By Joshua Siler, CEO & Founder of HiringThing
PrismHR invited Joshua Siler, CEO & founder of HiringThing, to present a webinar in October 2022 on recruiting trends we’ll see in 2023 and how to successfully hire in our changing labor market. Here are his thoughts.
With 2022 coming to a close, people are looking back on the year and seeing what worked well and what could be improved, especially when it comes to the labor market.
For some, it was a year of prosperity. For others, it was turmoil. Businesses are living in uncertainty because of continuing challenges related to the pandemic, inflation, the Great Resignation and more. The current state of affairs has everyone wondering what the labor market will look like in 2023 and the effects it will have on recruiting and retention. In this blog, we will explore both of these topics and how you can have a successful 2023.
Current State of the Labor Market
Although inflation seems to be slowing down, you don’t have to look any further than your wallet to know that it has been the theme of 2022. Whether it be at the gas pump or grocery store, everyone is feeling the impact of rising inflation. This means employees’ wages didn’t go as far this year as they did in the past in terms of the goods and services they purchased.
It also means that companies will likely have to raise their prices in order to not only pay employees higher wages but also to accommodate the inflationary prices they are seeing to acquire the goods and services they need. The federal government has committed to lowering inflation, yet they have concluded that it will impact the job market in a negative way with fewer jobs and higher unemployment.
There are a lot of contradictory signals in the labor market with some companies saying that if they only had more employees they could deliver more services or build more goods. Others are laying off employees or going on a hiring freeze because of market volatility and the increase in interest rates. This leaves us with a split picture that is causing a lot of anxiety for business leaders. They see these headlines and think, “If Facebook is laying off employees, then what does that mean for my small business?”
To better understand the current state of the labor market, let’s pay a visit to see FRED. An economic data source that is available to everyone, FRED is also used by the Federal Reserve to track economic indicators.
- Labor Force Participation Rate: After the pandemic started to subside, the labor force participation rate, the percentage of our economy’s active workforce, slowly started to climb back to pre-COVID-19 days, however, not everyone came back to work. There are a variety of reasons for this, the top ones being 1) choosing to retire early and 2) deciding to stay at home to care for family.
Today, we have a permanently smaller workforce. And not just a couple thousand, but several million employees. That’s why we are seeing things like restaurants not being fully staffed and home repair project delays. This makes it feel like there just aren’t enough people available in the workforce. The labor force participation rate stood at 62.2% in October 2022, which is about 1 percentage point below where we were pre-pandemic.
- Job Openings: On the other hand, there are plenty of jobs available. According to FRED, in September 2022, there were over 10,000 job openings. We find ourselves now in a position where we have too many jobs and not enough people to fill them.
- Layoffs: We have all heard the apocalyptic stories about layoffs and hiring freezes happening at large companies. But as we look at the data today, there is no indication of this. Of course, during the beginning of the pandemic there was a huge spike in layoffs, but since then, the numbers were steady, ranging from 1,300 to 1,600, although we’ve seen much bigger layoffs as of late, especially in the tech sector. If there was economic damage being done in the labor market, we would expect that to continue trending upward. Keep an eye on this indicator in the future.
- The Great Resignation: Another big theme of the year was the Great Resignation (aka the Great Reshuffle) with people leaving their jobs left and right. The data shows that two years into the pandemic, the number of people quitting their jobs rose and continues to rise. Why? Employees have high job mobility and more options with hybrid and remote opportunities. Top employees are in demand, and have more opportunities to find a job that they like better somewhere else. If you are focusing on employee retention, you have to understand that, for employees, it is not just about having a job to feed their families, it’s which job do they want to do to feed their families and have the flexibility to pursue the things that make them happy. This is a very different dynamic than most employers are used to. If the economy were to bite into the labor market, we would expect the quit rate to go down as people become more anxious about whether they can easily find another job.
- Hiring Rate: When talking about the changing labor market, we have to also look at hiring levels. The rate that employers are hiring is higher than before the pandemic and was continuing to grow steadily until the end of the third quarter. From 2020 to 2022, there has been an average increase of 500. If you remember, though, job opportunities spiked while hiring rate did not. If job openings and hiring had both increased, then it would tell us that companies need people and are hiring them. What we are seeing instead is that, although there are many job opportunities, companies aren’t moving quickly to bring in new hires.
- Unemployment Rate: Finally, we have the rate that is always in the headlines— the unemployment rate. It stood at 3.7% in October 2022. The current unemployment rate is low and doesn’t seem to be trending up. This is a good thing, right? Unfortunately, the Fed believes that unemployment needs to go up before inflation will really be impacted and brought down. For unemployment to go up, there will have to be a realignment of the number of available workers to jobs or we may be in this position for a while. Keep an eye on all the indicators discussed above as the unemployment rate is directly affected.
Predicting the Future
Despite all of the fear, uncertainty and doubt in the financial market, the labor market is still looking stable and we believe will continue to be stable for some time. Even with the Fed working to get inflation under control, it will take a while to have a lasting impact on the labor market. What does this mean for businesses? It may be difficult to hire without increasing wages and difficult to keep employee retention high.
With the end of the year approaching, employees might be realizing their wages aren’t keeping up with inflation and that they are essentially losing money. Some businesses won’t feel much of a difference while others are going to see shortages. It’s likely large corporations will continue to have layoffs and hiring freezes, but this doesn’t mean that every small company is going to face these issues.
Impact on PEOs
In the current labor market, Professional Employer Organizations (PEOs) must be more diligent in finding talent and proactive in keeping current employees. Technology will play a large role as well in recruiting and retention, giving companies the opportunity to be faster and more efficient. We have seen smaller businesses integrate on-premise HR technology into their daily stack and cloud technology as well. With a sudden increase in remote working, businesses are more interested and willing to use software for all parts of their business, HR included. In today’s tough recruiting environment, recruiting can’t be done effectively without using a system that streamlines the applicant process. To stand out in 2023, PEOs must be able to make recruiting software a core piece of their overall strategy.
In the eyes of small businesses, PEOs are generally seen in one of two ways: an add-on or a core part of their workflow. To stay competitive, PEOs should make recruiting part of their story, which means publicizing your recruiting support capabilities. Adding 10% more quality employees for your clients can lead to meaningful revenue growth for everyone involved.
Technology: Recruiting’s Key Factor
As a PEO, your clients expect you to bring best practices to the table. Integration and having the ability to get on the right job boards to compete for talent is key. This is where technology can help. While the PEO industry has adopted technology wholeheartedly, clients often do not. Many small businesses don’t have the time to learn a system and won’t adopt technology without some hand-holding. A PEO’s strength is arming their clients with the right tools for the job.
This is why, in 2023, HR technology can turn recruiting and retention into a “labor” of love for themselves and their clients.
This blog originated from the webinar, Recruiting in 2023 – How to Hire in a Changed Labor Market, presented by Joshua Siler. Siler is the founder and CEO of HiringThing, an award-winning recruiting platform that enables thousands of companies across the country to tackle recruiting challenges. Prior to starting HiringThing, Siler served as the vice president of technology for a relationship marketing agency where he designed marketing strategies and innovative software solutions for clients.
To learn more about PrismHR Hiring powered by HiringThing, visit our website.