ANALYSIS: US Firms Start Cutting Pay, Laying Off Staff as Labor Market Cools

Cashiers process purchases at a Walmart Supercenter in North Bergen, N.J., on Feb. 9, 2023. Eduardo Munoz Alvarez/AP Photo/File

In recent months, the red-hot U.S. labor market has shown signs of cooling down as rising interest rates and easing economic conditions weigh on the jobs arena.

While it’s a positive development for the Federal Reserve and its inflation-fighting campaign, it isn’t a suitable development for workers facing an elevated cost of living—from ballooning prices to soaring costs of borrowing.

Businesses are responding to this labor market rebalancing by starting to cut pay for new hires and laying off staff.

Goldman Sachs has engaged in a “strategic resource assessment” initiative that involves laying off underperforming employees. According to the Financial Times, the financial institution plans to terminate 1 percent to 5 percent of workers, with a focus on its core investment banking and trading arms. The process could begin as early as October.

The Wall Street giant initiated its layoffs earlier this year, when it eliminated 3,200 positions—or 6.5 percent of its personnel—to pare costs and limit its losses.

In 2022, compensation rates were sharply lower as the bank slashed pay by 30 percent from the previous year. Even Goldman Sachs CEO David Solomon’s income was lowered by 29 percent to $25 million.

The latest news comes as Goldman’s net profit declined by 35 percent in the first months of this year.

Walmart Cuts Starting Pay

Walmart has reduced starting pay for new store employees who pick and pack online orders and stock shelves, the retail juggernaut confirmed.

New Walmart employees will earn $1 less per hour going forward. Current workers in the digital or stocking teams will also see their pay cut. Walmart said that the purpose of the pay rate change is to ensure starting pay is consistent across the company. But the corporate titan also adjusted pay bands for experienced workers, which resulted in a wage boost for about 50,000 employees.

In March 2021, Walmart raised wages for about 425,000 employees. This made starting earnings range from $13 to $19 an hour, depending on the store’s location in the United States.

Reuters reported on Aug. 30 that about 16,000 pharmacists were asked by Walmart to take voluntary pay cuts by trimming their hours as part of a broader effort to reduce costs. The company cited a decrease in demand for pharmaceuticals and requests from pharmacists for an improved work-life balance.

Earlier this year, Walmart cut the operating hours of its pharmacies by two hours at 4,500 stores.

Companies Prepare for Slowdown

U.S. firms are ostensibly bracing for an economic slowdown or a recession as they employ a blend of cost-cutting measures that include layoffs and pay cuts.

Roku became the latest technology company to conduct another round of layoffs. The streaming entity plans to terminate 10 percent of its workforce, affecting 360 employees, according to a Securities and Exchange Commission regulatory filing. Roku has fired 800 employees since November 2022.

“In light of Roku Inc.’s continuing evaluation of its operations, on September 5, 2023, the Company determined to implement additional measures to continue to bring down its year-over-year operating expense growth rate by consolidating its office space utilization, performing a strategic review of its content portfolio, reducing outside services expenses, and slowing its year-over-year headcount expense growth rate through a workforce reduction and limiting new hires, among other measures,” the filing stated.

In August, wireless carrier T-Mobile announced plans to eliminate 5,000 jobs, representing about 7 percent of its workforce. The layoffs would mostly impact corporate, back-office, and technology roles.

“This is a large change, and an unusual one for our company,” wrote CEO Michael Sievert. “Because of this, we do not envision making additional large-scale reductions across the company again in the foreseeable future.”

McDonald’s fired hundreds of workers, shut down all of its 10 field offices, and cut pay and benefits for employees in April. The moves were part of the fast-food behemoth’s restructuring.

According to the latest Challenger, Gray and Christmas Inc. report, U.S.-based employers in August announced more than 75,000 job cuts—up by 217 percent month-over-month and by 267 percent year-over-year. In the first eight months of 2023, businesses have confirmed plans to slash 557,057 positions.

“Job openings are falling, and American workers are more reluctant to leave their positions right now. The job market is resetting after the pandemic and post-pandemic hiring frenzy,” labor expert Andrew Challenger, senior vice president of Challenger, Gray & Christmas, said in a statement. “The increase in job cuts is not surprising as technological disruption and companies taking a cost-savings approach on the economy claim positions.”

A recent study conducted by the National Bureau of Economic Research found that 60 percent of recently fired workers would have agreed to a wage decrease of 5 percent. If steeper cuts were needed, close to a third of survey participants would have accepted a pay cut of as much as 25 percent.

“Employer reluctance to offer wage cuts becomes more puzzling in the face of widespread worker willingness to accept them,” the study authors wrote. “To our knowledge, we are the first to document the disjunction between worker-side openness to wage cuts and a widespread unwillingness of employers to even broach the subject.”

A hiring sign is displayed at a restaurant in Prospect Heights, Ill., on April 4, 2023. Nam Y. Huh/Reuters

The Federal Reserve Is Winning

Since igniting its quantitative tightening program in March 2022, the Federal Open Market Committee has attempted to soften labor conditions.

In his speech at the Jackson Hole economic symposium in August, Fed Chair Jerome Powell noted that the United States needs a softer labor market to help achieve the central bank’s 2 percent target inflation rate.

Over the past few months, the indicators point to a changing labor market.

The August jobs report showed that the U.S. economy created 187,000 new jobs, the unemployment rate rose to 3.8 percent, and annual average hourly earnings slowed to 4.3 percent. However, the Bureau of Labor Statistics also reported downward employment revisions, fewer full-time jobs, more part-time positions, and a decline in temporary job opportunities.

The number of job openings declined to below 9 million in July for the first time since March 2021.

Data from the Federal Reserve Bank of Atlanta revealed that the three-month average of annual wage growth for job hoppers fell to 5.3 percent in August, down from a 6.7 percent peak in June 2022. Additional numbers from payroll provider Gusto show that wages for new hires are 5 percent lower than they were for the same positions in July 2022.

There are three things that economists want to see moving forward, Ipek Ozkardeskaya, senior analyst at Swissquote Bank, said.

“In the order of importance: 1. Slowing price pressure, 2. Looser, but still healthy jobs market, 3. Slowing but not contracting economy to ensure a soft landing,” Ms. Ozkardeskaya wrote in a research note. “We will see if that’s feasible.”

But will workers accept lower pay? A recent Federal Reserve Bank of New York survey found that jobseekers’ wage expectations had reached an all-time high.

Walmart didn’t respond to a request for comment.