Navigating The Nuances of Today's Labor Market

Written by Chief Labor Economist at LaborIQ, Mallory Vachon, PhD

The U.S. labor market is dynamic, so staying informed about current trends is vital, especially for hiring professionals to win talent and effectively engage on platforms like LinkedIn.

How do shifts in the job market influence recruitment strategies?

Recent shifts in the labor market have created challenges and opportunities for HR leaders and recruiters. The labor market noticed a normalization in 2023, and businesses are still bracing for change in this 2024 election year. However, headline numbers show resilience remains a defining trait for U.S. businesses and workers.

Last year, initial expectations for 2023 foresaw 60 million hires, resulting in a net gain of 1.2 million jobs and an unemployment rate hovering around 4.5%. These projections aren’t too far off from historical averages. But the totals for 2023 beat expectations – 71M hires, 3M total job gains, an unemployment rate of 3.7%.

You may have seen experts say the economy is headed for a "soft landing.” Note that this term is related to avoiding economic turmoil in the form of a recession. And it may mask the diverse labor market experiences across industries and locations. Looking back over the past decade, annual job gains have typically ranged between 2 and 3 million. The onset of the pandemic led to a sudden and significant loss of jobs, but the recovery was swift, which put HR and recruiting efforts in the hot seat.

While the labor market continues to show strength overall, it's essential to recognize the nuanced realities faced by different sectors and regions. By understanding these dynamics, HR and recruiting leaders can position themselves as informed thought leaders and navigate the evolving landscape with confidence.

Each industry has its own story to tell

HR professionals have been the brunt of the labor market's fluctuations. As hiring slows and the labor market softens, these individuals, along with recruiters, have faced challenges due to companies scaling back their HR efforts and cost structures. The term "soft landing" may not resonate.

This sentiment extends to various industries, each grappling with unique circumstances. Across the board, we've observed broad headline growth in the economy, with numerous industries adding jobs over the past year. However, this growth hasn't been uniform.

Three industries – government, healthcare, and leisure & hospitality – have driven job growth over the past year, offering stability for those within their purview. The Government sector has continued to play catch-up following the pandemic but is now adding jobs at an impressive pace. The increased demand of an aging population and recovery from pandemic-induced burnout have bolstered healthcare. The leisure and hospitality industry has benefited from rising wages and evolving consumer behavior.

And while lagging on a year-over-year basis, information, the wide-ranging sector that includes both entertainment and technology roles, has been buoyed by various factors such as the resolution of strikes and an uptick in hiring following a period of high-profile layoffs.

Unfortunately for those in the recruiting profession right now, the professional and business services sector, including temporary staffing and employment, has faced significant challenges. Financial activities and textile products have also encountered hurdles related to the housing market and persistently high interest rates.

High interest rates have impacted hiring in sectors beyond construction, housing, and finance. For example, even in the booming Dallas-Fort Worth-Arlington metro area, HR leaders in furniture manufacturing and home goods retailers are facing budgetary pressures due to slower sales. If people aren't moving, people aren't buying new houses, affecting those businesses. Meanwhile, government, leisure, and healthcare emerged as beacons of stability, offering potential avenues for career transitions or strategic industry shifts.

Looking ahead, short-term trends such as the specter of global instability and long-term projections emphasizing healthcare's dominance in job growth, underscore the importance of staying attuned to industry dynamics. With healthcare poised to drive job growth over the next decade, individuals contemplating sector shifts may find opportunities there.

Where is compensation headed?

Compensation planning emerges as a focal point. The shift back to pre-pandemic wage growth expectations is not imminent. Despite the challenges of finding work for some professions, a talent shortage persists in the market, contributing to elevated rates of voluntary turnover and a sustained period of higher compensation demands.

A notable metric tracked by the Atlanta Federal Reserve Bank illustrates the disparity between job switchers and stayers during the Great Resignation. Job switchers experienced substantial pay increases, often exceeding 10%, while job stayers saw more modest raises. This gap is gradually narrowing, which means there may be relief for retention challenges. Yet, the focus on equity remains paramount as organizations navigate this landscape.

2022 gave us unprecedented increases in compensation, particularly within tech companies. Compensation offers reached unrealistic levels. This phenomenon posed significant challenges for small and medium-sized businesses, struggling to compete for talent with these inflated wages. The labor market softening, however, has led to more modest pay increases and even some regression, particularly for individuals previously enticed by lucrative offers. And we saw tech industry job cuts in 2023 and early 2024. While those layoffs were no doubt challenging for those impacted employees, evidence shows many workers could find work in other sectors.

In 2024, wage growth is expected to hover around 3.5%, a moderate adjustment from the elevated levels observed in recent years. Based on market data this year, we may push this figure closer to 4%. Early indicators suggest a robust job market, with job gains surpassing initial expectations, which will lead to higher wage growth.

2023 defied expectations, and 2024 has so far followed a similar trajectory. There are signs of normalization, but a constant theme over the past 12 months has been that our expectations are beaten. Vigilance and adaptability remain key in building compensation strategies that win in the current market.