Bosses gain the upper hand as recession looms

Staff shortages have boosted wages, perks and bonuses... but what if the cost of living squeeze sparks a rush for the best jobs, asks Tom Rees

‘This did not play out the way I expected,” Mark Zuckerberg admitted as Meta unveiled the biggest cull of staff in its history last week. Meta’s big bet on a “permanent acceleration” of pandemic trends such as home working and more time spent online proved wide of the mark as e-commerce falls back to normal levels and workers return to the office.

“I got this wrong, and I take responsibility for that,” Zuckerberg said. The billionaire’s mea culpa will be little comfort to the 11,000 who will lose their jobs but Meta is far from the only tech business cutting staff: Elon Musk has halved Twitter’s head count, while others in Silicon Valley including Stripe and Lyft are pruning workers.

The wave of redundancies in the sector bodes ill for a workforce that had enjoyed power over employers not seen in recent decades. The jobs boom could finally be running into trouble.

“The worm has turned,” says James Reed, chairman of Reed, Britain’s biggest recruitment firm. “The jobs boom that lasted about two years is in danger of becoming a two-year jobs slump with this recession. The storm clouds of recession are getting darker.”

His site is still awash with live job adverts but Reed has noticed a softening in the recent data and warns that “next year is going to be tough”.

Since the end of lockdown, power in the labour market has shifted dramatically from employers to employees as businesses struggle to fill shortages. Companies have been battling for talent in a shrinking pool of available workers after swathes dropped out of the job market as a result of long-term sickness or early retirement. The number of vacancies outstripped the unemployed figure for the first time as the world of work was upended, pushing the jobless rate down to lows not seen since 1974.

The scramble to secure workers fuelled wage growth and created an era of lucrative “golden hellos”. Major employers, from British Airways to Tesco, have been forced to offer welcome bonuses, often worth thousands, among other staff perks.

That is all expected to change. Workers could see the perks boom quickly fizzle out if recession leads to lower demand for staff and more job seekers. A number of key dials on the jobs market dashboard are already flashing amber, as a sign the dynamic is shifting from workers to managers.

Official data show vacancies have fallen by 133,000 from their record peak, although job openings remain at a still elevated 1.2m. Elsewhere, a survey by the Recruitment and Employment Confederation (REC) found that hiring fell in October, the first month-to-month decline in almost two years. “We’ve seen almost two years now of employers grasping for resources as they try to grow postpandemic and labour supply has been severely constricted,” says Neil Carberry, chief executive at the REC.

“What our members report and our data suggest is that over the past month to two months, employers are just becoming a bit more cautious.”

It is still “a great time to be looking for a job”, Carberry said, but “it’s certainly the case that employers are reacting to the economic uncertainty”.

The Bank of England has predicted unemployment will jump from its current near 50-year low of 3.5pc to 6.5pc if interest rates rise as fast as markets expect. That would mean hundreds of thousands of job losses, although the peak of unemployment will probably be lower as the Bank does not expect to raise rates as quickly as investor bets suggest. The City expects unemployment to rise to almost 5pc by 2024.

However, the story in the labour market has been as much about staff supply as business demand. A lack of workers could still haunt bosses after an exodus from the workforce that shows no sign of reversing. “Tightness in the jobs market reflects a dip in labour supply,” says Edward Allenby, economist at Oxford Economics. “This has been due to sickness, low net inward migration during the pandemic and more people taking early retirement.” He warns that significant improvements are unlikely in the near term and that the lack of workers could even worsen before it gets better.

The economic inactivity rate – the share of working-age people neither in employment or seeking a job – has continued to rise and vacancies are still high by historical standards, however, economic gloom may persuade staff to stay put rather than risk a job move.

Jack Kennedy, economist at jobs site Indeed, believes labour supply is going to be a problem for employers for “some time”. He says: “We’ve had job switching rates pretty much running at record levels in recent quarters. We are likely to see that ease off. Nobody wants to be last in, first out.”

Then again, soaring living costs may persuade some who are sitting on the sidelines of the labour market, including early retirees, to rethink their finances and return to work.

While vacancies on jobs site Reed have been softening, applications are on the rise – a possible clue that painfully high inflation is boosting labour supply.

James Reed suggests that “people who hadn’t been looking are now looking”, likely due to the cost of living crisis forcing more people to make extra money. More workers will be cheered by businesses that have struggled to grow because of a lack of staff. But for workers, the shift means some of the gold-plated benefits and perks may start to recede.

The number of job adverts offering remote work has fallen for five straight months, according to Linkedin. Fewer than 12pc of ads in the UK were for fully remote work in September, down from a peak of 16pc in January, despite continued high demand for flexibility.

Economists also expect wage growth and huge welcome bonuses to cool. “The balance of power is likely to swing more back to employers,” says Kennedy. “I think we’re very unlikely to return to where we were prior to the pandemic. New standards have been set, new expectations have been set, certainly with regards to remote work.”

‘The storm clouds are getting darker. Next year will be tough’

‘Our data suggests employers are becoming a bit more cautious’