In recent years, companies have shown a greater reluctance to lay off employees, signaling a shift in corporate attitudes toward workforce management, Axios reports.
This trend marks a departure from past economic downturns, with businesses now holding onto staff despite economic uncertainty and rising interest rates.
For workers, this shift is welcome news. Layoffs can have lasting financial and emotional consequences, and avoiding them helps provide more stability in the job market. The Federal Reserve’s interest rate hikes, aimed at curbing inflation, were expected to lead to a rise in unemployment, but the labor market has remained stronger than anticipated.
At the onset of the COVID-19 pandemic, companies quickly cut jobs, resulting in over 13 million layoffs in March 2020 alone. That number was far higher than the 2.7 million laid off during the height of the Great Recession. The sharp rise in unemployment was followed by a difficult recovery, as businesses faced challenges re-hiring workers.
By 2022, labor shortages were widespread, leading to longer wait times at restaurants and stores closing early due to a lack of staff. Companies were even offering hiring bonuses for roles like dishwashers and gas station attendants. This labor scarcity taught business leaders the importance of retaining their workforce, leading to a more cautious approach to layoffs in the years that followed.
Companies outside of the tech sector, which had previously over-expanded, have largely held onto their employees through the economic challenges of 2023. According to Rich Lesser, global chair of Boston Consulting Group, many employers learned a key lesson during the pandemic: it is difficult to hire back skilled talent once it’s let go.
Ron Hetrick, a senior economist at Lightcast, echoed this sentiment.
“It took me so long to get this labor force, I’m not letting them go,” he explained.
Hetrick reflected the mindset of many managers today.
In 2024, the average number of workers laid off each month was 1.6 million, down from 1.9 million in 2019, a year that was considered very strong for the labor market. Although companies have slowed their hiring and unemployment has slightly risen, they remain hesitant to part ways with staff, a trend that labor analysts have been observing since 2022.
This reduced rate of layoffs may become more common in the future. The US is projected to face a significant worker shortage over the next decade, especially in sectors like healthcare, retail, and skilled trades—industries that will continue to need human workers, even as automation and artificial intelligence become more prevalent.
A report from labor analytics firm Lightcast warns of a potential “storm” ahead, predicting that the US could experience one of its largest labor shortages in history. Earlier findings from McKinsey in 2023 also highlighted similar concerns.
As employers adapt to this changing labor market, policymakers may need to adjust as well. Immigration in 2023 helped alleviate some labor shortages, but it remains a divisive issue in Washington. As the labor market tightens further, finding solutions to meet workforce demands will become increasingly important.
While a worsening economy could lead to increased layoffs, companies seem more cautious now than they were during past downturns, according to Lesser.
“In 2009, at the first sign of trouble, there was a tendency to start cutting people. That’s not what we’ve seen in the last couple of years,” Lesser said.
