Worker hours

January 3, 2019

A recession may get rolling with a few seemingly anomalous events like the recently-announced GM plant closures. There can also be warning signs in large-scale buyouts, such as those offered to 10,400 Verizon employees a few weeks ago or FedEx buyouts due to a slowdown in trade amid global trade disputes.

But the more common first step is not being asked to stay late and come in on Saturdays.

“When manufacturing weakens, the firms wouldn’t lay workers off, they would cut back their overtime hours,” says economist Ed Leamer, who directs the UCLA/Anderson Business Forecast Project. So far, manufacturing workweeks remain very long by historical standards, after reaching their longest point since World War II in the spring of 2018.

Surprisingly, the low unemployment rate can help accelerate a slide.

The United States is at what economists consider full employment, with more job openings than workers seeking jobs. But employers unable to find the workers they want are more likely to turn to automation to do the work that they need done.

Rising wages, either because of market conditions or increases in minimum wage laws in many states, also makes increased use of automation more attractive. Another factor is the 2017 tax reform, which allows businesses a bigger tax cut on capital spending, such as robots and computer kiosks that can be used by customers, than on new hiring.

The trouble comes when the economy starts to slow, and it’s the workers who are let go, not the machines.

That’s why it can be just a matter of months for a labor market to go from very low unemployment to job losses and a recession, as happened in 2000 and 2001.

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