News media of every kind are blaring that layoffs are “sweeping the U.S.,” especially in tech, where companies are “rocked”  by “massive downsizing.”  Google searches for “layoffs” spiked suddenly in May. At the same time, companies are bemoaning the “talent crisis,” “Great Resignation,” and a “national labor shortage” that is hobbling manufacturing, homebuilding, tourism, and countless other industries.  

So which is it? Are U.S. employers begging workers to fill empty seats or are they booting employees out the door in preparation for a looming recession?

The short answer is that, for now, the talent crunch is a much larger issue than layoffs by several orders of magnitude. But that could change, and a case could be made that we should hope it does.

It’s tough to say exactly how many employees have been laid off recently because not all layoffs are announced, but TechCrunch estimates that 15,000 workers lost tech industry jobs in “a brutal May.” Still, that’s less than 0.01% of America’s employed population of 158 million. It’s also a minuscule fragment of the tech industry’s total employee population, estimated at 5 million to 12 million, depending on how the industry is defined. And it’s nowhere near the 2.8 million workers who routinely lose their jobs or complete temporary jobs each month without attracting any attention. 

By contrast, consider the scale of the labor shortage. Since May 2021, U.S. employers have consistently reported more job openings than the total number of unemployed Americans, and the gap has widened almost every month. The latest data show an unprecedented imbalance: Even if every unemployed person in the country got a job today, employers would still have 5.4 million unfilled roles.

The recent tech layoffs attract outsize attention for two reasons. One is the industry’s about-face after a two-year run in which it dominated all other sectors when stocks were booming. At times, in 2020 and 2021, just 1% of S&P 500 companies—Apple, Microsoft, Amazon, Facebook, and Alphabet—accounted for 20% of the index’s total value. 

The other reason we’re fascinated by tech layoffs, even small ones, is our fear that they’re a harbinger of increased economic volatility. A recession in the next 18 months is now a mainstream expectation, so we’re scanning the horizon for early signals. Layoffs in a formerly high-riding industry fit the bill.

That brings us to the case for more layoffs. Inflation has become economic enemy No. 1, and the Fed’s only hope of avoiding it is to slow the country’s overall economic activity. That’s why the Fed is aggressively increasing interest rates and gradually siphoning money out of the economy; doing so tamps down demand and reduces upward pressure on prices. An unwanted side effect is that as demand ebbs, unemployment inevitably rises—painful but inevitable. 

In the fight against inflation, we can expect more Americans to enter or reenter the labor force while employers scale back recruiting efforts and, in many cases, lay off workers. The labor shortage will fade, while the overplayed layoff phenomenon will become legitimately big news. And though it hurts to say, that may be a good thing.