Eight times a year the Federal Reserve releases a report called the Summary of Commentary on Current Economic Conditions, better known as the Beige book— detailing anecdotal evidence about the health of the U.S. economy from business leaders, economists, market experts, and other sources across the country.
The latest Beige Book, released this month, contained some interesting tidbits that confirm what many business leaders, including the likes of Elon Muskthey have already hinted: they are hoping for you exempted. Firing employees is costly and detrimental to brand reputation. Why pay severances and announce layoffs to the media when you can just wait for your workers to quit on their own? Also, a Study 2016 found that after layoffs, remaining employees experience “survivor syndrome,” which reduces performance, increases stress, and decreases commitment to the employer.
“Many companies have been hesitant to lay off employees even as demand for their goods and services have slowed and have planned to reduce headcount through attrition if necessary,” Fed officials explained in the January issue. Beige book.
A new era for the labor market
Many entrepreneurs are convinced that there will be a recession in 2023 and some companies have already conducted mass layoffs. But these days, in the midst of generational change in how many Americans see career development e work-life balanceexecutives can also simply take advantage of increased employee turnover to reduce headcount.
Since 2012, the median length of work of American workers has dropped from 4.6 years to 4.1 years, with large drops in every age group, data from the Labor Statistics Office Shows. And employees under the age of 24 had an average tenure of just 1.2 years last year, while those between the ages of 25 and 34 spent an average of 2.8 years in each job.
During the pandemic, when many workers were flush with stimulus check money, the attrition rate at many large companies soared. Bank of America CEO Brian Moynihan said Bloomberg at the World Economic Forum in Davos, Switzerland this week, his company’s churn rate jumped from 12% to 15% during that period, which represents an increase in annual revenue of 6,000 employees.
And although hiring is slowing down now, for 18 consecutive months through November (the latest data) a record number of Americans voluntarily quit their jobs. The trend has been labeled “the Great Renunciationby the media, and made it difficult for some employers to fill open positions.
Even now, after seven interest rate hikes that slowed the economy, the job market remains warm. The unemployment rate was only 3.5% in December and on a weekly basis unemployment claims it dropped to its lowest level since September this week. And despite recent reports of layoffs at Big Tech giants like Microsoft And GoogleNew York Fed officials said “layoffs don’t look unusually high” in the Beige Book.
One reason is that costs are rising, and after struggling to find workers during the pandemic, many employers are reluctant to initiate mass layoffs that also involve large one-time expenses such as severance pay and accrued paid holidays.
At Bank of America, for example, churn has fallen to more normal levels in recent months, leading the company to exceed its headcount goal. But instead of starting layoffs at the right size, the company has a hiring freeze and is using attrition to get the job done. And they are not the only ones.
“Staffing was still a major concern and companies were largely intent on retaining talent even as demand slows; most indicated they would vigorously resist layoffs and instead correct size through attrition,” the Federal Reserve Bank of Atlanta reported this month.
‘Silent dismissals’ and ‘gentlemanly dismissals’
Using attrition instead of layoffs and layoffs has become a trend in recent months. Video game publisher Ubisoft recently announced would use what it called “the usual natural attrition” to cut its headcount as part of its $216 million restructuring plan, and Cisco CEO Chuck Robbins said Bloomberg this week his company has no plans to cut jobs, instead opting for right sizing using “the natural ebb and flow you drive through friction.”
The decision of companies to lean towards friction could be considered an example of “silent shot”—one of many new terms to describe swings in the labor market.
The idea is that when managers don’t provide enough opportunities for professional development and employee support, they eventually leave the company. And in some scenarios, “silent dismissals” can take a darker turn, as employers actively try to oust employees by making life difficult for them at work or by issuing return mandates.
Text message between Tesla CEO Elon Musk and tech entrepreneur Jason Calacanis revealed as part of Musk’s legal battle over his $44 billion Chirping last year’s acquisition shows how business leaders can cut costs without announcing layoffs.
“Office requirement 2 days a week = 20% voluntary departures,” Calacanis wrote to Musk, calling the tactic a form of “gentlemen’s dismissal.”
Tesla CEO Elon Musk. Jörg Carstensen/picture alliance via Getty Images
The Federal Reserve Bank of Atlanta reported that Musk isn’t the only company using these tactics to increase attrition, noting that “several employers have required employees to return to the office and have become less flexible with remote work” in recent months .
The good news is that, for some workers, the job change has been hugely beneficial. Between December 2021 and December 2022, job changers achieved an average increase of 7.7%, compared to 5.5% for those who stayed in their jobs, according to the Atlanta Fed’s salary growth tracker. And according to A new survey of ZipRecruiter, workers who quit late last year earned an even bigger pay raise than those who quit in early 2022.
