About the Author: Guy Berger is a Senior Economist at LinkedIn.
Most people who follow US macro data knew, heading into 2022, that economic growth and labor market gains were likely to slow. The fiscal stimulus was cancelled; the Fed was expected to raise rates. Yet when it actually happened, we were collectively quite shaken. Reports on the recession soared; on LinkedIn’s news feed, discussions about the recession have become 10 times more frequent than a year earlier.
The economic data itself did not, and still does not, justify such a level of panic. Some of them – non-farm employment in particular – suggest that the labor market is doing well. Other data — the JOLTS survey, unemployment rate, unemployment insurance claims, LinkedIn hiring rate — suggest the expansion has moderated. But none of these data points showed the sharp and rapid deterioration that we typically see in US recessions. In a typical US recession, the unemployment rate increases by 1.9 percentage points in the first 10 months; it is fallen in the first 10 months of 2022!
On the contrary, in recent months, the short-term outlook has improved slightly. The tightening of financial conditions has slowed since June. This gives companies plenty of time to calibrate hiring and spending decisions instead of suddenly turning off the taps. After falling in the spring, LinkedIn’s Workforce Confidence Index has held steady. LinkedIn’s hiring rate declined in the spring but leveled off through the summer. And while we’ve started to see hiring start to drop, it’s not yet to worrying levels. Unemployment insurance claims are lower than they were a few months ago, and according to a recent LinkedIn Workforce Confidence Survey, only 31% of workers surveyed said they fear their employer or their company is planning budget cuts or layoffs.
So, is the coast clear? Not enough. The Federal Reserve is still concerned about inflation. Their projections under “appropriate monetary policy” indicate that they anticipate very slow (but positive) economic growth and a significant increase in unemployment over the next 12 to 15 months. And that’s the optimistic take. Some prominent economists argue that the Fed cannot successfully meet its inflation target without an economic contraction and a sharp rise in unemployment, in other words, a real recession.
The last two recessions – the one triggered by the financial crisis (2008-09) and the one induced by Covid (2020) – have been exceptionally severe. There is no particular reason to believe that a possible next recession will match either in severity.
But even mild downturns or recessions can cause a lot of pain. For example, during the relatively mild labor market downturns of 1990-1992 and 2001-2003, the unemployment rate increased by about 2.5 percentage points from peak to trough. A downturn of this magnitude today would translate into an increase in unemployment of around 4 million people. Associated with this increase in unemployment would be high layoffs, prolonged periods of unemployment, significant emotional distress, and loss of financial well-being. The Fed’s projected increase in the not-quite-recessive unemployment rate would likely increase unemployment by 1.5 million, which is still a high number.
If you are a job seeker, this can sound quite alarming. We know economic concerns are a priority for everyone: less than half of those surveyed via LinkedIn’s Workforce Confidence Index said they felt prepared for an economic downturn and 85 % said they were worried about price increases and inflation. Financial concerns are also at the heart of business concerns. According to a new YouGov survey on behalf of LinkedIn, US executives say their top business priorities over the next six months will be improving employee retention to avoid new hire fees as well as prepare financially for the difficult times ahead.
So here is my advice. First, don’t panic. Even during the darkest times of the 2008-09 and 2020 recessions, millions of people were able to start new jobs each month. The second tip is to invest in your professional network and diversify your potential opportunities. If you lose your job or your industry is going through tough times, there may be better opportunities in different industries or in related but different job functions. On LinkedIn, we’ve seen people change careers at record rates throughout the pandemic. Your investment should not only be in your social capital (who you know), but also in your human capital (what you know). Investing in your skills and knowledge will make you more resilient and adaptable. According to our data on LinkedIn, skill sets for jobs have changed by about 25% since 2015. By 2027, that number is expected to double. Finally, if you’re lucky enough to have a range of job opportunities, you might want to look for more secure ones than a year ago.
If you are an employer, I also have advice. Slowdowns don’t last forever. The typical post-World War II recession lasted less than a year. Therefore, stay adaptive. When times are uncertain you need to be able to adapt quickly and this can only happen if you understand your environment and exposure. Therefore, educate yourself. Use all the data you have. And then, be decisive. In times of upheaval, we rarely see the big picture or fully understand how all the pieces fit together, but don’t let that stop you from making decisions and taking action. Double your strategy, don’t fall into paralysis.
Ideally, the Fed forecast will turn out to be wrong. Perhaps the supply chain bottlenecks that are partly driving inflation will unlock enough to reassure the Fed about the risks to its price stability mandate. Or perhaps all it will take to bring inflation under control will be firm but relatively gentle pressure on the brakes of monetary policy. If so, we could find ourselves in a golden loop scenario: plenty of jobs and economic opportunities for American workers, coupled with low inflation and solid inflation-adjusted wage growth. Hopefully we will get there. But even if the worst-case scenario plays out, there are things we can all do now to protect our careers.
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