According to many analysts and investors, we’re heading toward a white-collar recession. Here you can better understand what this type of recession means for workers and businesses and how to overcome it.
As of January 25, 2023, there were 42,163 weekly new cases of COVID, which is 11.3% fewer than the 7-day average from the 7 days prior (47,515).
But, even though we might be slowly making our way out of the woods, trouble still lies ahead for many businesses. Due to the COVID-19 pandemic, many white-collar jobs have shifted to remote work or have been impacted by job losses and economic downturn. Additionally, there has been an increase in automation and technology adoption in some industries.
All this has led to what many call the white-collar recession.
What is a white-collar recession?
A white-collar recession is an economic downturn that disproportionately affects higher-skilled, higher-paid workers in white-collar jobs, such as professionals, managers, and executives. These workers are often considered less vulnerable to recessionary pressures than blue-collar workers in industries such as manufacturing and construction. However, these workers may experience job losses, pay cuts, and reduced hours during a white-collar recession. The term is often used to describe a recession characterized by a decline in industries such as finance, technology, and professional services.
Why does a white-collar recession happen?
There are several reasons why a white-collar recession may occur. Some possible factors include the following:
- Technological advancements: Automation and other technological advancements may lead to job losses in white-collar industries, such as finance and professional services.
- Globalization: Competition from low-cost countries may lead to job losses that were previously insulated from international competition, such as technology and engineering.
- Restructuring and downsizing: Companies may restructure and downsize in response to economic pressures, leading to job losses.
- Changes in consumer behavior: Changing consumer preferences and spending patterns may lead to a decline in certain white-collar industries, such as advertising and retail.
- Changes in regulations: Changes in regulations or policies may lead to job losses, such as finance.
It is worth noting that a white-collar recession can happen in parallel with a blue-collar recession, and sometimes it is a consequence of the latter. It can also happen even when the overall economy is still growing but certain sectors or industries are suffering or transforming.
But, specifically in this instance, what is causing this white-collar recession?
The reason that some white-collar jobs are becoming redundant is because of trends triggered by covid-19, such as:
- Work from home: no offices mean no need to hire certain jobs such as secretaries and receptionists; and
- Increasing automation: AI and robots can perform a lot of the tasks within certain roles a lot quicker and cheaper.
What about blue-collar jobs?
Research highlighting the manufacturing trends for blue-collar occupations in 2023 by Avsar showed there would be 12% more blue-collar jobs this year than in 2022.
Michael Burry, an investor who shorted the mortgage bond market in 2007, explained that demand for blue-collar jobs would increase in a post-covid world while white-collar jobs would decrease, “I see a bifurcated labor market developing as unskilled and semi-skilled remain in short supply, but white-collar workers, having proven their redundancy during COVID, will find gross excess in the labor market, pressuring wages at the end,”
How can a business prepare for a white-collar recession?
Businesses can take several steps to prepare for a white-collar recession:
1. Diversify revenue streams
Diversifying revenue streams can help businesses better weather an economic downturn. Consider expanding into new markets or developing new products or services that can provide income even if the main business is struggling.
By spreading the risk across different markets and industries, you can protect your investments from potential losses and take advantage of opportunities. Having multiple sources of income also provides stability during a recession and can give you more freedom to decide how and where to invest your money. Taking steps to diversify your revenue streams will ensure that you remain financially secure in any economic climate.
2. Cut costs
Review expenses and identify areas where costs can be reduced. This can include reducing non-essential expenses, renegotiating contracts, and reducing staff.
Cutting costs during a recession is important to ensure businesses’ continued success and profitability. Economic activity decreases during recessions as consumers reduce spending and businesses scale back production. This means that companies experience decreased income, lower profits, and higher overhead costs due to increased customer competition. In order to stay afloat during difficult times, companies need to cut costs to maximize their profits and remain competitive.
3. Invest in technology
Investing in technology can help businesses to automate certain processes and reduce labor costs. It can also help to make the business more efficient and competitive.
Embracing technological advances and utilizing new tools allows companies to better leverage data analytics, understand customer preferences, and create tailored solutions that will drive growth even when times are tough.
4. Be agile
Be prepared to adapt to changing market conditions. Agility is especially important during an economic recession because it allows businesses to respond quickly to changing market conditions, consumer preferences, and opportunities. For example, when the demand for a product or service declines due to changes in consumer tastes or spending habits, an agile business can quickly pivot its operations and resources to meet those needs.
5. Keep an eye on the economy
Stay informed about economic indicators and trends that may signal a recession. This can include monitoring indicators such as GDP, employment, and consumer spending.
This information can help guide decision-making with regard to investments and spending decisions. Ultimately, understanding how economic conditions change over time can be vital for taking advantage of opportunities and avoiding pitfalls in an uncertain economic environment.
6. Review credit risk
Review the creditworthiness of customers and suppliers, and be prepared to take action if their financial situation worsens.
7. Keep cash
Maintaining a sufficient cash level can help businesses weather a downturn and take advantage of possible opportunities.
During a recession, cash is king. Keeping liquid assets like cash can provide financial security and stability when other investments are not performing well. Cash keeps you afloat during an economic downturn, allowing you to pay bills, cover essentials, and take advantage of opportunities that arise in the market when others may be hesitant to act.
8. Review and improve internal processes
Identify inefficiencies and bottlenecks in internal processes, and take steps to eliminate them to improve efficiency and reduce costs.
It is worth noting that preparing for a recession may not prevent it. Still, it will help businesses to minimize the negative impact and increase their chances of coming out stronger and ready to take advantage of the recovery.
