Many people have been closely following the economic slowdown since last year. Major players such as Amazon, Dell, and Disney have announced layoffs, yet the labor market is still extremely competitive, with workers being hard to find. 

The Unemployment rate reached nearly a 60-year low in January, and does not show much sign of rising. A new term has surfaced to describe this trend: Labor Hoarding. Economists describe this as the following; some businesses are experiencing layoffs, but many others are opting to cut worker hours rather than layoff employees. 

Could labor hoarding be good for the economy?

Policymakers are hoping that after struggling through the worst labor shortages America has gone through in several decades, employers will be hesitant to lay off their employees when the economy settles. This could help reduce the likelihood of a painful recession as it aims to combat persistent inflation. The economy is facing an intentional slowdown as the Federal Reserve raises interest rates to slow demand and drive down price increases, which is the kind of activity that historically increases unemployment. This has not been the case, as the unemployment rate is currently 3.6%, below the historical average of 5.73% and although it has increased from 3.4% in February of 2023 this is not a significant increase. 

Businesses that struggled to retain employees during the height of the pandemic may be more inclined to put forth greater effort to retain their employees than they normally would amidst a slowdown in the economy. This means that the slowing demand could lead to a smaller increase in unemployment than we have seen in previously similar economic situations. Few economists expect an economic outcome as severe as what occurred in the 1980s when inflation was drastically raised, because today’s inflation bursts have been shorter and rates are not expected to climb nearly as much. 

Labor hoarding offers hope that could help the Fed’s less intense unemployment forecast become reality, as employers who hold on to their employees may help the labor market slow down and allow wage growth to moderate without a spike in joblessness. 

According to Forbes, nearly 90% of small businesses are labor hoarding, and 77% of the American workforce planned to stay in their current jobs. This means that employers are increasing their investment in employees to keep the status quo and avoid a labor shortage, which is precautionary at this point. Sara Jensen, Senior VP of growth and strategy at Innovative Employee Solutions, shared that this strategy can be a win-win for companies and employees. Jensen believes it is beneficial for companies as it offers a strategic way to continue to meet their business objectives in a financially smart way, by offering growth opportunities for current employees, which increases employee retention and engagement. 

Key Statistics:

• Half of small business owners have improved compensation to prevent employees from leaving.
• 91% of small businesses are labor hoarding in 2023 and 48% are confident in the strength of their teams.
• Nearly half of small business owners labor hoard to decrease their hiring and training costs.
• 67% of small businesses owners are willing to decrease their own salary to avoid firing employees. 
• The top positions small companies are hoarding include finance managers, marketing managers, and business analysts. 

The pandemic changed how business owners approach layoffs. After seeing record breaking unemployment rates during the pandemic, employers are more cautious to let go of talent, especially coupled with the low rate of unemployment. Labor Hoarding is something that has been beneficial thus far for both businesses and employees.