Employers Worry About Shortages. That Goes for Labor Too.

Hoarding Workers?

The most recent Job Openings and Labor Survey showed US employers held off on layoffs in June, all while job openings shrunk. Throughout 2022 the job market has been a relative source of strength, even though economic growth has slowed. Still, that sort of downturn would suggest layoffs are in order, given how firms look to shrink costs amid such an environment. Some economists say a concept known as “labor hoarding” is keeping layoffs low.

A quick look at the recent state of the labor market could explain why it’s happening. Employers have struggled to fill open positions for months. Booming demand for goods and services leads to the need for more workers, and many companies have struggled to keep up. With that situation fresh in their minds, some employers figure it’s worth it to hold on to workers, despite the carrying cost.

Layoffs Are Costly

It’s also worth noting that laying workers off isn’t cheap. When employees are laid off, employers are often obligated to keep paying their salary or benefits for weeks and sometimes months. In the same vein, hiring talent is expensive. This includes the costs associated with recruiting and training new hires.

Companies are also trying to predict future economic conditions while doing their best to navigate what’s going on at present. If firms don’t expect the economic slowdown to last for an extended period of time, it could be a wise strategy to “hoard” workers now rather than jettisoning employees during what turns out to be a brief downturn.

Indicators and History

As per June’s JOLTS report, job openings remain elevated by historical standards. Similarly, July’s nonfarm payrolls showed the economy added 528,000 jobs last month, which easily exceeded the expectations of economists. That would seem to indicate businesses don’t have enough workers, as opposed to “labor hoarding.”

Taken together, this could suggest the Federal Reserve’s tightening monetary policy won’t put a major dent in the labor market. Rates are rising which can lessen demand for products as well as labor, but the difficulty associated with hiring during the shortages of 2020 and 2021 could be pushing back against that trend.

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