After 112 consecutive months of growth, the US labor market is now plunging into historic stagnation, sending shockwaves of worry through workers and economists. November’s dramatic “low-hire, low-fire” dynamics have continued, contributing to a troubling rise in the unemployment rate. As unemployment has increased, so too have the ranks of those not in work and still actively seeking a job. Sadly, many of them are having a tough time being placed. Experts are clear that without long-overdue fundamental changes to the labor market, we’ll continue to be stuck in this rut for years to come.
Several factors contribute to this persistent stagnation. Cory Stahle, an economist at Indeed Hiring Lab, thinks hiring could soon start to move more quickly again. He cautions that the current environment is rife with unknowns. Our changing demographics, including an aging Baby Boomer generation that is reducing the labor supply, makes things even more difficult. Immigration restrictions compound current pressures in the labor market.
Economic Dynamics and Employment Trends
In fact, recent data shows that net new job gains in the US economy have been just 55,000 jobs a month on average. Joe Brusuelas, RSM US chief economist, points out that hiring needs to reach about 50,000 jobs monthly just to maintain stability in labor market conditions. This number highlights the challenge so many are up against in the struggle to find a job during this incredibly slow growth.
Stahle notes that “there’s uncertainty around what rates are going to do, uncertainty around prices, uncertainty around general policy.” This uncertainty prevents businesses from being able to plan or make hiring decisions. He highlighted that “unless that fog of uncertainty is broken, we’ll continue to see companies stumbling a little bit through that fog.” Over half of the employers surveyed are playing it safe and pushing back their recruitment decisions. Consequently, the few that are working are clenching their jobs with a death grip.
The Federal Reserve’s series of interest rate cuts in 2023 will have ongoing effects that deserve some scrutiny. It generally takes three to five quarters for monetary policy changes to take effect in the real world, according to experts. These shifts take time to adjust through the economy. Even as these changes do take time to work through, the overall labor market could stay weak in the meantime.
The Role of Automation and Policy Uncertainty
As a result, automation and other technological advancements such as AI are now being seen as headwinds to growth in the labor market. Seema Shah, chief global strategist at Principal Asset Management, cautions that while technology fosters efficiency, it poses risks for job displacement and wage dynamics. “The longer-term implications for labor displacement and wage dynamics, however, remain an open question,” she states.
Tyler Schipper, an associate professor of economics at St. Thomas University in Minnesota, agrees with this thinking. Here he asks the key follow-up question, what will make such a rebound in hiring possible, hinting that most of these are policy-related. He observes, “I have a hard time seeing those resolving themselves anytime soon,” indicating a prolonged period of uncertainty ahead.
Today, Schipper warns that continuing to live in this K-shaped economy can have serious repercussions. In both instances, various groups in society bounce back at drastically different speeds. “For better or worse, I think we could be in this K-shaped economy for some time,” he adds. He argues that real economic recovery may require a recession first, before conditions start to get better. Given all this, it’s understandable that the outlook is grim for those at the lower leg of the K.
Implications for Job Seekers and Businesses
The unprecedented state of our labor market is creating barriers to entry for job seekers and employers alike. As hiring remains cautious and employees hold onto their positions with “white knuckles,” companies find themselves navigating a complex environment. As Dan North, chief economist at credit insurer Euler Hermes reported, hiring isn’t frozen, but clearly it is on ice.