In the wake of 2020, we held our collective breath, sure that there would be better days ahead. But while the COVID-19 pandemic eventually tapered out of the top new stories, 2021 and 2022 were wracked with social, geopolitical, and economic upheaval.
While there doesn’t seem to be a magic fix in sight, business leaders have become adept at handling crises. Knowing that they have no choice but to embrace change and transform their businesses in order to survive, savvy leaders have stopped simply hunkering down and waiting for the storm to pass. Instead, they’re keeping a keen eye on the world’s affairs and taking proactive measures to protect their businesses.
As 2023 rolls out, the biggest concern is, of course, the looming recession, accompanied by layoffs, inflation, and rising interest rates. All of these factors decrease the amount of purchasing power that consumers have, which is impacting companies’ bottom lines. In an effort to deal with economic uncertainty and loss, business leaders are doing all they can to conserve cash and cut back on spending, which has resulted in mass layoffs, particularly in the tech sector. But, finding a balance between cutting costs and employing top talent is critical. It’s important that executives and recruiters closely consider other key labor market issues that will be trending in 2023, including:
- The continued tight labor supply shortage;
- Increases in compensation and benefit offerings;
- The fact that hybrid work is here to stay despite increased calls for RTO;
- The importance of prioritizing candidate experience;
- Emphasizing talent retention and internal mobility; and
- The increased utilization of contract/temporary workers to overcome hiring challenges.
The past three years have been full of unexpected hardship and challenges. Will 2023 be any better? That is a question we cannot answer. But, in order to survive, it’s important for businesses to start planning for the year ahead. By examining the trends that emerged in the last three years, and by making educated guesses on how those trends will continue to unfurl in 2023, business leaders will be in strong position to manage whatever the coming year tosses their way.
1. Looming Recession, Layoffs, and Inflation
Throughout the last months of 2022, business leaders poised, ready for a recession. Skyrocketing inflation, mass layoffs, and rising interest rates curtailed consumer spending, hitting companies on their bottom lines. To compensate for lost profits, deal with the current economic uncertainty, and prepare for harder times ahead, many companies are doing everything they can to conserve cash and cut back on spending.
That said, experts remain divided on whether a recession will actually happen. In a piece at Money, Sharah Hansen cites a study supporting the speculation that there is a 70% chance that the United States will enter a recession in 2023. However, in a piece at The Guardian, Jeffrey Frankel argues that while there will be an economic slump in the coming year, it probably won’t qualify as an actual recession.
Regardless of what it’s called, economic turbulence is quite likely to continue well into 2023 and quite possibly into 2024 as well.
2. Continuing Tight Labor Market
Mass layoffs in the tech sector continue to dominate the news in the early weeks of 2023. In mid-January, Insider reports that an average of 1,600 tech workers have been laid off daily since January 1.
These layoffs may spur some CEOs to hope that the tight labor market will ease and the balance of power will shift back from candidates and employees to managers. That likely will not be the case for tech roles in 2023.
As we all know, prior to the pandemic, unemployment in the tech sector was traditionally low. As big tech went on hiring sprees during the pandemic, to manage the world’s sudden shift to living our lives online, that unemployment rate dropped even lower. As a result, tech workers had their choice of plum roles, with significant wage increases and lucrative benefits packages attached.
Even as big tech drops some of their pandemic hires, the unemployment rate for tech workers never exceeded 2.3% in 2022. Strong job creation and an increasing need for tech workers outside of tech industries means that the demand for skilled tech professionals remains high. And, in fact, statistics showing that 72% of tech workers who were laid off in 2022 found new employment within just three months. Further, 52% of those found jobs that paid more than the jobs that they had lost.
It’s expected that, while significant layoffs will continue within the tech sector well into 2023, the tight labor market will also paradoxically continue. As well, it’s important to keep in mind that once the American economy begins to grow again, the tech labor shortage will quickly escalate.
3. Increasing Compensation and Benefit Offerings
Experts predict that 2023 may be a banner year for increases in compensation and benefit offerings. As businesses struggle to attract and retain top talent, they will need to continue pulling out all the stops.
Compensation has always been the most critical incentive for employees and it is especially so in the tech industry. While experts predict an overall average pay increase of 4.6% for US workers this year, tech professionals will likely see increases that are comparable to those from 2021 (6.9%) and 2022 (6.7%).
But savvy business leaders recognize that candidates and employees consider other factors when deciding whether to accept an offer or deciding whether to leave their current role. Post-pandemic, workers highly value flexible work arrangements that will improve their work/life balance. In fact, Yahoo Finance reports that work/life balance is now tied with compensation as the top two factors that employees use to decide whether to accept a role or to move on.
In addition to remote/flexible work arrangements, other types of employee incentives will be optimized as 2023 rolls on. In particular, business should take a good look at their offerings in terms of:
- Benefits packages;
- Professional development opportunities; and
- Support for career development and internal job mobility.
4. Hybrid Work Is Here to Stay
As concerns around the pandemic wound down in 2022, many businesses assumed that their employees would return to the office. But workers were highly reluctant to return, valuing the improved work/life balance that working from home offers. In the early weeks of 2023, several corporations including Disney, Starbucks, Vanguard, Paycom, and News Corp have had to issue back-to-work directives since their employees were not keen to return.
While non-negotiable directives may work for employees already on payroll, they may also result in resignations, especially in this tight job market. Further, it will be difficult to entice candidates to apply, since work/life balance (which is intrinsically tied to working from home) is now tied with compensation as the most important factor that candidates consider when choosing a new job.
It’s important for executives to let go of the belief that people will be more productive if they come into the office. The pandemic disproved that. Workers will also be happier, with their improved work/life balance, and less likely to seek greener pastures. Instead of insisting on a return to the office, managers need to refine their ability to effectively manage remotely and companies need to ensure that policies are in place to avoid hybrid work inequity. Simply put, hybrid work is here to stay.
5. Prioritizing The Candidate Experience
As businesses struggle to attract candidates in this tight job market, it’s becoming increasingly important to focus on candidate experience. A 2021 study found that 58% of job seekers declined a job offer because of poor candidate experience. That statistic represents not just a loss of talent, but a loss of time and resources spent on the interview process and more time with an unfilled role.
Key to candidate experience is communication. Job seekers want communication at all stages of the hiring process and they want that communication to be targeted, clear, concise, and timely. In an effort to improve candidate experience, companies should:
- Speed up the hiring process;
- Include internal professionals in the interview process, since they better understand the lingo of their profession and the specific skill set your company requires;
- Eliminate the need for multiple interviews;
- Ensure that technical assessments are specific to the open role; and
- Consider alternatives to the traditional interview process, such as providing the interview questions ahead of time.
Since the tight job market shows no sign of easing, it’s critical that companies begin prioritizing the candidate experience in 2023.
6. Focussing On Retention and Internal Mobility
The Great Resignation made clear that many employees will jump ship if they are unhappy in the workplace. The knowledge that their existing workforce isn’t secure, combined with the on-going tight labor market, will prompt executives to refine their focus on retention and internal mobility in 2023.
Retention strategies signal to employees that they are valued, which is critical. As always, competitive compensation, meaningful benefits, perks, feedback, and recognition are important to retention. But in response to the pandemic, employees now also highly value support for mental health, flexible work arrangements, an improved work/life balance, and opportunities for training and development.
Savvy executives recognize that training and development not only keeps employees happy, but helps with retention and creates an internal pipeline of talent, creating a win/win situation for both employers and employees. A focus on retaining and empowering existing talent will emerge in 2023 as businesses increasingly recognize that retention is key to navigating the continued tight labor market.
7. Increasing Use of Contract/Temporary Workers
Contract work has long been an important part of the American economy, but it gained momentum during the pandemic. As workers embrace the flexibility that contract work offers, and as businesses increasingly rely on temporary workers to fill open roles, both employers and employees are recognizing the undeniable benefits of contract work.
Because contract workers can choose roles with projects that appeal to their interests and best fit their skill sets, their performance and quality of work is high. And, because they are often hired for a specific project and/or timeline, employers can adjust their workforce to the ebbs and flows of their needs, which will save money during slower times. Overhead costs in general will also be lowered since most contractors work remotely.
Contract work is win/win for employers and employees and as more people discover that in 2023, the use of contract workers is set to flourish.
The past several years have been challenging for business but the upside is that executives have become adept at handling change, challenges, and crises. While we hope 2023 is less rocky, tracking emerging trends can help you prepare for and successfully navigate any storm.