Sep 16, 2020 - Economy & Business

Companies are leaving jobs behind to cut costs

an empty suiit with steam coming off it
Illustration: Aïda Amer/Axios

Businesses are positioning themselves for an increasingly competitive landscape by doing everything they can to ramp up productivity and cast off excess costs.

Why it matters: Much of that cost savings will likely come from cutting jobs and adding new ones more slowly, as companies look to invest in new technology and what Carlyle Group's head of global research Jason Thomas calls intangibles.

  • Intangibles are things like R&D, software, patents or "inventory management technology, customer acquisition software ... to increase efficiency and dampen the practical impact from cutbacks in other areas," he writes in a new paper.

What we're hearing: "Almost every client that we deal with, irrespective of sector, is trying to drive cost down and make their products and services more affordable," Tim Ryan, U.S. chair and senior partner at consulting and tax firm PwC, said during a call with reporters Tuesday.

  • "Regardless of sector, most would tell you that they operate in a hyper-competitive sector — whether it be retail, insurance, health care — and there has been this ongoing focus and search for productivity and ways to drive costs down to be more competitive."

What's happening: The dueling realities of the U.S. K-shaped recovery not only mean that some industries and workers will suffer big losses while others prosper, it also means there are limited spoils for the winners.

  • Now fighting for a “bigger piece of a smaller pie” and unable to raise prices meaningfully — but also needing to push forward with technology upgrades and investment to compete — businesses have already begun looking at cutting back in other areas.

The big picture: Companies historically spend more money on things like software, patents and content, while spending less on employees, facilities, warehouses and delivery trucks coming out of recessions.

  • Carlyle's data show the percentage of fixed income spending used on intangibles has increased — rising following every recent recession, from 3.4% after the 1981–82 recession to 7.5% following the 2007–2009 recession.
  • The share is on pace to grow to 11% in 2020.

The bottom line: "Past increases in the intangible share of corporate outlays have been associated with slower recoveries in employment," Carlyle's Thomas says.

  • "If that relationship holds this cycle, a return to full employment in the U.S. may be much further off than the late 2021 or 2022 recovery in GDP."
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