The U.S. labor market continues to exhibit volatility. While many businesses are eagerly recalling furloughed workers as COVID-19 lockdowns ease and as consumer demand recovers, many others continue to reduce headcount, and a historic 21 million people remain jobless. Assuming renewed coronavirus outbreaks don’t set the recovery back (an increasingly questionable proposition), how quickly can the U.S. converge back to full employment?
Few analysts expect tight labor markets by the end of this year, but some have cited the relatively large proportion of temporary versus permanent layoffs in the latest BLS employment survey as one cause for optimism, given that these workers are easier to hire back when conditions recover. However, the BLS has come under increasing scrutiny for its survey methodology, so we conducted a gut-check. Our analysis of management rhetoric challenges hopeful figures indicating that the vast majority of layoffs have been temporary.
We leveraged our NLP technology to scan corporate management commentary in 32,000 documents released by all Russell 3000 firms to see what executives themselves have been saying about the permanence of their headcount reductions. Firms fall into the following categories:
Permanent layoffs (“we have done a layoff of close to 1/4 of our people.” -Trip Advisor, May 8)
Temporary furloughs (“we have also furloughed additional employees” -Union Pacific, April 23)
Furloughs and layoffs (“we've also made adjustments...through involuntary leaves and reductions in force.” -Sherwin-Williams, April 29). These can be indicated in the same statement or separately.
No headcount reduction if a statement was not found
Here are the big takeaways:
Temporary layoffs might constitute a smaller share of job losses than the market expects. Weighted by employee size, about half of all Russell 3000 companies announced headcount reductions. Of that share, 40% of firms conducted only temporary layoffs, while an additional 35% announced furloughs AND layoffs. This seems inconsistent with the hefty 75% share of unemployed workers in the BLS survey expecting to return to their jobs, and who may have based their answer on nothing more than an informal promise from their employer.
Share of Russell 3000 firms, by headcount reduction type
Weighted by employee size, statements collected between March 1 - June 19
Entertainment, Retail, and Food appear to be the only sectors that primarily relied on furloughs. Almost all other sectors were more likely to have implemented permanent layoffs, or a mix of layoffs and furloughs, than furloughs exclusively. This likely suggests ongoing hiring volatility in these hard-hit sectors relative to other areas of the economy.
Share of headcount reduction type, by Russell 3000 NAICS sector
Weighted by employee size, statements collected between March 1 - June 19
Since early May, the weekly share of firms reporting furloughs and permanent layoffs have been roughly equal. This contrasted with April, when most firms seem to have been more likely to report furloughs than layoffs. As a side note, the spike in May is likely attributed to the quantity and type of releases published during earnings season.
Russell 3000 firms reporting job cuts as a share of all company releases
Weekly, statements collected between March 1 - June 19
A few caveats are in order. Our analysis offers only a proxy of labor market trends. It does not take into account the relative magnitudes of job cuts across companies, nor does it consider privately-held firms. However, our results line up with other studies suggesting a higher number of permanent job losses than what official figures indicate. Given that traditional surveys have yet to adapt their methodologies to unprecedented economic circumstances, we believe that paying attention to aggregate trends in management commentary gives us an alternative measuring stick with which to gauge the health of the labor market.
Comments, queries, or suggestions are always welcome! Feel free to reach out at max@macronometry.com.