How a recession might impact employment

The word “recession” can strike fear in the hearts of employees and job seekers alike. And, traditionally, during a recession, companies try to cut costs with hiring freezes or layoffs. But it’s not always the case. With the impact of COVID-19 on the workforce, employers are loath to let their workers go after struggling to find workers during the pandemic. It can be a confusing time. Even for those well-versed, the US economy is a multifaceted and complicated phenomenon that affects many areas, including the job market, and it’s hard for the non-economist to navigate.

So what does that mean for you? In this article, we’ll discuss the impact a recession might have on employment, including:

• What is a recession?

• Which jobs/industries are most at risk in a recession?

• What is the impact of recessions on employment in the United States?

What is a recession?

Broadly speaking, according to the National Bureau of Economic Research, “a recession involves a significant decline in economic activity that is spread across the economy and lasts more than a few months.” More specifically, economists take a comprehensive, “big picture” view that includes spending, production, individual incomes, and the labor market. A recession is determined when the economy shows a negative gross domestic product (GDP), declining retail sales, decreased income and manufacturing, and increased unemployment. But like the ebb and flow of the ocean’s tides, recessions are part of the economic cycle. 

Jobs or industries that are the most vulnerable in a recession

If you’re in the workforce, you might be concerned about the impact of a recession on employment, and rightly so. But some jobs are more "recession-proof" than others. According to the Conference Board Job Loss Risk Index, the industries most at risk during a recession include:

• Construction/repair

• Transportation and warehousing

• Information services

• Tourism and travel

• Personal services

• Entertainment

• Real estate

On the other hand, so-called “essential” services, such as health care, food service, education, and government, tend to be less at risk and are considered “safer” during a recession.

How a recession affects unemployment

As the economy expands and contracts according to market trends, jobs gained during a “bubble” (a time of economic stability and growth) might well be lost during an economic downturn. So what does this look like in practice?

• A cut in benefits

• Temporary wage reductions or stagnation

• Hiring freezes

• Layoffs and/or company restructuring

• Increased freelancing/contract jobs

“Recession proofing” your career

You don’t have to run out and find a new job. There are things you can do to determine if your current position is likely to weather a downturn in the economy. In general, regardless of industry, jobs that are more likely to withstand an economic recession have the following commonalities:

• The job isn’t easily replaced by automation or AI

• The job supplies “essential services” for the company or society at large

• The position can be cost-effective, such as remote or hybrid work situations

• The job requires crucial, in-demand skills

While a recession can be anxiety-inducing, it’s important not to panic. Remember that the economy is like a bouncing ball—if it’s thrown down, it’s almost certainly going to rebound. In the meantime, keep yourself “essential” in your position by keeping tabs on market trends, learning new skills, and maintaining a positive attitude.

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Key takeaways

1. Broadly speaking, a recession involves a significant decline in economic activity that is spread across the economy and lasts more than a few months.

2. Vulnerable industries during a recession include construction, transportation, tourism, and personal services.

3. During a recession, companies might try to compensate by cutting benefits, establishing a hiring freeze, laying off workers, or reducing/stagnating wages.

4. No matter your industry, your job might be more secure if it’s not easily replaced, is considered “essential,” is cost-effective, or requires in-demand skills.