The Future of Work
How to be hyper-employable in a time of mass layoffs
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History can seem like a distant haze in the past because lifestyles, culture, and technology were so distinct from what we’re used to seeing. But art changes that. Art can capture a precise moment in time by appealing to something fundamental in us – human emotions. The Great Depression started around 1929, almost a century ago. Yet this picture still hits hard:
This picture, called “Migrant Mother” was taken by Dorothea Lange in 1933, at the peak of the Great Depression. Like a lot of Dorothea’s work, this picture portrays the pain of migrant farm labor who were driven from their native farmland in search of work as the economy was collapsing around them.
Despite the horrific times that people lived through, something good came of it – The United States government realized the lasting and damaging effects of temporary unemployment, and it brought the “Social Security Act” into effect in 1935. In the 1930s, the United States was the only modernized industrial nation that had no social security plan. The act introduced social security programs and unemployment insurance in America for the first time. The unemployment rate was monitored from 1934 onwards, and it’s still an important metric today.
This was also the time when the US government started moving away from the Gold Standard and towards more Federal spending on healthcare, child support, and other causes. These are still controversial topics – but unemployment insurance definitely seems like a move in the right direction, because during the Great Financial Crisis in 2009, the economy was more resilient. Global GDP fell 15%, worldwide, from 1929 to 1932 but it fell less than 1% from 2008 to 2009. The recovery was much faster, and while life might have turned difficult, social security gave people more support in 2009 than during the Great Depression.
Now, we’re seeing unprecedented layoffs – the largest in years – as the Fed attempts to increase the unemployment rate and battle inflation. More people have been laid off in the last few months than in the entirety of the 2020 pandemic, and more than 100,000 people lost their jobs in January alone. And it’s not restricted to just tech.
In today’s post, you’ll find out:
Why layoffs are rising in rapid numbers, and why this time is different.
The difference between the unemployment rate reported in the news and the “real” unemployment rate that we need to watch out for.
How the unemployment rate affects everything from inflation to stock prices.
Why low labor participation can endanger your retirement plans.
The three major risks to your job.
The five steps to be hyper-employable during mass layoffs.
The rise in layoffs
Layoffs are huge, across the board. After Google, Meta, and Amazon cut more than 50,000 people from their payrolls combined, other companies are following suit. Disney announced a 7,000-person reduction as they begin restructuring, and Yahoo is scaling back by 20%. The Bank of America thinks that this isn’t just about tech – they warned that the United States will begin losing 175,000 jobs per month, starting now.
Mass layoffs were seen as a sign of corporate failure before the 1970s, but since then, it’s been seen as an unavoidable fact of life, and most corporate workers are prepared for the possibility of losing their job. One of the reasons is that corporate America has led to the rise of the Knowledge Worker – and there are more than 1 Billion knowledge workers across the globe now! Unlike agriculture or manufacturing, knowledge work can be transferred comparatively easily, and the prospects of finding a new job are much easier, as recent unemployment rates have shown.
But there might be a problem with our perception because the way we measure unemployment is itself not quite right…
The “real” unemployment rate
The unemployment rate we all hear about – U-3, is the total amount unemployed, as a percentage of the civilian labor force. The problem is that this figure doesn’t take other situations into account where individuals work part-time but want full-time work, or those who are no longer looking due to scarce opportunities.
Then there’s the U-6 rate. This includes a variety of situations including people temporarily out of work, as well as part-time or under-employed workers who are unable to look for other jobs because of economic reasons, returning to school for further education, not finding a job in their desired field, etc.
The U-6 is the most comprehensive metric we have and it covers a lot of unconventional cases that U-3 misses out on. Since the gig economy has moved from the fringe and freelancing is now a viable way of earning an income, the U-6 rate becomes even more important as it covers a much broader range of situations.
When you consider that number, the true unemployment rate of our economy is closer to 7.4% than the headline 3.4% which many people tend to believe.
Which sector are you employed in? Are you a freelancer? A business owner? A part-time worker? How does the layoff situation look from your viewpoint?
So why is the U-6 rate rising so rapidly, and is there something to be actually concerned about?
Domino effect
What does the unemployment rate actually do? Well, for one, it has an impact on your employment prospects. But it goes much deeper than that. If the unemployment rate is very low, the number of people with disposable income is high. Then, as layoffs increase, people have less disposable income and purchasing power, and with less consumer spending the economy begins to slow down. This could trigger a recession – the more people who are unemployed, the more likely we are to see more people unemployed…
Over 70% of what the U.S. economy produces is purchased by domestic consumers through their personal consumption habits, and, if they’re unemployed, sales would go down. It’s likely that the companies we all invest in will begin to slow down, with their stock price decreasing. The unemployment rate is also something that the Federal Reserve watches keenly, because their goal is to dampen inflation, not create country-wide job losses across industries. But with unemployment rates still being at a very low level, Jerome Powell will likely push ahead and cause stock prices to fall in tandem.
The unemployment rate is just one metric though – alongside employment, we also need to look at the participation rate, which calculates the percentage of “working-aged people from 15-64 years old” that are either actively working or looking for a job. If the participation rate is low, it means that lesser people are interested in entering the labor force, and that’s not a good sign.
Right now, we’re seeing the lowest labor participation in the markets due to early retirement or choosing not to work, since the 1970s, and in the long term, this means that less revenue is generated, fewer services are needed, and the economy slows down. On the other hand, the burden of an increasingly aging population needs to be supported by a smaller population of young people, and retirement programs and social security fall at risk. Japan is going through a phase like this now – and economists are worried about the “Japanification” of America (Warren Buffett had anticipated America’s transformation decades back in a story he wrote about an imaginary place he called Static Island).
Now, how will this directly impact you?
The three big risks
The way I see it, you face three major risks.
First, low unemployment is seen as a red flare that the economy is overheating – but it’s more concerning that since the 1950s, every time the unemployment rate has held below 3.5% for more than a year, the consequences have been very bad. In 1953, high inflation caused a recession that doubled the unemployment rate. The same occurred in 1958 and 1969, when interest rates were raised. The 1970s and 1980s had recessions caused by rising rates, and the 1990s had restrictive federal policy. After the Dot-com crash, and the Great Financial Crisis, here we are – with a similar pattern.
In fact, since 1955, “the U.S. economy has always experienced a recession within two years from every quarter in which inflation was above 4% and unemployment was below 5%”, as they are today.
The second risk is that of wage cuts. For every percentage point increase in the unemployment rate, the average worker saw a 6-7% income loss. So even if you believe your job to be “safe”, your income is likely to drop as companies scale costs – but hey, at least you have Tim Cook for company, as he’s taken a 40% pay-cut and will now only receive $49 million in compensation. The quality of jobs and the hours you work will also be affected by the unemployment rate – and options are limited.
Third, Artificial Intelligence might be developing rapidly and replacing workers who handle certain kinds of tasks. Ark Invest’s Cathie Wood says that Artificial Intelligence is actually leading to more productivity, with companies – like Amazon - being able to automate their infrastructure while they add thousands of robots per day.
Why is this happening, and how can you prepare for it?
Five steps to be hyper-employable
One possible explanation for the current situation is that optimistic hiring and projections in an era of free money led companies astray, and they are now downsizing to make up for their recklessness in the past. But some like Goldman Sachs believe that this is a ripple, not a wave – and that layoffs might be a response to weaker demand, which will eventually correct, as workers adapt and find work elsewhere.
This seems to be the time that businesses are “trimming the fat”, optimizing their workforce, adjusting to different conditions, and focusing on profitability. This is cause for shareholders to celebrate, but as an employee, this is worrisome. Here’s what you can do about it:
Make yourself as indispensable as possible. Now is not a time to fly under the radar and hope nobody notices you, or stay on mute on the Zoom calls. It might work temporarily, but the employees who are not linchpins are the ones that companies can safely remove without worrying.
Specialize in a difficult skill that’s in high demand. Instead of following the crowd, picking something hard and getting good at it puts you in a unique position.
Augment and combine your existing skills to provide something nobody else provides. I combined my passion for real estate and YouTube to find my niche – look for niches in your company that you can occupy.
Take more ownership. From Elon Musk to Google CEO Pichai, the focus is shifting to more entrepreneurial work with greater urgency and more hunger. Don’t wait to get told what to do.
Beat AI at its own game. Be the first to learn how to use AI tools and add value to your company. In the process, you will find out what human skills AI fails to replicate – double down on those!
Out of all my investing advice, if you can take away just one thing after this article: Invest in yourself, and it’ll never go to waste.
Stay safe, stay invested and I will see you next week – Graham Stephan.
Days of effort and research went into making this ten-minute read. If you found it insightful, please help me out by clicking the like button and sharing this article.
Thanks for putting employment economics in clear understandable terms. 🙂
Thanks Graham! So surprised politicians don’t talk about U6 numbers…