Decline of white-collar workers is making more room for others

Knowledge workers in technology, finance and elsewhere in corporate America are used to having the most options and leverage in the labor market. They are still far from facing hard times, but recent data suggest their fortunes have downshifted to lukewarm from white-hot. The main reason they aren't worse off is that many younger and less experienced workers are coming off the sidelines to take less glamorous and hard-to-fill jobs in industries like education and health care. That's helping support growth while also easing inflation by taking strain off supply chains — and that should give the Federal Reserve more confidence that it doesn't need to break the economy to bring supply and demand back into balance.

Views on the job market for knowledge workers can depend on what's being measured. For example, there are still more unfilled jobs for professional and business services workers than there were before the pandemic. But as of February, job openings have fallen as much over the past year as they did during the 2008 recession. And real-time job postings data from Indeed.com suggests that the decline in postings in finance and tech has carried over into April. So things may be fine for now, but the trend is ominous, and it's fair to wonder about how much more conditions will deteriorate over the next several months.

What's happening in the rest of the labor market offers some encouragement. Job growth in the big industries that lagged in the pandemic recovery continue to show robust gains. Government, education and health care, and leisure and hospitality added a combined 184,000 jobs in March, consistent with the monthly gains they have been booking for almost a year now.

We can credit that growth to the step up in the number of people joining the workforce to take some of those harder-to-fill jobs. Between March and November of last year, the size of the U.S. labor force was more or less flat, but since November it has increased by 2.2 million workers.

An increase in labor force participation is what the Federal Reserve wanted to see as it aims to balance the trade-offs between employment and inflation. It also raises the possibility that the economy could shift back toward something like the conditions we had in 2019, when we combined solid job growth and low unemployment with contained inflation. What we've had in recent months is solid job growth with low unemployment, while the bigger workforce has kept wage growth under control, which in turn helps moderate inflation.

This matters for knowledge workers because jobs in industries like tech and finance are as much about longer-term views on the future as they are about current conditions. More people willing to take jobs also helps in the short term by allowing companies to increase output levels. Incomes for new workers are then spent, supporting economic activity. By easing inflation pressures, it also should mean the Fed doesn't need to raise interest rates as much, reducing the odds for a significant recession and making companies think twice before launching hiring freezes or layoffs.

It's fair to ask whether the less-prestigious jobs people are taking are good jobs, or whether we're back in a pattern where the economy is getting by with low-cost workers. There are a few reasons to believe this cycle is better. First, the rate at which people are quitting their jobs remains near pre-pandemic levels, suggesting workers have options. Second, wage growth for production and nonsupervisory employees — ordinary workers — is outpacing overall wages that include bosses and managers, which we didn't see in the 2010s. And lastly, about half the increase in the labor force since November is people under the age of 25, who in many cases could hide out in higher education or live at home if good jobs weren't available.

As long as people are joining the workforce in a way that grows the economy without increasing inflation, the downside for workers in knowledge industries should be limited. For now, the change in the labor market for white-collar workers looks more like a rebalancing than a downturn.