Talent boom or bust? Unraveling February’s U.S. jobs report

After months of headlines about layoffs in tech and other sectors, the February jobs report and inflation report from the U.S. Bureau of Labor Statistics surprised many leaders. Continued tight labor markets, unfilled jobs and higher-than-anticipated inflation led many to ask, “What’s going on?”

The reports show some signs of reduced tension on labor markets. For example, jobless claims rose for the first time in six weeks. Further, over the past 12 months, average hourly earnings increased by 4.4%, a lower average increase than reported during the summer (for example, 5.2% in July 2022).

However, labor markets remain tight and inflation remains high. Total nonfarm payroll employment rose by 517,000 in January, the unemployment rate showed little movement since early 2022, and the labor force participation rate remained steady and still below pre-pandemic levels. The number of job openings increased by 6.7% to 11 million in December, indicating companies had even more unfilled positions than before. Inflation, while trending down annually, jumped in the month of January.

Recent conversations with executives and board members across industries suggest five factors are behind these trends:

1. Tech represents a relatively small portion of the U.S. job market, so recent layoffs do not put a dent in employment figures. Estimates generally place 3% to 5% of the U.S. job market in the tech sector. As such, even if every tech company eliminated 10% if its workforce (which is not the case in 2023 despite the headlines), this would affect less than a half-percent of U.S. jobs.

While job eliminations are devastating to those impacted, and layoffs in tech have been well publicized, they have not had a significant impact on the 11 million open roles currently in the U.S. They do, however, create opportunities for other industries.

2. Industries are readjusting business models given new realities. Leaders across industries are adapting business models to new opportunities – and realities. Ongoing supply chain, global transport and geopolitical concerns are being mitigated with new work strategies such as localization.

Many sectors reflect rebounds from the pandemic. For example, hiring levels in travel and hospitality and in entertainment are up significantly. The automotive sector is again increasing capacity.

Conversely, technology companies are shedding units that are no longer growing and distribution companies are retooling their models. These puts and takes on labor markets create opportunities while keeping them tight.

3. Industries that over-hired in the last two years are now adjusting. Many companies that rely on deeply technical talent (particularly technology, communications and business services companies) over-hired during 2021 and 2022 to secure key resources and now are correcting for more stable market conditions. Over-hiring both created intense competition for technical talent and drove up wages dramatically. Now that markets are adjusting, these companies are altering staffing levels through layoffs.
4. Industries that did not have access to talent in recent years are now filling roles. Companies in many industries relying on technical talent (including financial services, life sciences, healthcare and manufacturing) did not have access to certain workers in 2021 and 2022. These companies are now filling vacant roles and replenishing depleted workforces. This is leading to growth in sectors that previously had been talent constrained.
5. Demographic changes create talent shortages. In many developed economies, large numbers of employees from the Baby Boomer generation have retired in recent years while members of the Millennial generation have moved past entry-level roles. These shifts have created talent shortages in the comparatively smaller Generation X and Generation Z cadres at the leadership and entry levels, respectively. Labor economists predict such shortages will represent a permanent market condition, persisting well into the late 2030s or beyond.

Effective leaders understand that talent shortages are here to stay despite layoffs, and they predict that inflation – while declining slowly – will remain a factor in the medium term. These leaders appreciate the long-term nature of the associated challenges and have moved beyond what many called The Great Resignation and Quiet Quitting to address deeper challenges. Now, they are taking action by embracing talent strategies to create workplaces where people want to be regardless of circumstance.

They differentiate culture and employee experiences while maintaining competitive pay and bonus levels. They know that providing workers with flexible work, pay, benefit and skill development programs is table stakes in the current environment. They reset total rewards to meet the needs of 2023’s workers and new ways of working. They use purpose as a guiding light to drive constancy in company culture and to thrive in an ever-challenging business environment.

A version of this article originally appeared on Forbes.com on February 16, 2023.

Author

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John M. Bremen

Managing Director and Chief Innovation & Acceleration Officer

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