Last month’s announcement from Starbucks about laying off over 1,000 corporate employees marked a troubling trend for white-collar workers, who have been experiencing higher unemployment rates and slower wage growth compared to other groups in recent years.
This situation has economists engaging in a debate that’s been ongoing for some time: Are these job losses just a temporary bump in the road, or do they signal a deeper, potentially permanent shift in the economy?
For the last two years, the overall unemployment rate was comfortably below 4%, but since May, it’s crept above that figure. Economists argue that despite this increase, the job market remains historically strong, though recent weakness seems tied to the pandemic’s economic effects. Many companies, after hiring aggressively during surges in demand, have pivoted to layoffs as the Federal Reserve raised interest rates. Under investor pressure, these companies have aimed to streamline operations.
However, with the rapid advancement of AI technology and former President Trump’s focus on federal agencies, which often support white-collar roles, there’s concern about the potential for a long-term downturn in knowledge-based work.
Carl Tannenbaum, Northern Trust’s chief economist, put it this way: “We’re witnessing a real shift in how work is done in the white-collar sector,” warning that significant changes are on the horizon.
The last few years have been well illustrated by the video game industry. As people sought new entertainment during lockdowns, the industry boomed in 2020, hiring heavily before reversing course and laying off thousands. Last year, the Game Developers Choice Awards host noted these “record layoffs,” indicating the impact felt across the industry. Unionization efforts, initially among lower-paid quality assurance testers, spread to higher-level positions like producers and engineers at major gaming companies.
At Bethesda Game Studios, owned by Microsoft and known for games like Fallout, employees chose to unionize partially in response to layoffs in 2023 and 2024, hoping a union would give them more negotiating power in an uncertain market.
“It was quite shocking as Bethesda hadn’t faced layoffs in ages,” remarked Taylor Welling, a producer at Bethesda with a master’s in interactive entertainment. Microsoft chose not to comment.
In the finance sector, while unemployment remains low, it’s seen a notable increase from 2022 to 2024, partly due to rising interest rates dampening mortgage demand and prompting companies to cut costs. Wells Fargo, for instance, discussed during a summer earnings call how “efficiency initiatives” had reduced their workforce for 16 consecutive quarters, deeply affecting their home lending division.
Last fall, Wells Fargo laid off around a quarter of its conduct management intake team, responsible for reviewing misconduct claims. Heather Rolfes, a lawyer among those laid off, suspected the layoffs were part of a cost-saving effort targeting recent unionization attempts.
“I guess it was efficient for them to tackle multiple issues at once,” noted Rolfes. Meanwhile, some former colleagues dread Tuesdays post-payday, fearing further job cuts. Eden Davis, still on the team, commented, “We all feel we’re at risk anytime.”
Wells Fargo’s spokesperson stated that the layoffs were unrelated to union activities, noting that management levels also experienced cuts. “We regularly assess and adjust staffing to align with market needs,” he explained.
Atif Rafiq, an author and former executive at McDonald’s and Amazon, highlighted that many companies are adopting Amazon’s model of cross-functional teams, which can create efficiencies and lead to job redundancies. This shift often results in layoffs as organizations streamline operations. Starbucks CEO Brian Niccol, in a memo about layoffs, mentioned the aim to “cut out layers and duplications” to form agile teams. Nissan cited similar motives for its recent management downsizing.
Federal Reserve Bank of New York data reveals that unemployment among college graduates has jumped 30% since hitting a low in September 2022, with the rate now at 2.6% from 2%. Overall worker unemployment rose about 18%, from 3.4% to 4%. According to ZipRecruiter’s Chief Economist Julia Pollak, those with bachelor’s degrees or some college but no degree see the highest unemployment spikes, while rates have remained stable or dropped for individuals with advanced degrees or without a high school diploma.
ADP Research indicates a slowdown in hiring for jobs requiring college degrees compared to other sectors. Some economists view these trends as short-lived and not overly concerning. Harvard labor economist Lawrence Katz pointed out that unemployment spikes for college grads are only slightly higher than overall increases, with job rates remaining historically low.
Professor Katz suggested that the slower wage growth among upper-middle-class workers could be due to the trade-offs for remote work. Data from the Economic Policy Institute shows workers in the 70th and 80th percentiles experiencing the slowest wage growth since 2019.
Nevertheless, there’s been a shift in the benefits of holding a college degree. Although the wage gap between college graduates and non-graduates grew steadily since 1980, it’s leveled off over the last 15 years. This is partly due to a larger pool of college-educated workers, but also changing employer needs, like the reduced necessity for specific roles such as bookkeeping, which were once appealing due to higher wages but often don’t require a degree now.
AI advancements might further reduce white-collar job needs, automating tasks traditionally done by humans. A recent study showed software developers using AI significantly boosted productivity, with beginners seeing the largest improvements. This suggests that AI might lower the wage benefits experienced developers currently enjoy, as newcomers close the proficiency gap.
Mert Demirer, an MIT economist involved in the study, speculated that the role of a software developer might evolve to include overseeing AI-driven tasks, ultimately increasing a human’s productivity and potentially raising wages. As AI makes software cheaper, demand could surge, possibly boosting coder employment.
In the meantime, many tech companies appear to leverage AI for job reduction. An engineer in a large tech firm, wishing to remain anonymous, notes his team has halved from the previous year while maintaining workload levels thanks to AI tools. Overall, unemployment in tech jumped by over 50% from 2022 to 2024.
Further complicating the landscape are Trump-era federal changes, leading to job losses and hiring freezes across federal agencies and nonprofits relying on government funds. Johns Hopkins University, heavily reliant on federal research funding, announced layoffs of 2,000 employees worldwide due to these cuts.
Professor Katz elaborated that a significant number of college graduates are employed directly by the federal government or dependent on nonprofit funding. “Cuts in science, research, and education spending by the government could have substantial implications,” he noted.
“The overall jobless rate for graduates doesn’t seem alarming,” Katz added. “But that could change in the next six months.”
