[White Collar Hardship] ① When White Collar Workers Cry, Blue Collar Workers Are Laughing

The Two Faces of Economic Recession
380 Tech Companies Lay Off 2,166 Employees Daily
Wall Street and Law Firms Face Pandemic Boom Turned Bust
Manufacturing, Construction, Retail, and Service Sectors Struggle to Hire After Cuts
Blue-Collar Pain Formula Broken During Recession

[Asia Economy Reporter Kwon Haeyoung] #1. The large U.S. law firm Goodwin Procter is cutting 5% of its total staff. This decision comes from the judgment that the current workforce is excessively large compared to the bleak macroeconomic outlook and weakening demand. Other law firms such as Sherman & Sterling and Stroock have also initiated staff restructuring. Lawyers who had raised their market value by receiving bonuses worth hundreds of thousands of dollars in recent years have suddenly become unemployed.

#2. Lenin Calix, an immigrant from Ecuador working at a construction site in the U.S., is so busy these days that he feels like he needs two bodies. The biggest reason is the lack of workers on site. Although physically busy, he is mentally happy. Before COVID-19, his daily wage was $120. Now, three years later, it has risen to $200 per day. Recent news about the surge in construction workers' wages due to labor shortages feels very real to him.

The 'fear of R (Recession)' is pushing white-collar workers onto the streets. High-income earners in big tech and finance, who expanded new businesses riding the liquidity bubble during the COVID-19 pandemic, became targets for layoffs after the high-intensity monetary tightening last year triggered recession fears. Traditionally, layoffs due to recessions were borne by blue-collar workers, but now blue-collar workers have become 'precious assets,' intensifying the relative deprivation felt by white-collar workers. Local media have termed this change the 'white-collar recession' and expect this trend to continue for some time.

Big Tech Layoff Wave... Era of White-Collar Hardship

According to the tech company layoff tracking site layoffs.fyi, from the beginning of this year until the 20th of this month, an average of 2,166 white-collar workers lost their jobs daily across 380 tech companies worldwide. So far this year, the total number of layoffs has reached 108,346.

This is a very rapid pace compared to last year. In the previous year, 1,044 tech companies restructured a total of 159,856 employees annually, averaging 440 layoffs per day. Comparing last year's figures with this year’s, the layoff rate has accelerated nearly fivefold. This is largely due to massive layoffs by companies like Amazon (18,000 employees) and Microsoft (MS, 11,000 employees).

The layoff storm has also hit Wall Street. Large investment banks (IBs) such as Goldman Sachs (3,000 employees) and Morgan Stanley (1,600 employees) have rushed to restructure. Law firms are no exception.

These industries share a common factor: they prospered riding the tailwind of the COVID-19 pandemic. Big tech enjoyed a performance boom due to increased business and advertising revenue as non-face-to-face transitions rapidly accelerated after the pandemic spread. Financial companies and law firms expanded their size thanks to increased initial public offerings (IPOs) and mergers & acquisitions (M&A) fueled by abundant market liquidity.

However, the party ended as COVID-19 cases peaked. As social activities resumed, Russia’s invasion of Ukraine continued, causing inflation to soar. Central banks worldwide shifted to a high-intensity tightening monetary policy, draining market liquidity. When inflation did not subside despite aggressive tightening, recession concerns grew, and companies that had rapidly expanded began cutting costs through layoffs. This trend is reflected in statistics. According to U.S. recruitment consulting firm Challenger, Gray & Christmas, 97,171 tech workers were laid off last year, seven times the 12,975 in 2021. Layoffs in the financial sector also more than doubled to 24,437 from 10,784 the previous year. As recession fears deepen, restructuring waves are spreading to other industries such as Micron, 3M, Uber, and SAP.

Thriving Blue-Collar Workers... The Recession Formula Broken

On the other hand, the COVID-19 lull that made white-collar workers suffer has instead given wings to blue-collar sectors. Labor shortages have intensified mainly in industries that drastically reduced employment early in the pandemic, such as manufacturing, construction, food & lodging, retail, and services. Companies have had no choice but to raise wages to resolve hiring difficulties. For example, Walmart in the U.S. raised the minimum hourly wage for part-time workers in retail stores and warehouses from $12?$18 to $14?$19 starting this month. The labor shortage and wage increase trend among blue-collar workers have manifested in strong service sector economic indicators and have even become a factor causing the Federal Reserve (Fed) to hesitate in ending its tightening cycle.

In the past, blue-collar workers were the victims of recessions. The Wall Street Journal analyzed decades of Department of Labor statistics and found that during recessions, blue-collar wages declined more sharply than white-collar wages. For example, during the 1990 recession triggered by the Gulf War, blue-collar wages in mining, construction, manufacturing, retail, warehousing, leisure, and services fell by 4.4% from their peak, while white-collar wages in information, finance, and business services dropped only 1.6%. During the 2001 recession following the dot-com bubble burst, blue-collar wages fell 6.1%, while white-collar wages decreased by a smaller 4.4%. Just before the global financial crisis in 2007, blue-collar wages dropped 11.7%, compared to an 8.2% decrease for white-collar workers. In 2020, when COVID-19 occurred, blue-collar and white-collar wages were cut by 21.1% and 8.6%, respectively.

The differing impact of recessions across social classes is also confirmed by data. According to the Federal Reserve Bank of Atlanta, the annualized monthly wage growth rate for the bottom 25% income group was 7.4% as of November last year, while the top 25% earners saw a lower wage growth rate of 4.8%. The conventional wisdom that blue-collar workers suffer first during recessions must now be revised.

White-Collar Assets Shrink... 'Richcession' Begins in Earnest

The hardship of white-collar workers is not limited to the job market. Due to recession fears, stock, bond, and real estate markets contracted last year, shrinking assets and leading to a 'Richcession' (Rich + Recession). White-collar workers, who generally belong to stable middle or high-income groups, had relatively greater capacity to invest in asset markets compared to blue-collar workers. However, this exposed them directly to the asset market risks that faltered sharply as COVID-19-driven liquidity shrank. According to the Fed, the net household assets of the top 20% declined by 7.1% in the third quarter of last year compared to the end of 2021. Meanwhile, the net assets of the bottom 20% increased by 17%. Low-income groups actually improved their financial situation after the pandemic due to successive government relief measures and rising wages.

What is more regrettable from the white-collar perspective is that although their downfall is attracting attention, it is not regarded as a social problem. The strong hiring trend for blue-collar workers means that the layoff wave among white-collar workers is just the tip of the iceberg. CNBC, a U.S. economic media outlet, pointed out, "Mass layoffs in tech companies cannot be seen as a signal of recession. If layoffs increase in manufacturing, it could trigger a recession."

This content was produced with the assistance of AI translation services.