The Global Economy Looks OK. So, What’s With All the Layoffs?

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By:  Wade McDaniel , Distinguished VP Advisor

Every day we read about more layoffs in the press, and it’s been going on for a while. Large tech players like Microsoft and Alphabet, along with financial firms such as Goldman Sachs and BlackRock, will be reducing their combined workforce by tens of thousands in 2023 and early 2024. But do these actions stem from an economic slowdown, as the press tends to report? Or are there undercurrents that we should be looking for?

Reading Between the Headlines

We can’t ignore the fact that central banks are using monetary policy to cool economies in the United States and Western Europe to tackle inflation. And part of the strategy could lead to higher unemployment, which should ease upward wage pressure. Inflation looks like it’s headed in the right direction, but unemployment remains low. On Feb. 1, Jerome Powell, chairman of the U.S. Federal Reserve, mentioned during a press conference that reducing inflation to 2% and having unemployment remain low is a possible outcome of this cycle.

There are signs that unemployment will remain low and workers scarce. This is reflected in the 3.4% unemployment rate in the United States, the lowest in 53 years. The European Commission has said that labor is being hoarded in Europe in anticipation of a short or non-existent recession. BNP Paribas (a large French bank) says the same hoarding is taking place in the United States for the same reasons.

Many of the companies mentioned in the press say that they went on a spending spree or over-invested in talent during the height of the pandemic. Others say they are responding to shifts in their business model. But one company is notably missing from the layoff press coverage: Apple. They experienced high growth during the pandemic but are not currently laying off staff even though revenue was down in Q4.

Apple grew their workforce by about 20% over the past three years, while Microsoft, at 50%, and Alphabet, at 57%, took much more aggressive approaches to staffing. To be sure, economic and market uncertainty are contributors to these reductions, but in the end, many firms will retain a larger staff after the layoffs when compared to just 12 months ago.

According to a poll conducted by Morning Consult in January, 46% of Americans think the United States is currently in a recession, and another 25% think there will be one in 2023. But a Harris poll released the week prior found that 67% of Americans plan to spend as much, or more, on retail purchases in 2023, indicating stable consumer spending.

These indicators sow more confusion about how the labor market may turn. But there is a case to be made that this is a new-ish normal. In the most recent Gartner Global Labor Market Outlook, overall business confidence is at an eight-quarter low. But during the same period, workers’ confidence in finding a new job remains high.

When we asked the Gartner chief supply chain officer community how its members felt about the labor market in late December, almost 70% said that it will remain tight over the coming years and retention will be a significant challenge. This same group also felt that the business outlook for 2023 was mixed at best.

For now, regardless of the macroeconomic outlook, workers will be hard to get, and hard to hold on to. People will come and go more frequently due to many reasons, economic and otherwise. Supply chain organizations will need to tweak their outlook on talent.

Companies Are in the Driver Seat

To adapt, companies will need to democratize institutional knowledge versus it being held by the all-knowing problem-solving sages. Faster and more productive onboarding and knowledge transfer should be a priority. Human interfaces with business systems will need to be simplified so that they can be quickly understood and leveraged. This will help avoid corporate brain drain as the most knowledgeable workers retire and the most talented younger ones leave for other opportunities.

Many companies are focused on enhancing their employee value propositions (EVP) to reduce turnover, and they should. But let’s not lose sight of the forest for the trees. Gartner’s Global Talent Monitor constantly shows that compensation is the biggest attractor for joining — and the biggest reason for leaving — a company. What has changed more recently is the amount of pay increase that would entice a worker to leave. In Q1 of 2019 that number was almost 17%, now it’s about 10%.

The second top reason for leaving is respect, and this has remained consistent over the years. Respect is a direct reflection of the manager quality and co-workers. Both compensation and manager quality are in direct control of the company. Some might say that compensation is driven by the markets, when in fact it’s driven by the company’s response to the markets and shareholders.

When we look beyond the headlines of the macroeconomy and layoffs, we do find a more nuanced story. Workers are in short supply, and they are leaving companies due to dominant issues that are within a company’s control. Even as the economy slows down, workers are confident in finding a new job whether they leave voluntarily or not. And, for those who remain, we should plan for a continuation of churn.

The saying from years ago about “talent being our most precious resource” has never been truer. Companies may be hoarding workers even as they downsize at the same time, and for good reasons.

More Supply Chain Insights:

• 2023 CSCO Leadership Vision for tackling scarce, expensive talent
• Supply Chain Response to High Inflation and Recession Risk: 4 key priorities
• How can we help you? Connect with Gartner for Supply Chain

This newsletter provides an opportunity for Gartner analysts to test ideas and move research forward. Some comments or opinions expressed hereunder are those of individual analysts and do not always represent the views of Gartner, Inc. or its management.