The practice of “Labour Hoarding” seems to be coming to an end. Essentially, it is a business practice in which a company retains its existing employees even when facing a temporary decrease in demand or an economic downturn. However, the labour market is changing rapidly and we are now seeing large companies not having any qualms about putting an end to layoffs.
After the pandemic, many companies implemented Labour Hoarding, that is, they kept their employees (even the underemployed) to ensure that they would have staff available when demand rebounded. The experience of mass resignations and staff shortages (Great Resignation) had taught them that it is difficult to find talented employees again.
Tens of thousands of layoffs in recent weeks
The labour market has recently loosened, creating a “safer environment” for companies to begin “streamlining their workforces.” Many have moved in this direction, including Amazon.com, United Parcel Service, Target and Meta Platforms, which have announced tens of thousands of layoffs in recent weeks.
It’s a shift that could have significant implications for U.S. workers. Over the past two years, U.S. businesses have become increasingly reluctant to hire new employees, and tariffs have also made it more difficult to plan for hiring.
The shift to layoffs is driven by two factors:
- Payroll is one of the largest expenses on a company’s balance sheet.
- Investors are now rewarding companies that announce staff cuts, seeing it as a sign of discipline and a focus on profit margins.
Many companies that had overhired during the pandemic (especially technology and e-commerce) to meet exploding demand now find themselves overstaffed.
Optimism about productive AI is boosting employers’ comfort with laying off. In this environment, the unemployment rate in the US has risen (from a historic low of 3.4% to near 4.3%), giving employers the feeling that they have regained control over the workforce.
Recent examples
- Target’s stock rose the day it announced it would lay off 1,800 employees.
- When Amazon announced it would lay off 14,000 workers, with more to come, its stock rose 1%.
- When UPS revealed it was cutting 48,000 jobs, its stock rose 8%.
Fear Returns
Many Americans believe the job market will get worse: 64% of respondents to a University of Michigan poll in October said they expect unemployment to rise in the next 12 months, up from 32% in October 2024.
The Risk to the Economy
In an environment where job growth is already low, any increase in layoffs automatically leads to job losses. In August—the latest month for which data is available—the U.S. had a net hiring-layoff balance of just 22,000 new jobs.
It’s unclear whether the recent spate of layoff announcements portends a downturn in the labor market. While the number of layoffs is impressive, it doesn’t necessarily reflect the state of a labor force of more than 170 million people.
For companies, excitement about the potential for more tasks to be automated using artificial intelligence is playing a major role. The latest report from the Federal Reserve, which compiles economic data from the Fed’s 12 regional banks, said that more and more employers are cutting their workforces.
The role of artificial intelligence
While there is evidence that artificial intelligence is reducing demand for some jobs, it is difficult to determine the extent to which job automation is increasing.
But even if they haven’t managed to widely implement the capabilities of AI, the belief that it will one day become a reality could make some employers feel more comfortable abandoning the practice of pooling their workforce.
Companies such as Walmart, Ford Motor, JPMorgan Chase and Amazon have said they expect AI to allow them to eliminate jobs.
The dominant trend is to reduce positions that are vulnerable to automation. Layoffs are also being used as a means of strategic restructuring, with the aim of shifting staff to areas with higher growth.
