After almost three years marked by the shadow of what we call the Great Resignation, “overheated” American employment has entered a new, radically opposite phase, which we can call that of the labor market “NEET”, in which companies They don’t hire or fire. But the workers are not resigning either. And this development has triggered all the alarms among analysts and economic policy makers, who do not understand the causes or consequences of an unprecedented and unpredictable phenomenon.
At first glance, what happened in 2024 appears to support expectations of a “soft landing” for the U.S. economy, in which measures such as tightening economic policy and withdrawing stimulus do not would not have the effect of destroying jobs or causing an economic recession. But the results have so far exceeded expectations, so even Federal Reserve Chairman Jerome Powell doesn’t fully believe it.
U.S. GDP is growing at a rate of 3%, while the job market is showing worrying signs of cooling, increasing its unemployment rate by half a point last year. Even if it remains at 4.1%, an unthinkable level in Spain, We are talking about a very dynamic labor market and extremely sensitive to economic fluctuations.. In fact, it is employment and not national accounts that has been the reference indicator of the Federal Reserve in its latest monetary policy decisions.
What is precisely worrying is that employment has entered into a “freezing” dynamic in which companies are not carrying out more layoffs, but at the same time they have reduced their hiring to a minimum in the historic series of company records. Bureau of Labor Statistics (Bureau of Labor Statistics). Which also stopped the resignations dead in their tracks.
Brief History of the Great Renunciation
The analysis of data from the American organization allows us to better understand the phenomenon of the Great Renunciation. Thus, the layoff rate increased from 1.2% at the end of 2019 to 9% in March 2020 due to the pandemic and confinements. However, in the immediate months, dropouts adjusted to low levels of around 1.6% only to continue to moderate from there. At that time, what exploded was hiring, that after reaching 6% in May 2020 They remained at levels higher than those in the years before the pandemic until the end of 2023.
In a context of job change opportunities and with a layoff rate falling to a minimum of 0.9%, resignations have soared. Not only were workers not afraid of losing their jobs, but they knew it was easier to find another one. Inflation caused many workers to make decisions that not only doomed them to their old jobs, but also overheated the U.S. labor market, and with it wages. Resignations affected 3% of jobsan unprecedented figure, while the percentage of vacancies reached historic levels of 7%. This is when economists started talking about the Great Resignation.
It is appropriate at this stage to delve deeper into the functioning of the American labor market, whose dynamism is not based on involuntary job rotation (layoffs), but on resignations and competition between companies to attract and retain workers. But the trend of 2021 and 2022 has given workers more power than ever to find better alternatives, and many employers haven’t been able to keep up.
But from 2024, the opposite situation occurs. Layoffs remain at a minimum of only 1%, but companies are stopping hiring. The transfer rate reached its historic minimum last August, with a rate of 3.3%. This led to a drop in resignations, which for the first time since 2015 recorded a rate below 2%. Workers cling to their jobs because, although they do not fear layoffs, they know they will not find better employment.
The vacancies game
Beyond the hope of a “soft landing”, analysts note with surprise that a historic drop in hiring and resignations coincides with a dismissal rate also in the low range. Because this indicates that the fragility of the labor market is not due to a net destruction of jobs, but rather to the cessation of job rotation (whether voluntary or forced). Something inconceivable in a job market based on dynamism.
And this has effects on several levels. one of them It’s a labor dispute. Just because workers have lost power (it is no longer as effective to demand improvements by threatening to quit) does not mean that corporations have gained it. If companies do not lay off workers, this can be interpreted as a symptom of weakness: they do not have the means to replace these workers.
How to break this tie? By the increased weight of unions. Strikes are increasing in the United States, with examples in large companies like Boeing or even in entire sectors, as is the case with dock workers. Reflects the idea that collective pressure is more effective in periods of “freeze” in the labor market than individual pressure based on the possibility of resigning.
But this game has uncertain moving room. The key is vacancies. Vacancies have declined from the highs reached in 2022, but they remain above the minimums and until this summer they have not returned to pre-pandemic levels. This means that while they continue to take power away from businessmen, they are not far from the point where corporations can afford to do without workers.
In fact, sectors such as retail are considering reducing the percentage of hiring ahead of the Christmas campaign, according to Bloomberg. Even the giant Amazon, considered separately, announced a freeze of its workforce, which in their case is also considered a sign of weakness in activity.
Here’s Powell’s Distrust Explained. Even if this situation has not yet affected GDP, which continues to grow and seems to remove the specter of a recession, the evolution of the labor market is worrying enough to relax. It cannot yet be ruled out that the “soft landing” will end up off the runway at any time. and lead to an employment catastrophe that spreads to the rest of the economy.
