Next Wave of U.S. Job Cuts Targets Millions of Higher-Paid Workers
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The pandemic isn’t finished with the U.S. labor market, threatening a second wave of job cuts—this time among white-collar workers. Close to 6 million jobs are potentially on the line, according to Bloomberg Economics. That includes higher-paid supervisors in sectors where frontline workers were hit first, such as restaurants and hotels. It also includes the knock on-effects to connected industries such as professional services, finance and real estate. “It will get worse before it gets better—white-collar workers will now bear the brunt,” said Yelena Shulyatyeva, senior U.S. economist at Bloomberg Economics. “Even if states and businesses reopen, we’re likely to see this second wave of losses,” since the labor market tends to lag economic activity, she said.
The extent and details of the spillover job cuts will start to reveal themselves Friday with the government’s release of the May employment report. The unemployment rate probably soared to 19.5%, the highest since the Great Depression. Nonfarm payrolls are projected to have dropped by another 8 million—reflecting the continuing impact of lockdowns and the start of the second-wave impact—after a record decline of 20.5 million in April. ADP figures on Wednesday, however, showed private payrolls fell by 2.76 million in May, suggesting Friday’s decline will be smaller than expected.
For the analysis, Shulyatyeva and colleagues looked at job losses by sector in March and April—with affected industries dominated by blue-collar, hospitality and production workers—and determined how those layoffs would move to supervisory positions, since management cuts tend to lag the frontline workers. The economists then took government data on relations between industries to compute the ones most reliant on demand from the most-affected sectors. Combining that information with the hit to employment in the most affected sectors they extrapolated to other jobs at risk, most of which were higher-skilled, white-collar roles.
With more than 40 million applications for jobless benefits under regular state programs filed since mid-March, layoffs continue to roll on despite parts of the economy stirring back to life—something that could face challenges amid protests and a heavy police response in a number of cities. The Bloomberg Economics analysis underscores how financial pain is extending beyond the retail, travel, leisure and restaurant industries immediately impacted by the shutdowns.
While layoffs will remain concentrated in those industries that bear the brunt of the coronavirus-related lockdowns, other sectors are showing worrying signs of escalating job losses, according to Bank of America senior U.S. economist Alexander Lin, who analyzed weekly jobless-claims data by industry.
In some industries, such as financial and scientific services, “you’ve seen claims actually start to pick up or trend sideways,” Lin said. “Businesses are still operating in such an uncertain environment and they’re still adjusting to the new reality, and the new reality may be that you don’t need as many workers.”
That means others could see a similar fate as Mathew Pashby. The 23-year-old, who graduated from college a year ago, lost his job as an account manager at a digital marketing agency in New Orleans last month. The company he worked for, like many in the industry, quickly saw a huge impact from Covid-19. Now, jobless and burdened with student debt, he’s moving back in with his parents. “I’m really open to really anyone that will hire me at this point,” Pashby said. “I’ve applied to hundreds of jobs and I’ve heard back from very few, and it’s understandable, especially the climate that we’re in.” He said he is open to other types of work “as long as I have a job paying a decent salary.”
He’s experiencing what one research paper found to be employers pulling back postings for high-skilled workers more than others. That leaves recently laid-off Americans in white-collar industries facing dislocation of income, fewer open positions and likely lower pay when they do find a job.
Jacob Vogelhut, 45, was a contractor on the internal brand consulting team for Marriott International, where he’d worked for more than a decade. While the initial round of job cuts at the hotel chain included room cleaners and other frontline staff, Vogelhut was let go at the end of April. The former small-business owner with three school-age kids is now relying on weekly unemployment benefits, while his wife remains employed in the telemedicine industry. “It was great until the pandemic hit,” Vogelhut said by phone from Maryland. “There is no severance for contract workers.”
While not as high in number as the initial wave of layoffs, the second round will still pack a sizable economic punch, as it will include middle-class Americans who drive discretionary spending, a major growth engine. Data last week showed a record jump in April personal income due to one-time government stimulus payments. Yet that boost is temporary, leaving just jobless benefits as income for the unemployed—benefits that don’t go as far for higher-paid workers. That in turn threatens to further curb consumer spending, which fell by a record in the month.
More than one-third of households making $100,000 per year have lost some employment income since mid-March, according to a Census Bureau weekly survey. And more than 25% expect to lose income in the next four weeks. Even among this higher-paid group, 7% are only slightly confident or not at all about making next month’s rent, while 5% of homeowners are just as concerned about making their mortgage payment. One possible advantage for some white-collar workers is that they’re typically more financially stable than their low-skilled counterparts. In some cases, a layoff can be a springboard for another career.
Alvin Ding, a 30-year-old in San Francisco, lost his job as a marketing manager at Airbnb, which laid off 25% of its workforce in May. His job was to bring in new hosts, but travel restrictions and lockdowns sent accommodation demand plummeting. When he was let go, the company provided at least 14 weeks of base pay for his position that paid more than $100,000 a year. Ding is using the capital to start a performance marketing company with former colleagues. “We all generally feel the same way—very positive about the layoffs,” Ding said by phone. “Obviously being laid-off sucks, but the severance is really good.”