With labor participation rates still far below pre-lockdown norms and with the rising investment we should be seeing, one might suppose job openings would be growing. However, trends are going in the opposite direction. Job openings for March fell the most they have in two years.
The data, however, need to be unpacked a bit, because we’re living through a long and dramatic shift away from the labor bubbles of 15 years toward a more rational allocation of resources. In particular, this means jobs in information, professional services, and management roles generally are shrinking. Meanwhile, opportunities in retail and hospitality are rising dramatically.
“Openings in professional and business services, where many corporate layoffs have been announced, dropped by 278,000,” The Wall Street Journal reported. “Openings in arts, entertainment and recreation rose by just 38,000 and in construction grew by 129,000.”
Indeed, and there should be nothing surprising about this if you understand the underlying economic trends. They’ve been unfolding for two years in ways that are entirely predictable.
The place where macroeconomic trends most directly affect individuals concerns inflation and labor-market conditions. Inflation has been grim and has cut dramatically into real incomes, reducing them to below what the stimulus seemed to provide. We haven’t had sound money in decades, but this is truly a new age of inflation. The Fed’s war has so far not been won.
Let’s look at labor. This is a sector in which the Biden administration believes it has bragging rights, based mainly on the unemployment figures. This aggregate is nearly meaningless these days. It only clocks those currently in the job market. It remains the case that everyone who wants a job can get one—or two or three, which has been happening.
On the other hand, laborers aren’t in a position to get any job they want at the price/wage/salary that they’ve come to expect. That’s where the upsets are taking place. The sector of information and professional services, particularly in management roles, became wildly overblown over the past decade and a half.
How did this happen? In a normally functioning market, it wouldn’t have happened. The free market offers a complex array of signaling systems—prices, wages, interest, and returns—that cobble together coordination across all sectors. No one plans this from the top; it’s the result of human action, not design. The most spectacular coordinative actions occur within the time structure of investment.
Let’s see how this works. If your kids start a lemonade stand for Saturday fun, the time structure between initial investment and revenue return to cover the costs is one day. If you’re building a car factory for international production and distribution, it could be five years or more, and you need resources before revenue arrives as provided by lending markets. If you’re opening a new vineyard, you could be looking at a decade or more.
This time structure of production is the most remarkable feature of a functioning economy because it isn’t planned by anyone from above but rather extends out from individual risk determinations based on any metric available and the best-possible anticipations of the future. The map of such structures as it’s reflected in the lending/borrowing markets is expressed in the yield curve.
The left side of the curve represents the short term, with lower rates of cost and payout, and the right side represents the longer term, with higher rates of cost and payout. In a society with scarce resources, the allocation between short, medium, and long-term is governed by the accuracy of the interest rate signals.
It’s also true that labor resources, meaning people, follows capital in its investment application. In a normal market, coordination over this time structure is sustainable and matches available capital. There’s no reason to not trust the signaling systems.
What happened in 2008 with former Fed chief Ben Bernanke’s policies amounted to a wild and crazy experiment in interest rate control. He bottomed out interest rates in the short term to zero and dramatically affected interest rates throughout the yield curve. The result was a massive subsidy to long-term projects, such as building big media companies, information services, and other professional sectors, and away from shorter-term enterprises, such as hospitality and retail.
This distortion lasted 15 years and unleashed a huge amount of credit that was essentially misallocated. Such policies eventually come to an end because they push industrial structures into a shape that isn’t justified by underlying realities. It was during this period that we saw a massively distorted allocation not only of capital but of labor too.
In absence of the pandemic lockdowns, how long might this have gone on? It’s hard to say, but there’s no question that the brutal policies of governments starting in 2020, together with an enormous flood of hot money printed by the Fed and all central banks, put an end to the illusion. The inflation started to arrive in January 2021.
The Federal Reserve finally said enough and started reversing the deranged policies of the past. They started raising the federal funds rates, and that affected the interest rate signals throughout the yield curve. By 2022 and 2023, it started to become very obvious that the right side of the curve would have to shed capital and jobs as investment shifted to the left.
Just since October 2022, major professional sectors have shed nearly 500,000 positions, mostly in technology but also affecting communications, finance, and other sectors. Note how the job losses aren’t spread evenly throughout every sector. They’re concentrated in the bubble sectors that blew up over 15 years of misallocated capital and labor.
Meanwhile, jobs in hospitality and retail are growing in proportion to the cuts in management and professional services. When McDonald’s shut its corporate headquarters for a few days to restructure and enact cuts, everyone knew for sure what was happening. They would start a first-round purge of management positions. Not a single fry cook, front-facing customer service person, or dishwasher would lose their job. That should tell you something.
I have a friend who just snagged a position as a server in the rooftop bar of a high-end hotel. After a week on the job, she did the calculations and realized that she could make six figures in this job. She’s looking at her friends with MBAs and heavy student debt and wondering whether the life plans of a decade ago even make sense anymore. This is how these changes in economic structures take place. Wages, prices, and interest rates focus human attention and affect life decisions. The upcoming generation is paying close attention.
As I’ve said often, Elon Musk’s chainsaw upheaval at Twitter was denounced widely but actually, it’s the model to which everyone is looking. He has keen insight and the bravery to move before anyone else. Everyone in his sector is now following his lead.
Already, colleges and universities are struggling with their claim that spending $90,000 for four years straight will pay off in the future in higher earnings. That’s no longer an obvious choice, especially since private credentialing, and not a college degree, has become the real meal ticket. The interest in what is and what isn’t remunerative in the future is dramatically changing.
There are fantastic cultural consequences to this change. “Woke” ideology and socialist-style politicking were essentially born from the academy and carried out by elite-educated workers in media and professional services who were both highly paid and bored out of their minds.
These sectors are now facing huge cuts and many of these workers will soon have no choice but to work with their hands and actually face customers for the first time in their lives. A whole generation or two will be compelled actually to work and provide value.
