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  • Writer's pictureThe San Juan Daily Star

What layoffs? Many employers are eager to hang on to workers.

Kitchen staff during a lunch shift at Charleston Crab House, which has altered its menus to have fewer prep cooks, in Charleston, S.C., Feb. 23, 2023. Despite interest rate increases meant to cool the labor market, companies outside the tech industry worry about having too few workers, not too many.

By Sydney Ember and Ben Casselman

During the height of the pandemic, hungry and housebound customers clamored for Home Run Inn Pizza’s frozen thin-crust pies. The company did everything to oblige.

It kept its machines chugging during lunch breaks and brought on temporary workers to ensure it could produce pizzas at the suddenly breakneck pace.

More recently, demand has eased, and Home Run Inn Pizza, based in suburban Chicago, has reversed some of those measures. But it does not plan to lay off any full-time manufacturing employees — even if that means having a few more workers than it needs during its second shift.

“We have really good people,” said Nick Perrino, chief operating officer and a great-grandson of the company’s founder. “And we don’t want to let any of our team members go.”

Despite a year of aggressive interest rate increases by the Federal Reserve aimed at taming inflation, and signs that the red-hot labor market is cooling off, most companies have not taken the step of cutting jobs. Outside of some high-profile companies mostly in the tech sector, such as Google’s parent Alphabet, Meta and Microsoft, layoffs in the economy as a whole remain remarkably, even historically, rare.

There were fewer layoffs in December than in any month during the two decades before the pandemic, government data shows. Filings for unemployment insurance have barely increased. And the unemployment rate, at 3.4%, is the lowest since 1969.

“We haven’t seen any layoffs whatsoever,” said Janis Petrini, co-owner of an Express Employment Professionals staffing agency office in Grand Rapids, Michigan.

For Federal Reserve policymakers, the surprising strength of the job market is a source of both optimism and concern. The low rate of unemployment suggests that a recession is not imminent, but also that the Fed has not achieved its aim in slowing down the economy.

For workers, the picture is clearer: For now, at least, the historically strong job market remains intact.

Economists say a variety of factors could be driving employers to hold on to workers. Some may be scarred by how difficult and costly it has been in recent years to recruit and train employees. Some may be worried about finding themselves short-handed if they need to hire quickly after a fleeting downturn — as was the case when the economy reopened rapidly early in the pandemic. Others may still be trying to make up for staffing shortfalls after the pandemic’s upheaval. The leisure and hospitality industry, for instance, is still about a half-million jobs below its pre-pandemic level.

More fundamentally, the pandemic, and the persistently tight labor market that ensued, may have profoundly reshaped how the nation’s employers think about staffing levels and hiring.

“When the economy came back very strongly in 2020, then a lot of firms were trying to hire again and they couldn’t,” said Matt Notowidigdo, an economics professor at the University of Chicago Booth School of Business. “That experience might still be sitting with people.”

At Home Run Inn Pizza, in Woodridge, Illinois, Perrino said attracting and retaining workers, particularly for shifts that can start in the wee hours of the morning or last late into the night, was proving extraordinarily difficult. (Besides its frozen pie business, the company also has a handful of restaurants in the Chicago area.) That, along with his sense of loyalty to his employees — “I don’t think we’ve ever done a layoff in our company history,” he said — has contributed to his desire to hold on to his full-time staff members, including 135 people in manufacturing.

“Finding talented labor that wants to stay and wants to be committed to the long-term success of the company — that’s been very challenging,” he said.

For some companies, particularly those in consumer-facing service businesses such as leisure and hospitality, the logic for avoiding layoffs is simpler: Demand is still strong, and they need the help.

John Keener, a restaurateur in Charleston, South Carolina, said his establishments, which include two Charleston Crab House locations and the A.W. Shuck’s Seafood Shack, had effectively been understaffed since the early days of the pandemic.

To attract employees, he raised wages, offered more generous benefits and started advertising open jobs on LinkedIn, Yelp, Facebook and Instagram, he said. When that wasn’t enough, he figured out how to work with less, altering menus so he could have fewer prep cooks and giving servers hand-held electronic devices so they could beam orders directly to the kitchen without leaving the floor.

The persistent strength of consumer demand — and the continued hiring that it has driven — has been vexing for policymakers at the Federal Reserve. Fed officials worry that the strong job market is contributing to inflation, with employers raising wages to attract scarce workers, then raising prices to cover their higher labor costs. That could force the central bank to raise interest rates even more aggressively, ultimately raising the risks of a painful recession.

But the low rate of layoffs also points to the possibility of a rosier scenario. Higher interest rates typically result in higher costs and weaker sales, which often leads to layoffs. If companies respond instead by paring hiring or raises — while holding onto existing employees — that could allow the labor market to cool without widespread job losses.

Economists caution that although companies may be clinging to their workers, that could change in a hurry if abstract fears of a recession morph into an actual decline in sales. Economists warn that a recession, if it comes, will almost certainly force companies to cut jobs en masse — no matter how reluctant they may be after their recent experience with a tight labor market.

“That’s the risk,” Notowidigdo said, referring to companies’ strategy of holding onto workers even as business slows. “You might end up with multiple rounds of layoffs in the future if the recession turns out to be more severe than expected.”

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