7 risks for workers when the next recession hits

Rick Newman
Senior Columnist

The job market is white hot right now, with more open jobs than there are workers to fill them. But instead of blowing your bonus on a trip or a car, it might be smarter to prepare for the next recession and the labor-market stress it will undoubtedly cause.

While it might be counterintuitive, a tight job market like we have now can actually help cause a recession, because wages rise, pushing up inflation and forcing the Federal Reserve to raise interest rates. The economy looks safe for the next 12 months or so, but by late 2019 or 2020, the pieces may be in place for first recession since 2009.

[See what could cause the next recession.]

The next recession will be wrenching for some workers. It will intensify the adoption of new technology that makes some jobs obsolete. It will force many workers to become digitally proficient, or leave the labor force for good. It will also present opportunities for those ready to grab them. “When employers cut payrolls, they have a chance to reoptimize and rethink their whole workforce strategy,” says Andrew Chamberlain, chief economist at job site Glassdoor. “You’re likely to see big changes.”

Recessions might seem like tidal-wave events that swamp everybody in their path. But there are a surprising number of things workers at all levels can do to raise the odds of staying employed and even getting ahead during a recession. And the time to do that isn’t when the recession hits—it’s before, when money and other resources are more freely available.

If there’s any good news about the next downturn, it’s that it probably won’t be as severe as the last one, which ran from December 2007 through May 2009, featured twin housing and financial crashes, and sent the unemployment rate soaring to 10%. “The next recession will be a garden-variety downturn,” Ryan Sweet, director of real-time economics for Moody’s Analytics, told Yahoo Finance recently. “I don’t think the next recession is going to be a financial crisis.”

That doesn’t mean it will be pleasant, however. Even now, with the unemployment rate at 3.8%, many workers struggle with lagging pay and outdated skills. Economists expect the unemployment rate to drift a bit lower during the next year or so, but in a recession it could rise rapidly to around 7.5%, the historical norm for a downturn. That would push the number of unemployed from 6.1 million now to more than 12 million, with others getting their hours cut or giving up on work and dropping out of the labor force.

What should you be doing to prepare? Here are seven pitfalls labor-market experts foresee, with tips for how to avoid them:

A few industries could be devastated. Retail seems particularly vulnerable, since many chains have too many outlets and too much debt to compete effectively with behemoth Amazon and other online merchants. Other industries where jobs are endangered include transportation, logistics, warehousing, food service and hospitality, as many jobs can be transitioned to robots and other types of automation. Even finance jobs could disappear if they involve predictable trading that could be done by software. Safer industries include health care, technology and government. And construction, which was battered during the housing bust, might hold up, since there’s a shortage of residential housing in some areas.

What to do now: If you work in a vulnerable industry, look for pathways into a safer one. “If you’re a retail worker, there are a number of paths you can take out of retail, and moving out of retail lowers your automation risk,” says Matt Sigelman, CEO of labor-market research firm Burning Glass Technologies. One example: If you work at a retailer that sells electronics, learn how to do installation and repair work, like Best Buy’s Geek Squad does. Then apply those skills to landing a help-desk or tech-support job in a different industry. “Those are golden gateway jobs that open up part of the technology spectrum,” Sigelman says. “And they don’t even require a college degree.”

Display of Hewlett-Packard laptop computers in a Best Buy store in Pittsburgh. (AP Photo/Gene J. Puskar)

Employers will demand more. This is now an established trend: When recessions hit and the labor-supply grows, many employers raise the requirements for a given job. So if a training certificate once got you in the door, it might now take an associate’s or bachelor’s degree. And if it used to require a bachelor’s degree, it might now require a master’s. This is one reason many companies are complaining now about a shortage of skilled workers: After the last recession, they grew accustomed to a large pool of overqualified applicants and abandoned their own training programs.

What to do now: Get as much training as you can. That doesn’t mean taking out $50,000 in loans just to add another degree to your resume. Instead, cherry-pick cost-effective training programs you know employers value, especially if they might help you get promoted or qualify for a better job now. “We’re lucky to live in an era when education is moving in the Spotify direction,” says Sigelman. “You don’t need a whole degree. You can go to Coursera or EdEx and buy a course.” If you can do it on your company’s dime, even better. It’s also a good time to ask for more responsibility and any additional training your company can provide.

Everybody will become a hybrid worker. Tech companies increasingly hire non-tech experts in marketing, sales, management and business support. And non-tech firms now need software engineers, data analysts, database programmers and all manner of technology specialists. When the next recession hits and employers must decide who stays and who goes, the workers with crossover skills in various fields will be the survivors.

What to do now: Get out of your bubble, and more than anything, get technology training. “Digital skills are going to be part of 80% to 90% of jobs,” says Jane Oates, president of the nonprofit group Working Nation. “This is a time to do any self-improvement you can possibly do.”

Robots could finally make their move. For all the talk of robots, they haven’t displaced many jobs yet. But that could change as employers jump on the chance to experiment with new systems based on virtual reality and artificial intelligence that are currently being developed in labs. “We can expect to see workers in faraway countries operating robots remotely in the service economy,” says Louis Hyman, director of the Institute for Workplace Studies at Cornell University. “They could do all kinds of stuff remotely. Pick crops. Serve drinks. Fold towels. Mop floors.” The robot revolution might be overhyped, and robots might start by doing the least desirable jobs when workers are hard to find. But the technology is advancing rapidly, putting more and more jobs at risk.

A fully automatic welding robot welds the upper frame of a Gradall XL4300V Wheeled Excavator at the company’s facility in New Philadelphia, Ohio, U.S., April 18, 2018. Michael Norman/Gradall Industries/Handout via REUTERS

What to do now: If your job involves repetitive tasks that don’t vary much, it’s a candidate for automation—and that includes white-collar work as well as blue-collar. Develop new skills that allow you to be more productive, especially if it means working with robots and advanced machines. Manufacturing workers who can operate CNC machines or CAD/CAM tools are in much higher demand than those who can simply assemble things. White-collar workers who can work with databases, develop strategy, and close deals are more valuable than those who simply compile reports month after month. It might also pay to explore remote work and become a robot operator.

Flexibility will be crucial. One problem in the economy today is low labor mobility: some workers in depressed areas can’t or won’t move to where there are more jobs, consigning themselves to ever-falling living standards. Employers, meanwhile, are setting up shop in places where they can get the skilled workers they need, while abandoning economic backwaters. The economy will probably become even more bifurcated during the next recession, as employers consolidate in coastal cities, university towns, tech hubs and other areas that can supply needed workers.

What to do now: Stay nimble. “Save money,” says Jane Oates. “Put off large purchases. Avoid carrying debt, if possible. The way to make yourself recession-proof is to get yourself as many options as possible.” Buying a home, for instance, is still a good way to build wealth—as long as it’s in a market with a healthy economy, and you’re relatively sure you’ll be in the house for at least five years. But committing to a mortgage can make it impossible to move if home values fall and you can’t afford to sell at a loss.

The government will do less to help. After the 2008 financial crash, Washington provided trillions of dollars in monetary and fiscal stimulus, which probably prevented a recession from becoming a full-blown depression. The government won’t be as generous next time around. The Federal Reserve, which typically slashes interest rates by about five percentage points during a recession, to stimulate lending, may not be able to do that because rates may not even be at 5% by the time the recession hits. And with the national debt soaring by nearly $1 trillion per year, Washington may not have the wallet to cut taxes (again), fund stimulus projects like road and bridge construction, enhance unemployment benefits and do other things typical in a recession.

What to do now: Become self-sufficient and develop backup plans. Families may need to rely more on each other if the safety net frays. If you have health insurance through an employer, get needed checkups or other procedures now, since you may no longer have insurance if a recession hits and you lose your job.

Another jobless recovery will follow the recession. Since 1990, we’ve had three recessions, and each has been followed by a “jobless recovery,” with employers very slow to staff back up and some jobs disappearing for good. “There’s no reason to think it will be different the next time,” says Hyman of Cornell. That’s because the economy has downshifted into a trend of slower growth that doesn’t require companies to hire rapidly after a recession. Instead, they can hire selectively and assess new technologies that might augment or replace workers.

What to do now: Take the long view, and prepare for future jobs that might be considerably different than the one you have now. “Human capital depreciates around 1%-2% per year,” says Sigelman of Burning Glass. “So you should be investing 1%-2% of your time to replace what is depreciating. You should always be learning a new skill while staying on top of whatever field you’re in.” If that sounds like a lot of work, consider it the price of surviving the next recession.

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Rick Newman is the author of four books, including Rebounders: How Winners Pivot from Setback to Success. Follow him on Twitter: @rickjnewman

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