- White-collar workers fared much better than blue-collar employees during the coronavirus recession.
- Several signs suggest the opposite will be true in a Fed-induced 2023 downturn.
The economic pain in the next downturn will be completely different from that of the coronavirus recession. White-collar office workers should be worried.
A growing number of economists expect at least a mild recession to materialize in 2023, and signs point to it resembling the downturn of the early 1990s. That slump saw white-collar — or high-income office workers — face a heightened risk of job loss while those in blue-collar sectors like mining and manufacturing generally fared much better than in previous recessions.
William Lee, chief economist at the Milken Institute, previously told MarketWatch, that the recession would mostly be "a white-collar recession," adding that "the blue-collar recession will not be in the same places that we saw in the past."
Lee added to Insider that blue-collar workers like truck drivers used to be the "most vulnerable workers" but "office workers have always been considered protected."
"Right now, it's exactly the reverse," he added.
That's in part because of increases in automation seen across industries.
"The changes in business models and the adoption of software has really changed the landscape of the groups that will be the most vulnerable," Lee said.
For instance, he said that a warehouse worker that can do "automated robotic retrieval and delivery" on a computer is in demand "because that blue-collar worker is now a very skilled worker."
White-collar sectors hired quickly after the pandemic, and it could leave workers vulnerable in a downturn
Recessions come in all shapes and sizes. The Great Depression hammered every American in one way or another between the Wall Street crash of October 1929, dust storms, widespread defaults, and bank runs. The Great Recession of the late 2000s left low- and middle-income households feeling the brunt of the economic pain. And the coronavirus recession primarily harmed service-industry workers while manufacturers were able to rebound much more quickly.
Industries that typically employ people in white-collar jobs, like in professional and business services and the information sector, have more than fully recovered from job losses experienced early on in the pandemic. Because of this, these industries may have less room to grow or may have overexpanded during the pandemic era and could struggle if there's a downturn.
"It's got to be pretty obvious that the ones that accumulated the most number of workers in the fastest manner are the ones that will have to be reversing that pretty quickly," Lee said about industries. "Because the rush to hire people has been something that managers were falling all over themselves trying to find workers, thinking that businesses will recover, the recovery from the COVID shutdown will be longer lasting than we're now anticipating."
Hiring and employment recovery haven't been the same in what are typically blue-collar sectors such as leisure and hospitality, manufacturing, and transportation and warehousing seen in the below chart.
Interest-rate-sensitive sectors are also more likely to shed payrolls. Mortgage lenders, for example, face a serious risk of job loss should the economy and the housing market slow further. Such businesses enjoyed a "once in a lifetime situation" as homebuying sharply accelerated and property values shot through the roof in 2021 and early 2022, Julia Pollak, chief economist at ZipRecruiter, told Insider.
The economic backdrop has since completely flipped. The Federal Reserve's interest rate increases have lifted mortgage rates to the highest levels since 2008. That's crushed home demand and slammed the brakes on home buying. As rates climb higher and borrowing gets pricier, it's likely mortgage lenders and other rate-sensitive industries pivot to cost cutting, Pollak said.
"That industry is kind of in a freeze and perhaps a massive decline in activity," Pollak added. "You would expect a very substantial decline in employment."
Blue-collar jobs are still in demand and need more workers
Several blue-collar sectors have only just recently recovered or are still making their way back. That leaves more flexibility to keep hiring and avoid mass layoffs.
But not all blue-collar jobs will experience layoffs in the same way. According to Lee, the energy sector has "been hiring like crazy" for some workers as they deal with a labor shortage. However, Lee added, "as energy prices are starting to top off and come down, I think a lot of these companies are believing that they may have over-hired."
The US has already seen layoffs coming out of tech employers, but "you have to wonder how much of it is really fears about the future versus correcting for over-hiring over the past year or two," Aaron Terrazas, chief economist at Glassdoor, told Insider.
Transportation and warehousing, which employs several blue-collar positions, has grown throughout the pandemic. People sitting at home during lockdowns spent time shopping online and needed things delivered to them. The industry has continued to see employment soar from where it was before the pandemic.
"There is still a lot of demand and more importantly not enough supply when it comes to blue-collar, frontline jobs," Terrazas said, adding that this includes workers in places like airports and factories.
The food service industry experienced a similar effect. Employment in restaurants and bars has long been expected to climb through the 2020s as the population grows and demand for eating out holds steady. Yet food-service employment is still down some 630,000 jobs from pre-pandemic levels, according to the Bureau of Labor Statistics.
Not only do restaurants and bars need to recoup those jobs, they also need to make up for two and a half years of lost growth, ZipRecruiter's Pollak said. There are still roughly 1.3 million job openings across the hotel and restaurant sector, signaling the demand for workers is still there. The pace of hiring may cool, but it's likely that employees at restaurants and bars will hold on to their jobs through a 2023 downturn, Pollak said.
"It's more likely that growth will be slower for a while than it is that we'll have massive layoffs in restaurants again," she said. "People are sitting on enough of a mountain of savings that they aren't going to pull back their restaurant spending dramatically."
Thinking in white- and blue-collar terms could be insufficient for today's labor market, according to Terrazas. He believes that the workers that are most vulnerable right now are those in so-called "pajama-pants occupations," or jobs that can be done remotely at home.
Yet the majority of those are the same white-collar gigs that stuck around through lockdowns and various waves of coronavirus infections. After record-breaking job losses and a sluggish recovery, it seems as though blue-collar workers are getting the better deal in the next slump.