The job market may be at a tipping point
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Illustration: Sarah Grillo/Axios
A slew of major companies announcing large-scale layoffs serves as a warning that the U.S. labor market, which has been in a prolonged-but-precarious balance, could be starting to tip over.
The big picture: Corporate psychology looks to be shifting, as the worker shortages of 2021 fade into memory and AI advances hold the promise of doing more with less.
- With sluggish hiring, it wouldn't take much in terms of new layoffs to turn what has been a steady labor market into something considerably worse.
- A wave of them arrived this week.
Driving the news: Amazon said this week it is laying off 14,000 corporate employees. UPS said it has cut 48,000 jobs through buyouts and layoffs. Paramount Skydance announced 1,000 layoffs in what was characterized only as a first round of cuts.
State of play: The unemployment rate has remained in a narrow range between 4% and 4.3% for 16 consecutive months. But that apparent stability masks change beneath the surface.
- Employers to this point have cut back on the rate at which they hire new workers, but to date have not meaningfully increased the rate at which they fire people, which has remained near historic lows.
- Executives and economists have attributed this to a combination of continued strong demand — fueled by the AI investment boom, a surging stock market and tax cuts — and the remnants of the post-pandemic period, when labor was scarce and employers were hoarding workers.
- Workers themselves see the labor market in starkly negative terms, a low unemployment rate notwithstanding, including in consumer confidence numbers released Tuesday.
By the numbers: There were only 0.98 job openings for each unemployed American in August.
- That ratio has fallen precipitously from a peak of over 2 in March 2022, and sits well below the 1.2 of the healthy pre-pandemic job market.
Reality check: These few high-profile layoffs could turn out to be isolated. There were much larger job reductions announced in late 2022 and 2023, and the unemployment rate rose by half a percent or so before leveling off.
- In other words, not every wave of layoffs translates into a recession or a job-pocalypse.
Yes, but: One thing that may be different now is companies seeing job reductions not as a necessary reaction to slumping demand — GDP growth and corporate earnings have been robust.
- Rather, many seem to see an opportunity to position themselves to more adroitly take advantage of the potential of AI to transform work.
What they're saying: "Some may ask why we're reducing roles when the company is performing well," wrote Amazon senior vice president of people experience and technology Beth Galetti in a blog post.
- "We're convinced that we need to be organized more leanly, with fewer layers and more ownership, to move as quickly as possible for our customers and business," she wrote.
The bottom line: The risk for workers is not so much that AI can fully replace humans' jobs today — but that instead of hoarding workers like they did in 2021, companies are looking to get as lean as they can to be ready for opportunities to come.
