You are currently viewing ‘It will mostly be a white-collar recession’: Milken economist William Lee explains how the next economic downturn will be different

‘It will mostly be a white-collar recession’: Milken economist William Lee explains how the next economic downturn will be different

“It will mostly be a white-collar recession. And the blue-collar recession won’t happen in the same places we’ve seen in the past. »

That was William Lee, chief economist at the Milken Institute, a Santa Barbara, Calif.-based think tank, in an interview with MarketWatch, speculating on the nature of the next US recession.

As economists increasingly anticipate a recession – commonly defined as two consecutive quarters of negative growth – Lee said there is still a demand for blue-collar workers in services and manufacturing, which will help protect those workers in the event of a recession.

Even with a low unemployment rate of 3.6%, low-income workers are still vulnerable in the event of an economic downturn, but adding to comments he made on Bloomberg Radio earlier this week, Lee said he there could be exceptions to that rule this time around.

“The Joe Six Pack, who was the first guy to be laid off, may be less worried if he has one of those high-demand jobs, like Amazon warehouse worker, delivery guy, guy who works in the ghost kitchen.’


— William Lee, chief economist of the Milken Institute

“The Joe Six Pack, who was the first guy to be fired, may be less worried if he has one of those jobs that are in high demand, like the Amazon store clerk, the delivery guy, the guy who works in the ghost kitchen “said Lee.

The United States created a solid 372,000 new jobs in June, despite forecasts of a broader slowdown in hiring and growing fears of a recession. Economists polled by the Wall Street Journal had predicted 250,000 new jobs. Job growth has been particularly pronounced in manufacturing, wholesale, retail, transportation and warehousing, according to Labor Department data.

William Lee is the chief economist of the Milken Institute, a think tank based in Santa Barbara, California.

Courtesy of the Milken Institute

Lee warned that young professionals entering the workforce will be among the first tranche of workers laid off in the event of a significant downturn in the economy. “The beginner white collar is going to have to be careful. That’s going to be the surprise in this downturn,” he said.

The tech sector, meanwhile, announced a wave of job cuts. Shopify is laying off about 1,000 jobs, or 10% of its workforce, The Wall Street Journal reported this week, due to a slowdown in online shopping after the worst days of the pandemic.

A Shopify SHOP spokesperson,
+11.12%
referred MarketWatch to a blog post by the company’s CEO and co-founder, Tobi Lütke. He wrote, “We’re betting the channel mix — the share of dollars flowing through e-commerce rather than physical retail — would jump five or even 10 years permanently.” But that bet, he added, did not pay off.

Last month, Coinbase COIN,
+10.42%
extended a hiring freeze and rescinded some accepted job offers, citing current market conditions. (Coinbase declined to comment.)

MicrosoftMSFT,
+6.71%
slowed hiring and executives of Meta Platforms, Inc. META,
+6.78%
(formerly Facebook) and Alphabet’s Google GOOG,
+7.90%
warned employees of difficult times ahead. (Microsoft, Alphabet and Meta were not immediately available for comment.)

When the pandemic hit, many people upgraded their skills. So waiters and warehouse workers have moved on to become truck drivers and maybe accountants, and they’re looking for better jobs.


—William Lee

Lee said low-skilled white-collar workers, such as entry-level accountants, were more vulnerable as companies improved their business models after weathering the worst of the pandemic. Many of these entry-level roles have been replaced by apps and new technologies; alternatively, companies simply no longer need certain low-wage white-collar workers, Lee said.

With inflation at its highest level in four decades and showing few signs of slowing down, the US Federal Reserve is expected to announce a 0.75 percentage point rate hike on Wednesday to take its benchmark rate to 2.25 – 2, 5%. That would put the pace of Fed tightening at the fastest rate since early 1981.

The consumer price index, which measures how quickly the prices of goods and services rise, rose to 9.1% in June from a year ago, a 41-year high. Wages, however, have not caught up. In June, wage growth rose 6.7%, according to the Federal Reserve Bank of Atlanta’s Wage Growth Tracker.

Due to a labor shortage in key industries, Lee noted that since mid-2021, low-wage workers have been receiving larger wage increases than before the pandemic.

“As the pandemic hit, a lot of people improved their skills. So waiters and warehouse workers have moved on to become truck drivers and maybe accountants, and they’re looking for better jobs,” he said.

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