Patrick Hill: Job Churn Creates Massive Economic Uncertainty

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by Patrick Hill

Job Churn Creates Massive Economic Uncertainty

“Shocks in the initial months of the pandemic may have permanently destroyed a large share of employer-worker matches, many of which may have been highly productive,” Because highly productive matches are costly to find, the economic disruption induced by Covid-19 may have induced persistent reductions in productivity and employment.”

Alexander Bick – Arizona State University & Adam Blandin – Virginia Commonwealth University

The pandemic triggered a shock to both supply and demand in the economy. Management had no choice when lockdowns spread across the country but to lay off workers and ask those still working to work from home.  As a result, millions of workers were either permanently or temporally laid off. Laid-off workers reflected on the job they lost and whether they wanted to return to the same position even if it offered again.  While working from home, information services employees had time to evaluate their job demands versus time invested in their personal life and family. In addition, management evaluated their dependency on workers leading to record levels of investment in automation systems. Thus, the pandemic triggered an in-depth evaluation by all workers into what their job meant to them.

Bick and Blandin note in their survey that 37% of workers who had jobs in February of 2020 had changed employers or were unemployed.  Plus, 26% had changed employers during the same period or about 39M people in the total labor force.

Job Churn, Patrick Hill: Job Churn Creates Massive Economic Uncertainty

Sources: Bick and Blandin, Bloomberg – 5/14/21

Implications of Job Churn – Hiring Growth Is Due to Workers Taking New Jobs

The report implies that most of the hiring during the recovery came from workers taking new jobs, not workers returning to their old jobs. In part, this report explains why the consensus forecast of 1M jobs for the April Non-Farm Payroll report was off by 734k, as forecasters expected workers to return to their old jobs.  Employment models in a high churn employment environment cannot accurately forecast employment levels in a fluid job market. The Bick and Blandin report shows an 11% unemployment rate compared to the 6.1% Bureau of Labor Statistics report for April.  With 16.8M still on continuing unemployment, an implied unemployment rate is about 11.2% and supports the Bick, Blandin analysis.

There is still a massive employment gap of 8.2M jobs lost since February 2020. Hiring is likely to be random and chaotic, with surges in high growth sectors that slow due to quick shifts in social behavior patterns. It will take years of retraining, worker mobility, and executive long-term hiring programs to rebuild a high-growth job engine for the economy.

Workers Moving to New Employers Result in Return-to-Work Hiring Gaps

 Amazon hired 500,000 warehouse, delivery, and e-commerce support workers during the pandemic.  In addition, Amazon worked closely with Marriott, Chipotle, and other leisure and hospitality companies to employ their laid-off workers. As a result, Amazon added as many new workers as 136 other companies during the year.

Job Churn, Patrick Hill: Job Churn Creates Massive Economic Uncertainty

Sources: SEC Company Reports, The Wall Street Journal – 5/14/21

Today, when hotels and restaurants look to reopen, they want to rehire workers they know that have been furloughed or laid off. Yet, managers are having a difficult time finding enough workers to fill all the open positions. Interestingly, most of the hiring reported in the April Payroll report showed 266k new jobs were in the leisure and hospitality sectors. There is still a gap of 2.8M jobs to fill from a baseline of February 2020 after hiring back almost 6M workers over the past six months.

Job Churn, Patrick Hill: Job Churn Creates Massive Economic Uncertainty

Hospitality Workers Are Upset with Low Wages

Many restaurant owners complain that workers ‘don’t want to work.’  There is a trending Twitter #WeAreClosed group where workers sound off about poor wages, working conditions that are not safe from COVID infection, and constantly changing work schedules. A few salient tweets:

The ‘WE ARE CLOSED’ businesses are figuring out fast nobody wants to work for cheap greedy a#$%^ anymore. One good thing the pandemic has done.”

WE ARE CLOSED’ because we don’t want to work anymore for wages that are less than a living one. We don’t want to work two and three jobs only to afford the basics.”

“Corporations decided to cut worker hours to less than 40hrs to get out of giving benefits. People had to work two jobs just to get by. Then, they kicked everyone to the curb at the start of the pandemic.”

“If you fired/laid-off employees when the pandemic hit, but you still made a huge profit, you don’t get to whine about not being about to find anyone willing to work.”

Many restaurant corporations were profitable enough to waste cash on stock buybacks to drive stock prices up and reward their executives via bonus stock compensation packages. The workers have a point as Dominos, Wendy’s, MacDonald’s, Chipotle, and Pizza Hut combined for $16B in stock buybacks during the pandemic year.  The $16B would go a long way toward raising the wages of fast-food workers considering they are among the lowest-paid workers in the country.

Management Wants Wage Costs Contained to Maintain Profitability

From the management point of view, there is a limit to how much they can raise wages and still be profitable and operate a sustainable business.  This tweet makes the point:

“No one should expect to be a burger flipper as a career.  Go to school at night. Get a degree.  Find a well-paying job.  I don’t want to be paying $18 for a burger.”

The financial media has interviewed a few workers on unemployment, quoting them that they stay on unemployment because they make more on unemployment than their old job.  Some workers keep unemployment payments, but they violate state law if they do not accept a job offer.   However, Illinois University researchers completed a comprehensive study of workers on unemployment in Indiana. Their report noted that most workers were looking for work as required and accepting jobs offered. In addition, some gig economy workers are taking day jobs that do not violate the terms of their unemployment benefit agreement. Most gig economy workers were actively looking for long-term contract work.

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Health economists have surveyed workers who lost their jobs and found most workers lost their health benefits as well. Thus, some families use their unemployment benefit payment to pay for private health insurance until they feel comfortable going back to work.  Other workers keep unemployment benefits because they are worried about the safety of their former job site.

1.5M Retirees Leave the Labor Force

Most workers age 55 and older were planning on working until age 65. However, the pandemic layoffs and job stress triggered 1.5M retirees to retire early, according to the Dallas Federal Reserve.  Interviews reveal that with retirement investments and home prices peaking, they felt comfortable retiring early. In addition, Bloomberg News reports that a government study shows another 2.5M workers are considering retirement early.  Thus, over the next year, it is possible a total of 4M older workers will leave the labor force. Going with these retirees is their expertise, business networks, and ability to work in a ‘productive match’ with their employer.

Job Churn, Patrick Hill: Job Churn Creates Massive Economic Uncertainty

Source: The Daily Shot – 5/19/21

The labor force rate is recovering slowly from the staggering 22M jobs lost during the pandemic last year.

Small & Large Business Owners Plan Early Retirement

Contributing to a future drop in the labor force rate are small and large business owners planning an early retirement.  Small and large business owners see a long haul in turning around their businesses, so they opt for retirement. As a result, the number of business owners planning on early retirement doubled in August 2020 compared to the previous year.

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Job Churn, Patrick Hill: Job Churn Creates Massive Economic Uncertainty

Sources Wilmington Trust, Bloomberg – 4/30/21

Entrepreneurs who experienced a loss of wealth and income during the 2009 recession are now concerned that they will face rebuilding their business for another five to ten years to achieve wealth goals.  Instead of making another commitment to turn around their business, they are opting to retire early. A subset of business owners, independent physicians, have lost patients during the pandemic lockdowns.  In healthcare, the Physician Foundation surveyed business plans of physicians over age 60 and found that 33% were planning on retiring rather than rebuild their patient base. In food service, small business restaurant owners in core cities have seen a drop of 60 – 80% of their income.

Homebase reports that a third of small business restaurants have closed in core cities. Also,  a significant group of other owners in second-tier cities are planning on selling their business or closing. Small businesses provide the majority of new jobs in the U.S. economy. So a reduction in small business hiring will negatively impact overall job growth. However, small business owners in information services and consulting report growing sales and have difficulty recruiting qualified staff.  Thus, it depends on which sector of the economy a business operates in terms of employment conditions.

Women Look for Child Care to Return to Work

Another contributing factor to the lack of labor force growth was women leaving the labor force. They left due to closed childcare centers and home-based online schooling. Over 1.5M women left the labor force during the pandemic.  The rate of mothers returning to the workforce is 3% lower than for fathers.

Job Churn, Patrick Hill: Job Churn Creates Massive Economic Uncertainty

Source: Federal Reserve of San Francisco, Bloomberg – 4/30/21

A Federal Reserve of San Francisco report shows that women in the prime 25 – 54 age workgroup faced significant obstacles in returning to work.  Many left their jobs when schools and childcare centers closed a year ago. Now, with a gap in their resume, juggling childcare with patchy school reopenings, or changing skill requirements, they are left out of mainstream hiring.   Some women reflecting on their whole job experience chose not to return to their former job. Instead, they seek part-time work providing more flexible time to raise children. Before the pandemic, women were the fastest-growing segment of the labor force. Now they face an uncertain future in developing their careers in a post-pandemic economy.

Management Not Hiring Robustly Yet

The Payroll Diffusion Index calculates the breadth of hiring across the entire economy. It is calculated by adding the number of companies hiring and subtracting those that are reducing hiring. Executives hired broadly across the economy in March of this year at a diffusion rate of 75.5%.  An index reading above 50 is a positive hiring growth indication.  The latest Payroll Diffusion Index report shows a historic 15% drop to 60.1% in April.  Such a significant drop has only happened a few times in the past ten years.

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Job Churn, Patrick Hill: Job Churn Creates Massive Economic Uncertainty

Source: The Daily Feather, Danielle DiMartino Booth – 5/10/21

Former Dallas Federal Reserve official Danielle DiMartino Booth notes:

If March did mark the peak, that means April was on the other side. While neither of the last two months does a trend make, if that’s the case, the swim from here on out will be upstream.”

The April Payroll report surprise of only 266k new hires would seem to confirm that a peak may have occurred in March.

Economic Winners & Losers Where Hiring Is Likely to Increase or Stall

Neil Irwin, an economics writer at the New York Times, completed an insightful hypothetical analysis of GDP contribution by sector. He based his analysis on U.S. economic output in the 4th quarter 2019 before the pandemic and the results of 1st quarter GDP for 2021.   He assumed fixed 2.0% growth through the pandemic period versus real pandemic output.  The chart below displays the results indicating the robustness of recreational goods, information equipment, durable goods, home purchases, and software.

Job Churn, Patrick Hill: Job Churn Creates Massive Economic Uncertainty

Sources: The New York Times, Neil Irwin – 5/17/21

Spending from stimulus checks has centered on home improvement, appliances, and furnishings. Executives focused on spending on business software invested in automation. Employees seeking to permanently work at home away from core urban areas purchased homes.  Employment in these industries has grown over the past year.  Bounce back sectors like restaurants and hotels have seen increased hiring. But still have a 2.8M worker gap versus pre-pandemic employment levels.  Transportation hiring has been robust due to e-commerce purchasing but may slow as consumers finish spending their stimulus checks. The media and entertainment industries took a major hit during the pandemic lockdown. However, these crowd-based services are recovering slowly as patrons return to theaters, concerts, and events.  Hiring in entertainment should grow accordingly.

Irwin’s analysis indicates some sectors were growing well pre-pandemic. These sectors seem to survive the pandemic well where hiring continues at a moderate pace.  Other sectors based on their strength or weakness before the pandemic will gain in the recovery. But it is unclear if weak sectors will come back to pre-pandemic hiring levels.  Due to consumer spending patterns shifting permanently away from weak sectors to new growth sectors.

Productive Employer – Worker Relationship Churn Distorts Forecasts

Our introduction noted that a 37% job churn rate of productive employer-worker relationships shakes the economy job engine to its core.  The fact that forecasts for payroll hiring were so far off in April is just the beginning of a chaotic, random, stop-start recovery where winners and losers will shift quickly.  The economy is already beginning to change from durable goods buying that surged during the pandemic.  Durables buying seems saturated as consumers turn to services beginning to travel, eat out, and purchase tickets to entertainment and sports events.  The shift of workers to remote work from core cities will hurt sales of core city small businesses.  Surveys indicate that work travel patterns of commuters may recover back to 80% of the previous level.  The 20% loss in commuter traffic will threaten the survival of a variety of small businesses.

Many executives are implementing hybrid work structures. Hybrid plans call for employees to come to the office 1 or 2 days a week while working at home for 3 days.  Businesses that pivot to the ‘touch down’ travel lifestyle of commuters will likely thrive. Manufacturers of consumer goods enjoy surges in appliance and household furnishing sales. Yet, home purchases are beginning to decline, so that these manufacturers may experience moderating growth.

Developing countries face significant challenges with COVID-19 infections triggering lockdowns. So, S & P 100 companies dependent on high-profit sales overseas will find sales and earnings headwinds for at least the next year.  Long-term unemployed workers are out of work for over 27 weeks.  They comprise 45% of the jobless total and continue to climb. Plus, for these long-term unemployed people, their prospects for gaining jobs diminish over time. A growing group of long-term out-of-work people, retirees, and women will likely cause a continued decline in labor force size.

The Economy Will Be Quite Fluid For A Few Years

The high level of economic uncertainty means that employment will grow in fits and starts. However, many businesses report difficulty in hiring qualified workers.  The shortage is in part due to 3 – 4M retirees and women leaving the workforce. Also, many workers laid off are not qualified for high-growth services sector jobs. This mismatch will take time to sort out as retraining, education, and employer skills-building programs are implemented. The economy will be quite fluid for a few years until a solid set of hiring and new employment patterns are established. 

Patrick Hill is the Editor of The Future, the site hosts analysis of the real economy, ideas on a new economy, indicators, and posts to start a dialog. He writes from the heart of Silicon Valley, leveraging 20 years of experience as an executive at firms like HP, Genentech, Verigy, Informatica, and Okta to provide investment and economic insights. Twitter: @PatrickHill1677, email:


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