👩🏼‍💻Will our Super-Tight Labour Market Continue as we enter a Recession? 

Thanks to a combo of rising asset prices, not to mention all those stimi checks, and a general feeling of wanting to try something new (a pandemic kinda has that effect!) we welcomed a new era of work. More and more people stopped doing their stale jobs, leaving the co-workers they couldn’t stand, all in the search for something better. And I’m not just talking about pay!

This was made possible thanks to a backdrop of booming business – and confidence. Companies were expanding. And workers were in serious demand. From Silicon Valley to Wall St, the sentiment was stunning. Banks were so desperate for junior bankers that they upped their salaries to as much as $150k. Not to mention the fact that Goldman juniors complained of their 100-hour working week – the bank had to do something or else they’d lose precious resources!

While banks were busy beefing up on their staff to cope with the M&A deal frenzy after confidence started booming on the back of the vaccine rollout (remember that?!) demand for M&A lawyers suddenly turned red hot! Lawyers – joiner ones – were offered starting salaries of ~$215K! This is no typo!   

Tight handshake for a job offer
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Low supply + high demand = higher prices

With all this expansion, in companies getting larger and spending more, workers suddenly found themselves with loads more options. Workers were in demand and this meant they could ask for things like higher salaries as well as perks like flexible work (wfh as well as flexible hours). And actually get them! It was an employee’s market. There simply weren’t enough workers around. And by the looks of things, there still aren’t! But that could all change (we’ll get to that soon!).

In August 2021 alone, 4.3 million Americans quit their jobs! To put this in context, it’s about the size of LA’s population, or 3% of the US workforce! While 4.3 million quit, there were 10.4 million job vacancies that month alone! Now you get why inflation might be a lil’ bit more stubborn than we realise. 

I bet you know people who switched jobs during the pandemic, perhaps changing careers entirely and even quit the working world. A friend of mine turned down an offer to work at Phillips (one of the largest auction houses so pretty prestigious!) because she wanted to work at a museum nearby, obviously taking a big salary cut. Beforehand, she quit her high-flying job in investment banking. Sure, it paid quite handsomely but was it rewarding for her? Absolutely not. She was lucky that her husband’s salary was able to support them both until she found something new.

Another friend I know quit her job as a trader at an investment bank to start her own biz – an investing app for women! Our GP quit and took early retirement, aged 57. And I bet this isn’t even the half of it. Entire chunks of people suddenly disappeared from the workforce, particularly the over 50s. 

Empty train station, no workers around
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These people are not alone. Since the start of the pandemic, 20% of workers switched careers. Millennials were the biggest drivers of change with ~55% of this gen switching jobs during covid. And many took pay cuts to do so. Motley Fool carried out a survey that found that 58% of those who changed jobs since the pandemic have taken a pay cut.

Will workers still be on top? Or is the party over?

All in all, we’ve had some pretty strange labour market developments over the past 3-ish years that all began with covid. Flexible and remote working took off like a rocket. I always wonder, if not for the pandemic, where would we be now? Anyway, I’m not complaining. Being able to WFH is a total treat. Not to mention it allows companies to attract top-notch talent from across the globe. 

My question is, how long will these trends continue? As we enter a (potentially very sharp) recession, how long will the worker be on the top? Taking a pay cut was all lovely when asset prices were shooting to the moon but my guess is that as inflation and the general cost-of-living bites (btw, the full effect of these interest rates hikes are yet to be felt! They take ~18 months to filter through the economy) folks might want to start reconsidering that boring-but-well-paid job they were quick to ditch.

Free money is effectively over. For now!

What encouraged many to quit their jobs to, say, start a new biz was often a cash cushion, financial stability & the knowledge that if all went belly-up you’d be able to go back to ordinary work (though read here why a recession isn’t slowing that down). But now with the cost-of-living crisis and energy bills becoming unaffordable, not to mention the average 10-year mortgage rate here in the UK is at 4% That’s more than double what it was in 2020. This is bound to squeeze people’s incomes and put a dent in people’s careers plans.

Early retirement
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Then there’s the over 50s. A large proportion of them quit work during covid. In fact, 3 in 5 over 50s did! These folks took early retirement. Loads of factors played a part but the biggest was the fact that asset prices (ahem, houses) shot up like fireworks. The average home in the US went up by ~18% during 2021 alone and the S&P 500 went up by ~70% from March 2020-21. Yeah, I’m no stranger to the fact that stocks have been on a downward spiral since then! And house prices are starting to follow suit.

This will start to impact the general consumer’s confidence (if it hasn’t already!) since way more people are invested in the markets than ever before. In America, stock ownership is at 56%. And as house prices start to fall as interest rates rise (the 2 move in opposite directions) this lends itself to the negative wealth effect. We feel poorer when our assets go down. And we spend less and so on. All of this is bound to push more middle-agers back into the workforce. As my dad keeps on saying, you don’t want to be working for the gas companies now do you?! 

Will things get looser?

Right now, the labour market is tighter than being stuck on the tube during rush hour. Squished among 20 different armpits. Pre-covid, obvs. Interest rates are at 3.5% in the US which is usually designed to take the steam out of the economy by lowering demand whose side-effect (but probably intended one!) is that companies start laying off workers. If demand for their goods & services starts to fall, they can’t afford to keep on all these extra workers. They’re just not needed as they once were. Tech’s already feeling the pinch: read here what these layoffs mean.

The issue is, we’ve relied on cheap labour for 2 decades. We’ve been able to effectively hire people from all over the world, at rock-bottom wages. This largely kept prices down (hence the 20yr honeymoon that our assets have been on!) Things are looking very different right now. Developed nations are also grappling with an ageing workforce which is making the “supply” bit of the equation much harder.

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The economics of it all

The bottom line is: as long as workers are in demand (low supply, high demand = high wages), they’ll be able to demand. They’ll be able to demand things like flexible working, higher wages, extra perks and so on. 

But, the desire to something you enjoy, something that gives you a sense of purpose is not going away anytime soon. Covid was a massive wake-up call for a lot of us. So, we left jobs that paid us well, jobs that gave us a cushy life, in search for something different. Something that made us feel alive again. 

I hope this searching for purpose is able to continue even as recession bites. But taking a well-paid job that you don’t love to pay the bills makes perfect sense to me. Meaning and purpose don’t need to come for your work. Use your 5-to-9 time to do the very things that make you feel good.

Recession or otherwise, keep searching for your purpose. 

Disclaimer: This blog is not investment or financial advice. It is my opinion only. This blog is not a personal recommendation to buy/sell any security, or to adopt any such investment strategy. Always do your own research before you commit to any investment.