Hiring freezes instead of layoffs gain ground in the job market as recession fears grow
- As the economic outlook darkens, most companies are holding off on layoffs.
- But a growing number are choosing not to fill open positions when employees leave.
- The trend is a less disruptive and costly way to shrink a company’s workforce. But it's also expected to contribute to slower job growth in the months ahead, increasing the chance of a recession.
When Magaly Chocano, CEO of a marketing and web development company, lost more than half of her 18 employees to resignations and dismissals in the spring and summer, she began hunting for replacements.
But with sales flattening as the economy slows and talk of a recession growing louder, she reversed course and decided to bring on overseas contractors whose hours could easily be trimmed if revenue plunges next year.
For years, her San Antonio, Texas-based company, Sweb Development, relied on offshore contractors for software development but not for the project management, Web design, marketing and administrative skills Chocano was seeking.
“I said – why not?” she says, adding that she’s “watching my bottom line because of the economy…it’s a little bit scary.”
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How is the job market right now in 2022?
As the economic outlook darkens, most companies are holding off on layoffs. But a growing number are choosing not to fill open positions when employees leave, or backfill jobs, at least in the short term and possibly for longer. The trend, which amounts to a less disruptive and costly way to shrink a company’s workforce, is expected to contribute to slower job growth in the months ahead, increasing the likelihood of a recession.
Is there a labor shortage still?
“They’re planning for uncertainty,” says Jim McCoy, senior vice president of talent solutions for ManpowerGroup, a leading staffing firm. “Companies are slowing down replacing people so they don’t have to do layoffs” next year.
Many companies are hesitant to cut workers after struggling to hire them during severe pandemic-induced labor shortages, which are easing but still affecting many businesses. Layoffs also can be costly because of severance payments and can damage a company’s reputation, says McCoy and Jeanne Branthover, managing partner of DHR Global, an executive search and leadership consulting firm.
“Business executives are currently favoring strategic hiring freezes, strategic layoffs and attrition as cost control measures,” says Gregory Daco, chief economist of EY-Parthenon, noting he speaks with corporate executives regularly.
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What is burnout?
Besides hampering job growth and the economy, decisions to leave vacated jobs unfilled are burdening remaining staffers with more responsibilities, worsening employee burnout, or exhaustion.
For most of the past 18 months, employees have struggled with burnout because colleagues left to pursue higher-paying positions during a hot labor market and employers couldn’t find replacements. That fostered a vicious cycle, with many of the more loyal staffers quitting as well.
Now, just as the worker shortages are starting to ease, some companies are intentionally leaving jobs open and, in some cases laying off workers because of the flagging economy, prolonging the burnout problem.
Half of U.S. employees say co-workers have left their companies over the past year and 28% say they weren’t replaced, according to a late October Harris Poll survey whose results were provided exclusively to USA TODAY. Four in 10 of the employees say they had to assume their work duties.
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The survey results don’t indicate why the employees weren’t replaced. But McCoy estimates that since September, companies have chosen not to fill about one-third of open jobs because of economic uncertainty.
The trend “is further squeezing the employees that remain” who “go through a cycle that starts with overwork, then burnout, then dissatisfaction and eventually” quitting, says Dan Schwabel, managing partner of Workplace Intelligence, an HR research and advisory firm.
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Is job growth slowing?
The pullback in hiring is taking a toll on job growth. The number of hires in the U.S. fell to 6.1 million in September, the lowest level since February 2021. And net job growth of 261,000 in October – which includes layoffs, quits and hiring – was still healthy but marked the lowest total since April of last year.
By mid-2023, Morgan Stanley expects average monthly job growth to slow to 50,000 while Moody’s Analytics expects flat payroll gains. Much of the downshift can be traced to hiring slowdowns or freezes rather than job cuts. The Federal Reserve is behind the drop-off as it sharply hikes interest rates to tame soaring inflation by cooling the economy.
To be sure, layoffs are picking up noticeably. So far this year, tech giants such as Meta, Twitter, Amazon and Lyft have announced major job cuts. And U.S. employers announced nearly 39,000 layoffs in October, the most since February 2021, according to Challenger Gray & Christmas, an outplacement firm.
But total announced layoffs of 243,000 through the first 10 months of the year is the lowest on records dating to 1993, Challenger says. Initial jobless claims, a reliable gauge of layoffs, remain historically low.
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Instead, many companies are paring back by leaving openings unfilled when staffers leave and not adding to the total headcount even if demand for their products or services increases.
Chocano, the CEO of Sweb Development, which provides marketing and web development services for businesses, says bringing on contractors in Nicaragua and Peru has yielded huge labor cost savings. Plus, she says “they are hungry to work” and “grateful to work with teams like ours that include them in everything.”
Employers turn to contractors
Companies' use of contractors is up 11% this year, according to Gusto, a payroll processor for small businesses.
McCoy says many companies still plan to fill vacant positions but instead of doing so in a typical four to eight weeks, they’re "slow-rolling it," waiting until after the new year. And if the economy worsens, they’ll leave the jobs unfilled longer, he says.
The delay could allow smaller tech companies more time to scoop up the workers laid off by their larger competitors – and possibly at a lower salary as the job market softens, McCoy says.
During the frenzied labor market of the past couple of years, “Companies scrambled to hire anybody they could,” says Chad Leibundguth, district director for Robert Half staffing who oversees Florida and Louisiana.
Now, he says, they’re “taking their time to identify the right person.”
Some are even more discerning. When employees leave, they’re assessing whether the opening should be filled both because of the dimmer outlook and a pandemic that changed consumer and business buying habits, says Branthover of DHR Global.
“They may change the type of person” in the role “or decide they don’t need a person at all.”
'I just feel burdened'
Michael Rossini, 57, a principal at a Boston area engineering firm, says steady turnover at the company has cut the number of employees in his group by 10% in the past year. That means his team consists of just him and a lower-level employee, forcing him to “get more in the weeds” of projects instead of overseeing them and work until 8 p.m. instead of 5 p.m. or 6 p.m.
“I just feel burdened,” he says. Leisurely dinner table conversations with his daughters turned into rushed exchanges when he drives them to school. “My quality of life goes down.”