A ‘catastrophe’ is coming for the economy, but it’s not recession or inflation, says Secretary of Labor Marty Walsh

There has been a lot of talk about looming layoffs, and by some recent surveying, as many as half of large employers are thinking about labor cost cuts as the economy slows. But U.S. Department of Labor Secretary Marty Walsh doesn’t see the recent job gains reversing, according to an interview at CNBC’s Work Summit on Tuesday.

“I still think that we’re going to have job gains as we move into the end of this year, early next year. A lot of people are still looking at different jobs,” he told CNBC’s Kayla Tausche at the virtual event. “We saw a lot of moving around over this last course of the year. People leaving jobs, getting better jobs, and I’m not convinced yet that we’re headed towards that.”

For the Federal Reserve, some level of higher unemployment is necessary to cool an economy that has been bedeviled by persistent inflation. Unemployment, at 3.5% now, went down in the last monthly nonfarm payrolls report. The Fed is targeting unemployment of 4.4% as a result of its policy and higher interest rates.

“We definitely have to bring down inflationary pressures,” Walsh said at the CNBC Work Summit, but he added that the way to do it isn’t layoffs.

A House inquiry released on Tuesday found that the 12 largest employers in the nation including Walmart and Disney laid off more than 100,000 workers in the most recent recession during the pandemic.

Walsh said in a slower economy, the federal government’s infrastructure act will support job growth in sectors including transportation. “Those monies are there. … if we did have a downturn in the economy, those jobs will keep people working through a difficult time.”

In the battle against inflation, Walsh said moving people up the income ladder is a better way of helping Americans make ends meet than laying them off.

“I think there’s a way to do that by creating good opportunities for people so they have opportunities to get into the middle class, and not enough people in America are working in those jobs, quite honestly. … I think there’s a lot of Americans out there right now that have gone through the last two years, a lot of concern in the pandemic, they were working in a job maybe making minimum wage, maybe they had two or three jobs. Really I think the best way to describe what is a middle class job is a job you can work, one job, get good pay, so you don’t have to work two and three jobs to support your family.”

From a policy perspective, Walsh expressed disbelief that a higher federal minimum wage remains a contentious issue on Capitol Hill.

“It shocks me that there are members in the building behind me, if you can’t see the building behind me it’s the Capitol, that think that families can raise their family on $7-plus, on the minimum wage in this country,” he said.

But Walsh conceded that legislation to increase the minimum wage, which was held up in the Senate, has an uncertain future ahead of the midterm elections.

Here are a few of the other major policy issues the Labor Secretary weighed in on at the CNBC Work Summit.

Amid one of the tightest labor markets in history, Walsh said the political parties’ approach to immigration — “getting immigration all tied up” — is among the most consequential mistakes the nation can make in labor policy.

“One party is showing pictures of the border and meanwhile if you talk to businesses that support those congressional folks, they’re saying we need immigration reform,” Walsh said. “Every place I’ve gone in the country and talked to every major business, every small business, every single one of them is saying we need immigration reform. We need comprehensive immigration reform. They want to create a pathway for citizenship into our country, and they want to create better pathways for visas in our country.”

The demographic data on the U.S. working age population is concerning, with baby boomer retirements expected to accelerate in the years ahead, compounded by a peak being reached in high school graduates by 2025, limiting both the total size of the next generation labor pool and the transfer of knowledge between the generations of workers.

“We need a bipartisan fix here,” Walsh said. “I’ll tell you right now if we don’t solve immigration … we’re talking about worrying about recessions, we’re talking about inflation. I think we’re going to have a bigger catastrophe if we don’t get more workers into our society and we do that by immigration.”

A proposed DoL rule on independent contractors hit the shares of gig economy companies including Uber and Lyft a few weeks ago. The rulemaking is still in review and seeking public comments, and some Wall Street pundits don’t expect it to have a significant impact on the rideshare companies.

Walsh wouldn’t even say if they are a target of the rulemaking.

“We haven’t necessarily said what companies are affected by it, and what businesses are affected by it. What we’re looking at is people that are employees that are working for companies that are being taken advantage of as independent contractors. We want to end that,” Walsh said.

He did mention a few of the jobs that would likely be covered, and one of those does overlap with the Uber, Lyft and DoorDash business models. “We have plenty of businesses in this country, like dishwashers and delivery drivers in areas like that, where people are working for a business that other employees in that business are employees, and they’re labeling them as independent contractors. So we’re going to look at this. We’re in the rulemaking process now. We’re taking in the comments now, and we’ll see when the comments come in what the final rule looks like.”

Walsh added that the idea an independent contractor want to retain their flexibility doesn’t wash with him. “Flexibility is not an excuse … pay somebody as an employee. You can’t use that as an excuse.” 

Walsh, a union-book carrier, said that the public support for unions should be matched by actual gains in union ranks in the next two years. The most recent survey available from the Bureau of Labor Statistics showed that labor jobs decreased by more than 240,000 in 2021, even as U.S. public support for unionization has surged and major brands including Apple, Amazon, and Starbucks face a rising tide of unionization at stores and in operations like warehouses, albeit still on the margins as far as total numbers of workers they employ.

“I don’t have the number of 2022, but 2021 was a unique year,” Walsh said. “The numbers went down in a lot of ways because companies’ unions weren’t organizing, number one, and number two, we had a pandemic and a lot of people retired, left their business or they retired. Those jobs weren’t backfilled by companies. … It’s like 65%, 70% of Americans still looking favorably upon unions … the highest in 50 years. I don’t think you’ll see the benefit of that organizing until probably 2023, 2024.”

Other recent polling has found that public support for unions is higher than union member support for their own labor organizations.

President Biden promised on the campaign trail to do more on child care; promised to include it in the infrastructure act; promised to include it in a second act after dropping it from the core infrastructure package; and then it was dropped from that back-up plan.

Walsh said the government has to make good on that promise for families and workers in the child-care sector.

“Childcare is a basic necessity to get millions of women back into the workforce on a full-time basis,” he said.

The recent Women in the Workplace study from McKinsey and LeanIn.org finds that women are still opting out of the workforce in large numbers, a reversal of labor market gains that began during the pandemic.

“Child care has not been addressed by this country or by most states in this country for the last 50 years. The cost is too high for the average family and we can’t retain the workers in those industries. We lost a lot of workers in the childcare industry because they’re paying them minimum wage or a little bit above minimum wage,” Walsh said, referring to estimates that 100,000 workers left the sector during the pandemic.

“We have to respect them and pay them better wages. Anyone watching today that has kids in child care, you know, you’re paying 30%, 40%, 50%, 60% of your salary for child care,” he said. “A lot of families have made the decision [that], ‘We don’t want to have two people working, one person will maybe stay home, work part time and make up those costs,’ so that issue has to be resolved. It’s not just an economic issue. It’s a human rights issue in our country to get good child care,” he added.