October 20, 2023
DIVING INTO THE LABOR MARKET
While we saw a slight uptick in the number of unemployed people per job opening, the labor market is still tight. How will the upcoming recession impact the labor market? Will hiring and retention get easier for employers? Find out in a new episode of TrendsTalk!
The below transcript is a literal translation of the podcast audio that has been machine generated by Rev.
Hi, everyone. My name’s Taylor St. Germain with ITR Economics, and welcome to this episode of TrendsTalk. Today, I wanted to discuss some labor market trends. We’ve talked about the labor market on past episodes, but I wanted to take a different approach to looking at the labor market. We’ll certainly discuss the tight labor market, the labor shortage, and I’ll provide a small update there. But I also wanted to take a look at quit rates as well as wage inflation around the US, in particular by state. So, to start off this labor conversation, I did just want to continue to highlight this labor shortage, this tight labor market that we’re experiencing here in the US.
I’m going to mention a metric that we talked about a few episodes back, which is the number of unemployed persons per job opening. That number is at 0.692. That’s up from 0.675 the last time we talked. So, we did see a mild uptick in that metric, but again, just to interpret that, for every one job opening here in the US, we have 0.692 people. It’s clear that there is still a shortage despite a mild tick up in that number. Now, that being said, in 2024, ITR Economics is expecting a mild recession. Now, mild is very key here, because typically in recessions, we do see more labor become available as companies go through financial hardships. Typically, layoffs come during recessions. However, given how mild this recession is, there’ll be industries, businesses that won’t even experience any contraction, and continue to grow year over year. That being said, there will be some industries and businesses that experience significant downturns during 2024, especially for those that aren’t prepared.
So, the labor market might loosen a little bit as we move into 2024. There might be some more employees available in 2024 than in 2023, but we’re not expecting all of a sudden this large pool of labor to become available given how mild this recession is. So, it’s really important as we approach next year that we’re focusing on retention and we’re looking to hire. Again, some of your competitors might not be prepared for that 2024 downturn, and there might be an opportunity to get some A and B players from some other organizations that aren’t prepared. But generally speaking, we do expect this labor market to remain tight as we move into the second half of the decade.
Now, some metrics that might be comforting to employers, especially after the post-pandemic era, is that the quit rates are down. So, I look at the quit rates on a regional level, the Northeast, the West, the Midwest, and the South is the way that the data is broken down. And what’s really interesting is that all of the 3/12 rates of change, or quarter-over-quarter growth rates, are down below the year-ago level. Now, that would suggest compared to last year, there’s fewer people quitting their jobs, more people are staying put. And through conversations with our clients, we found that that’s the case most often in the time period we’re in, in the phase of the economic business cycle that we’re in. So, some comforting news there that, after the very high number, high volume of quits in that post-pandemic era, you’re seeing fewer people quitting their jobs today. And again, I think that’s very indicative of this slowing macro economy. There’s less hiring going on, less opportunity out there because of the slowing economic landscape out there today.
Now, what’s still interesting, though, and is actually a margin pressure or a margin squeeze that we’re still all dealing with, is wage inflation. Even though there’s fewer people quitting their jobs, that labor market’s still very tight and we’re still seeing high levels of wage inflation. For those of you that are tuning in on YouTube, there’ll be a very interesting state map that I’m referencing here that you’ll all be able to see. But for those of you just listening, I’ll detail some of these numbers. So, what the map shows is year-over-year growth rates, 12/12 rates of change for wage inflation by state. And it’s really important that, as you’re planning for 2024, you’re looking at your specific state, your specific industry, because it’s not all equal across the United States.
For example, if you look at wage inflation in California, it’s down 2.2%. It’s minus 2.2% year over year. But then if you go just a little bit northeast and you look at Idaho, wages are up 7.2%. So, there’s a lot of variation in the wage inflation data based on where you’re located, as well as based on the industry that you’re in. So, as you’re planning for 2024, and even looking at year end 2023, make sure you’re looking at these individual regions and industries and understanding these inflation metrics, because it’s not all equal across the board. We forecast US private sector employment in the ITR Trends Report, so please check that out for more information on our labor market expectations. I’m Taylor St. Germain with ITR Economics. Thanks so much for joining me on this episode of TrendsTalk, and we’ll see you on the next one.