Despite aggressive interest rate hikes by the U.S. Federal Reserve, the American economy continues to hum along. In addition to perplexingly resilient consumer spending, the U.S. labor market has remained tight. In September 2023, for example, U.S. job openings increased by 56,000 to 9.533 million open positions, while the number of layoffs decreased by 165,000.
For months, economists, business leaders, and other observers have been predicting a reversal of this trend. And there are some signs that consumer spending at least may be headed in that direction.
But what about the labor market?
We reached out to employers and market watchers to see what their expectations and plans are with respect to hiring and the labor market over the next couple of months and into 2024.
Here’s what they had to say.
Expectations on the Pace of Hiring
Despite expectations from most economists that the U.S. economy will enter a recession at some point in the near future, the experts we spoke with are confident the current labor demand will continue well into 2024.
“As we look to 2024, staffing firms are reporting that labor market demand is normalizing following the volatile swings down and up that have impacted the staffing industry over the past few years,” says Richard Wahlquist, chief executive officer at the American Staffing Association.
In 2023, Wahlquist says, businesses across most sectors slowed their pace of hiring while focusing on retention of existing workers in the face of growing geopolitical and macroeconomic concerns. “The good news for job seekers is that fears of an impending deep and painful recession have largely abated and, assuming continued GDP growth in 2024, the pace of hiring is expected to begin to increase during the year as will labor supply imbalances,” Wahlquist says.
Nicola Hancock, Regional Managing Director, Americas & Investment Banking at talent solutions firm AMS shares Wahlquist’s outlook. “We are seeing that all organizations will continue to hire, some flat to this year, others with growth depending on industry and geography,” she says. “However, what we are seeing now more than ever is that organizations are leaning into less traditional candidate pools to effectively fill open spots—such as the contingent workforce.”
With demand for labor predicted to remain strong across the broader economy, competition for relatively limited supply of labor means firms will need to get creative to attract talent.
“In terms of recruitment strategies, companies are increasingly casting a wider net to tap into a more diverse pool of candidates,” says Abhishek Shah, founder of HR SaaS solutions firm Testlify. “Leveraging innovative recruiting methods, such as gamified assessments and virtual reality simulations, has become essential to stand out in the competitive talent acquisition landscape.”
Skills Gaps
A common thread among the experts we polled is that they see businesses not just struggling to find workers but struggling in particular to find workers with the right skills and experience for their business needs. This skills gap is particularly evident in the tech industry, but it’s also likely to be present more broadly in the labor market.
“2024 will be a disruptive year as the talent market grapples with persistent talent shortages in key skills,” says Hancock. “This will especially be prominent in the tech space, as companies are looking for talent that has experience and skills needed in tech and AI.”
Whenever the labor market presents a shortage of key skills in demand from employers, those employers often find themselves needing to build those skills themselves through increased training and professional development.
“The lack of candidates with the skills needed for the most in-demand jobs—from healthcare and finance to hospitality and skilled trades—will put increased pressure on employers to fine-tune their recruiting, retention, and employee engagement strategies and programs in the year ahead,” says Wahlquist.
“Companies are also focusing on upskilling and reskilling programs to address the challenges in staffing specific roles, particularly those in emerging technologies,” says Shah. “The evolving nature of the workforce demands a proactive and agile approach.”
Importance of Flexibility
In addition to in-house skills development, experts believe that meeting worker demands for greater flexibility will be essential in attracting enough talent with the right skills to power their businesses.
“2024 will also see an increased focus on flexibility—for workers and workplaces,” says Wahlquist. Flexibility has, of course, long been an important element of the employer/employee relationship. Today, though, the premium on flexibility has never been greater, Wahlquist says.
“For employees, the old notion of work-life balance has evolved to striving for work-live integration where employees can fit work around the other needs and priorities of their personal lives,” Wahlquist points out. “This produces higher degrees of trust and empowerment for workers and higher levels of productivity and engagement in workplaces.”
Hancock agrees. “Companies need to look at a holistic solution as they face an increasingly competitive talent market,” she says. Skills-based hiring and increased mobility will be top-of-mind for companies as they search for talented candidates, she says.
The skills-based approach, Hancock says, “saves organizations tremendous capital and time during the search process, while applicants are more empowered to apply for roles based on their skills, rather than qualifications.” Internal hiring is another option, she says, providing employers with an opportunity to boost retention. Yet, she adds: “our recent talent climate report found that only about 25% of roles are filled internally worldwide, showing a huge opportunity gap.”
Despite continued insistence by economists and business leaders that the U.S. economy is overdue for a recession, the labor market remains surprisingly strong. Employers expect it to remain so well into the coming year. In order to successfully compete for talent in a continuously competitive labor market, employers will need to embrace flexibility.
And if they can’t find the skills they need out in the labor market, they’ll simply have to develop those skills themselves in house.
Lin Grensing-Pophal is a Contributing Editor at HR Daily Advisor.