Editorial: Do you think Big Tech’s thousands of layoffs signal an upcoming recession? Think again

Amazon is laying off more than 18,000 workers. Salesforce is shedding 8,000, and Twitter has shed thousands more.

While we should never underestimate the hardships of people facing unexpected layoffs, these announcements from big tech companies are not a full-scale tragedy for the American economy. What would be very bad is if we see a significant slowdown in the economy, which leads to more layoffs by companies large and small in a variety of sectors.

While job losses can be traumatic for workers, especially from long-term jobs, the reality is that large-scale layoffs in tech are just a small picture of the US job market, which employs 160 million workers. In a strong job market, like the one we are currently in, approximately 1.4 million workers are fired or laid off from their jobs in an average month. 4 million more leave their jobs voluntarily. With more than 6 million workers hired per month, most of those who lose their jobs can count on relatively short periods of unemployment.

This is consistent with data on the length of time workers spend in a state of unemployment. The most recent reports from December showed that the typical unemployment period was less than nine weeks.

Not working for nine weeks is still a major hardship, but recently laid-off workers will be eligible for unemployment benefits, which are about 40% of wages in most states. Higher-paid workers, who would include most of the technology sector workers facing layoffs now, are also likely to get some savings to help them get through a period of unemployment.

Workers laid off by tech giants are also likely to be rehired more quickly than people in other sectors. The information industry unemployment rate was just 2.2% in December, compared to 3.5% overall.

But if our economy slows, and layoffs extend to other industries and business sizes, we could face the recession risks many economists fear from the Fed’s rate hikes. They are clearly designed to slow the economy and reduce employment. The rationale is that the economy was seeing too much demand, which drove up wages and prices.

The price increase aims to reduce the demand for housing, cars and other things. This would reduce the number of jobs in the hardest-hit industries, reduce workers’ bargaining power and lead to smaller wage increases and less upward pressure on costs and prices.

If this push to slow the economy goes too far, we will see a very different picture in terms of layoffs and resignations, as well as prospects for rehiring workers. In the strong job market we see today, layoffs outnumber layoffs by nearly 3 to 1. In 2009, during the Great Recession, the number of people laid off was nearly 20% higher than the number of people leaving their job each month.

It was understandable that few people wanted to quit their jobs during the Great Recession. The prospect of finding new jobs was not very good. The typical period of unemployment extended to nearly 20 weeks by the beginning of 2010. Furthermore, many workers ended a period of unemployment by simply giving up the job search, rather than getting a job. This was a terrible period for the tens of millions of workers who have been unemployed for periods of time and for those who care deeply about losing their jobs.

While this is very different from the job market we face today, where unemployment is at its lowest level in more than half a century, economists worry about the Fed’s interest rate hikes going too far and triggering another recession. The Fed is right to try to slow inflation, which is out of control at the end of 2021 and the early part of 2022. The housing market in particular has been seeing double-digit inflation.

The rate hikes have turned the picture in the housing market, as prices have stopped rising and are now falling in many parts of the country. The supply chain problems that drove price increases earlier in the recovery are largely gone, and prices for items like appliances and furniture are now coming down.

This is a great success story for the Federal Reserve. However, if it raised rates too high, leading to another recession, reports of widespread layoffs in tech — or in any sector — would be much worse news than they are today.

Dean Baker is chief economist at the Center for Economic and Policy Research. He is the author of several books including Forged: How Globalization and the Rules of Modern Economics Were Structured to Make the Rich Richer.

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