Written by Conor Sen / Bloomberg Opinion
Knowledge workers in technology, finance, and elsewhere in corporate America used to have the most choice and leverage in the labor market. They’re still a long way from having hard times, but recent data suggests their fortunes have shifted from being sweltering to warm.
The main reason they are no worse off is that many younger, less experienced workers are moving away from the sidelines to take less glamorous and hard-to-fill jobs in industries such as education and healthcare. This helps support growth while also mitigating inflation by taking pressure off supply chains; This should give the Fed more confidence that it does not need to break the economy to rebalance supply and demand.
Views of the labor market for knowledge workers can depend on what is being measured. For example, there are still more job vacancies for professional and business services workers than there were before the pandemic. But as of February, job openings have fallen as dramatically over the past year as they did during the 2008 recession. Real-time job openings data from Indeed.com indicates that the dip in hiring in finance and technology carried over into April. So things may be fine for the time being, but the trend is ominous, and it’s fair to wonder how bad conditions will get over the next several months.
What’s happening in the rest of the labor market is a bit encouraging. Job growth in major industries that lagged behind in recovering from the pandemic continues to show solid gains. Government, education, healthcare, leisure and hospitality added 184,000 jobs combined in March, matching the monthly gain that has been booked for nearly a year now.
We can attribute this growth to the increase in the number of people joining the workforce to take up some of those hard-to-fill jobs. Between March and November last year, the size of the US workforce was more or less flat, but since November it has increased by 2.2 million workers.
Increased participation in the labor force is what the Fed wanted to see because it aims to balance the trade-offs between employment and inflation. It also raises the prospect of the economy returning to something like the conditions we had in 2019, when we combined strong job growth and low unemployment while containing inflation. What we have seen in recent months is strong job growth with low unemployment, while a larger workforce has kept wage growth in check, which in turn helps moderate inflation.
This is important for knowledge workers because jobs in industries like technology and finance are as much about long-term views on the future as they are about current conditions. More people willing to take jobs also helps in the short term by allowing companies to increase production levels. The income of the new workers is then spent, to support economic activity. By easing inflation pressures, it should also mean that the Fed doesn’t need to raise interest rates as much, lowering the odds of a deep recession and making companies think twice about starting hiring freezes or layoffs.
It’s fair to ask whether the less prestigious jobs people hold are good jobs, or whether we’ve reverted to a pattern in which the economy has low-cost workers. There are several reasons to believe this course is better. First, the rate of people leaving their jobs remains close to pre-pandemic levels, which indicates that workers have options. Secondly, the growth of wages of production and non-supervisory employees – ordinary workers – outpaces the total wages that include bosses and managers, which we have not seen in the 2000s. Finally, nearly half of the increase in the workforce since November is people under 25, who in many cases can hide in higher education or live at home if good jobs are not available.
As long as people join the workforce in a way that grows the economy without increasing inflation, the downside for workers in knowledge industries should be limited. Right now, the change in the labor market for white-collar workers looks more like a rebalancing than a regression.
Connor Sen is a columnist for Bloomberg Opinion. He is the founder of Peachtree Creek Investments.