Hidden unemployment among freelancers: the canary in the coal mine?

Is the shrinking labor market the early indicator of a real recession?

As Partner of an Executive Search Firm, I regularly recruit and speak to professionals at Non-Executive Board level. In recent months, something has changed in the tone of these conversations. And this is something that may eventually have implications for CFOs.

Over the past few years, I have spoken regularly to an independent strategy consultant about his successful assignments: about how he advised CEOs on the food crisis, HR challenges, and on the energy transition. As a former partner of a renowned strategy consulting firm, he always had work. But today feels different from other times to him. He hesitates where to start. Then comes the story. Never before has he asked for help and he is almost afraid to say it. For nine months he hasn't been able to find a job and if he doesn't find his next job soon, he will be in financial trouble. He is not the only one.

One of my best friends is a very successful entrepreneur. Over a glass of wine, she updates me on life, love and business. Everyone wants to talk to her for an informal coffee chat, but in the past few months, the conversations have changed. Every conversation reveals that companies would love to use her expertise, often also based on positive references within their network. Only at the moment, there is no room to hire anyone.

A year of downsizing, reorganizations and layoffs

When you have more and more conversations like this, it starts to get noticeable. Is something shifting in the much-discussed 'tight' labor market? And if so, what does this tell us? I had previously heard noises that the big strategy consulting firms have a lot of people 'on the beach'. Now the highly skilled white collar Dutch freelancers seem to be in trouble too. Are they too along with the consultants ‘on the beach’, the canaries in the coal mine? The early indicator of a real recession coming our way, but which nobody wants to talk about yet? And what does this mean for CFOs?

Will the labor market take a big hit in 2024? The figures do not bode well. Unemployment seems to have been rising for months. In December 2023, unemployment was up 7.8% compared to December 2022.

In 2023, companies like Philips, Friesland Campina and McKinsey implemented major reorganizations. At Philips, 7,100 people left, 1,100 of them in the Netherlands. McKinsey let thousands of employees go in 2023, and the reorganization is still not finished. And even in recent months, the scarcity in the employment market seems to be easing.

While the number of good candidates on the job market is increasing, the number of job offers is falling. I heard from several people in my INSEAD network that they are getting job offers with start dates that are up to eighteen months in the future. What do signals like these tell us about the labor market in 2024? Friesland Campina plans to save costs by cutting more than 1,800 jobs globally over the next two years, with around 1,200 jobs to be cut in 2024 alone - and Signify is also set to shed thousands of jobs in the coming months. Nike has announced a major turnaround this year and at Shell, most jobs have been frozen pending a major reorganization.

Shrinking labor market, early indicator of a 'real recession'?

We sometimes see these kinds of stories and statistics in the news but often not. One point of note here is that highly skilled white collar employees receive substantial exit packages; often with a garden leave of 3 to 6 months. Therefore, many 2023 layoffs are not yet visible in unemployment figures. Official unemployment figures therefore do not always tell the whole story. They are calculated partly on the basis of the number of unemployment benefits claimed within our labor force, which currently numbers 9.8 million people. But within this labor force there is also a not inconsiderable flexible group of 1.2 million self-employed people (representing 11% of the total) who do not claim benefits and are therefore not counted in the unemployment figures. If unemployment among self-employed people increases substantially, it actually represents a form of hidden unemployment. I heard from someone working at a multinational company that they now often get 100 or 200 applicants for positions where they couldn't find attractive applicants eighteen months ago years ago. For companies, it is positive that vacancies are easier to fill with talent. That's good news for CHROs and CFOs.

But the abundance of talent on the market might also be the early indicator of a less favorable development. Lukas Daalder wrote on 20 February in the Dutch Financial Times that we are facing a 'technical recession' in the Netherlands. The economy continues to shrink, but because the labor market is tight, we are not officially in a 'real recession'.

Looking over all the signs and figures, the 'tight' labor market does seem to be under pressure. The projected 15% increase in unemployment by 2024 - and all the hidden unemployment at the top end of the labor market - may well be the harbinger of something no one likes to talk about: a deep recession, not 'technical', but real.

And so, early signals from the world of HR become something that you as a CFO should be worrying about. Or something you should start preparing for.

Laurie Jansen is Managing Partner of Executive Search Firm Jansen & Bilgin International (www.jansenbilgin.com). She obtained her MSc International Business from Tilburg University and focuses on helping companies hire more women at the top.

The original Dutch article you can find here: Verborgen werkloosheid onder ZZP-ers: de kanarie in de kolenmijn? - CFO

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