Why Are Workers So Afraid When Unemployment Is So Low??

The US unemployment rate is 4.3%, a historically low number.  The inflation rate has dropped to 2.9%; about average for the past ten years.  Why, then are workers so fearful? The answer, of course, is that they have good reason to be fearful.

Last year the tech sector cut more than 170,000 jobs.  But that’s just the tip of the iceberg.  17 million American workers were fired in 2022. 

The New York Federal Reserve Survey of Consumer Expectations tells us the impact that these layoffs have on how workers feel:

• The perceived probability of losing one’s job in the next 12 months is 14.3%.  Now that’s down by half a percent from last year.  But still, how can you feel good about your situation if you believe that there’s more than a one in ten chance you’ll get fired within the next year.
• The perceived probability of finding a job (if one’s current job was lost) decreased by 0.9 percentage point to 52.5%.  So, if you lose your job you believe that you’ve got about a 50% chance of finding another one.
• The perceived probability of missing a minimum debt payment over the next three months increased by 1.0 percentage point to 13.3%, the measure’s highest reading since April 2020.

One take-away from these numbers is that nobody should expect to cheer up a friend by quoting the unemployment rate or current inflation.  They have no meaning to how the individual worker feels.  But if you want to erase your own credibility, go ahead.

The question for business is what is the impact to the organization of that employee fear of layoffs?  First, let’s take a look at the cost of layoffs.  They are hard to quantify, but generally fall into these categories:

• Severance Pay and Unemployment Benefits
• Administrative and Legal Expenses
• Reputational Damage
• Loss of Talent and Knowledge
• Replacement and Training Costs
• Impact on Morale and Productivity

The Harvard Business Review reports that layoffs do not cause immediate financial benefits.  “…companies that conduct layoffs underperform for nearly three years longer than those that do not. The reasons are in the well-researched hidden costs of layoffs.”

Those hidden costs include the undeniable impact of fear on quality that we have much discussed in this blog.  Fear also saps creativity and productivity because workers will not step outside their comfort zones. 

Neutron Jack Welch said that every manager should fire the bottom performing 10% of their workforce every year.  W. Edwards Deming had a response.  Once while speaking to a group of managers, Deming asked how many had Dead Wood in their organization.  One by one, they all raised their hands.

Deming then asked, "Did you hire them that way or did you kill them?"

Deming asks a critical question, whose fault is the layoff?  Is it incompetent employees or incompetent managers? 

• If the layoff comes as a result of a business downturn, why didn’t management predict it and refrain from hiring redundant workers??
• If the organization does, in fact, have some incompetent workers, who hired them? 

It always goes back to the managers.

What can we do about this malaise that infects the American workforce?  The answer needs to come from management.  Leaders – including financial markets - need to realize that the constant fear of losing one’s job does not inspire workers to work harder and more productively.

Government can play a role by mitigating the impact of layoffs with a reasonable social safety net that would ease some of the fear of getting fired.

How about you?  Do you have a similar story?  Comment below.