year Amazon announced that its cloud computing and human resources departments would lay off employees and its offline Whole Foods (Whole Foods) would also undergo global and regional supply chain restructuring “to simplify our work and improve operations during expansion.”.
The high-profile layoffs of high-tech companies have created the impression that the US labor market is entering a wave of layoffs. However, a report by investment bank Goldman Sachs in November 2022 pointed out that the number of employees in high-tech industries does not account for a high proportion of the US job market, including online publishing, search engines, etc., accounted for only 0.3%.
“Fortunately the layoffs have been confined to tech, partly because of their overextension over the past three years,” Blosch noted.
The sudden pandemic of the century also made Americans rethink the meaning of work. In 2022, there was a so-called “big resignation wave” in the US job market, and many employed people were trying to find a balance between work and life. During pandemic at least 50 million employed people in United States resigned On TikTok international version of Douyin there was even a trend of sharing resignation letters to their bosses Labor force participation rate in United States dropped from 63.3% in February 2020 to 60.1% in April After that labor force participation rate only rebounded to 62.6% by April 2023
The offline service industry, which was hit hardest by pandemic, faced severe labor shortages in post-pandemic era. U.S. Chamber of Commerce reported on April 30 that “every day, we hear complaints from almost every state, every industry, and every size of our member companies that they face unprecedented challenges in hiring employees.” According to data “We have 10 million jobs in demand, but only 5.7 million unemployed people, compared to February 2020, 1.8 million labor force disappeared.”
Dana Peterson, chief economist of Conference Board, divides U.S. labor market into three segments: first category is industries that have benefited from pandemic and low interest rates such as high-tech construction warehousing and transportation began to face adjustments in late stage of pandemic second category is companies that “hoard” labor because they think that possible economic recession will not last long third category is still actively hiring people main reason why labor market looks very active is that this type of work usually cannot be teleworked which includes restaurants hotels airlines medical care etc In addition state and federal governments in United States are facing a wave of retirements and resignations because government departments cannot flexibly raise salaries like private companies government departments are also facing a serious shortage of workers
Employers in some industries are eager to recruit which has led to overheating of labor market and excessive growth of labor wages which is considered by Federal Reserve as a major reason why current inflation has not slowed down On April 20 Powell pointed out at International Monetary Fund (IMF) forum that US labor market is showing “unsustainable overheating”.
However urgent needs of labor market mean that employers must compromise on employment conditions such as no longer requiring college graduation This trend has brought better employment prospects for marginalized groups such as ethnic minorities people with less education young people people with disabilities people with criminal records etc “It’s really nice to see such a change That’s why Fed needs to find a way to make a soft landing for economy” Brosch said
Unemployment and a Soft Landing
In January 2022 U.S. Consumer Price Index (CPI) rose by 7.5% year-on-year setting a new high in past 40 years Federal Reserve began raising interest rates to cool an overheated U.S. economy including a labor market with more demand than supply and rising wages
Fed officials are hoping that U.S. economy will eventually achieve a soft landing — hoping to ease inflationary pressures by raising interest rates so that employers create fewer new jobs rather than lay them off while avoiding big wage increases to lure workers with fewer new jobs
Many economists are skeptical that Fed can accurately achieve this goal IMF estimates that U.S. needs to push up unemployment rate to 7.5% or 6 million unemployed people to curb inflation
Former U.S. Secretary of Labor Robert Reich pointed out that Fed’s interest rate hike is actually shifting burden of fighting inflation to low-income workers and should stop raising interest rates to cool economy
Whether Fed’s continuous interest rate hikes may trigger an economic recession or even a wave of unemployment has aroused attention of many economists Economist Murray Sabrin argues that layoff trend always precedes a recession and then accelerates He sees layoffs spreading from high-tech and banking to other industries
However Paul Krugman pointed out that economists have historically believed that raising interest rates to fight inflation will increase unemployment rate or may not apply to current economic trends in United States Labor market is still strong and inflation is still above target from start of raising interest rates in March 2022 “Does this mean that Fed is not doing enough Maybe it is but Fed may have done too much just We haven’t seen full effect of previous rate hikes”
According to Krugman, judging from data released in fall of 2021 (78% of American adults said their personal financial situation is “comfortable”), even if inflation rate stays slightly above target value for longer than expected, labor market is still very stable A temporary increase in unemployment rate will not bring serious consequences
However Bernanke former chairman of Federal Reserve disagreed with this view He published an article on May 23 and pointed out that US labor market is still overheated and work of Federal Reserve is not over yet
There are many signs that economy is slowing down but it will take time for these signs to be reflected in price index According to figures released by U.S. Department of Commerce on May 25 U.S. GDP rose by 1.3% year-on-year in first quarter Compared with 2.6% growth rate in fourth quarter of 2022 U.S. economic growth rate has slowed down significantly
But Brosch remains confident that a soft landing is possible with Fed clearly moving toward pausing or considering more moderate rate hikes However he also warned that a U.S. debt default and financial market turmoil will be biggest variables weakening labor market.