Making predictions can be difficult, especially when they’re about the future.
I’ve done it before and I’ll do so again, though no one would mistake me for Nostradamus.
So what will 2023 bring?
Here’s some of my thoughts about how HR may need to respond, taking into account the current (and near-future) macro-economic landscape:
Forget what you read in the press: the labor market will remain tight
Despite all the news about layoffs in the tech industry, it’s my view that there will be little impact on the wider labor market.
Some 50,000 layoffs may sound like a lot – and the press have really hyped this up – but in an economy with around 158 million employed people, it’s actually a miniscule amount.
If you look at other data, it showed that 44% of business owners had job openings they could not fill in November. The historical average of unfilled job openings over the last fifty years is 22%. Moreover, 18% of businesses have plans to create new jobs in the next three months.
This notwithstanding though, the labor market does appear to have permanently changed. This is partly because of the pandemic but also because of trends that have been building for a long time. Covid-19 convinced millions to take early retirement and forced others out of the labor force because of health concerns and a lack of access to childcare. Some of that has reversed but not enough to raise the labor force participation rate, which continues to decline.
A bigger contributor to keeping people out of the labor force is the ever-expanding increase in social welfare benefits that creates disincentives for people to actually go to work.
Earlier expansions of welfare were conditioned on recipients working or getting an education. Funding for pandemic-related benefits was provided to states with no work requirements for able-bodied, working-age adults.
But despite the pandemic being over, the Health and Human Services Department has extended the public health emergency until April, effectively allowing recipients to keep collecting benefits with no need to work.
The same is true for food-stamp benefits. As a consequence we now have about 6 million people in the NEET (Neither Employed or in Education or Training) category. These are people in prime working age (25 – 54 years), but who now report watching 2,000 hours of TV every year.
Wage pressures will reduce a little
The Bureau of Labor Statistics reports that compensation costs increased 5% over the last 12 months.
The Federal Reserve’s efforts to tamp down wage inflation will have some effect by reducing business activity, but short of forcing a deep recession, it’s unlikely wage pressures will reduce much.
Around 40% of employers reported raising compensation in November, and 28% plan to raise compensation in the next three months to retain workers and fill open positions.
So, based on all this, there’s little reason to believe that inflation will drop back to the historical low of 2% that it was for the last three decades.
Despite the moves by the Federal Reserve to raise interest rates to slow business activity, the best that can be hoped for is that inflation will reduce to about 4% in the next 12-18 months.
Government policy seems determined to shovel as much money as possible into the economy, which is like trying to put out a fire by pouring gasoline on it.
This activity will keep sustained upward pressure on wages, though perhaps less than what it’s been for the last two years.
Automation will increase
Companies, like Walgreens, are adding robots to help pharmacists fill prescriptions and John Deere is shipping fully self-driving tractors to farmers struggling to find people to work the fields.
But with continued on-shoring of production from China – as companies seek to reduce the dependency their supply chains have on Chinese manufacturing –companies will continue to seek more domestic labor.
The problem is that productivity growth also remains low, increasing just 0.8% in the third quarter or 2022.
So, the combination of low productivity, wage pressures and lack of workers will leave employers little choice other than to increase automation.
What this means for talent is that more workers will be working with cobots (or ‘collaborative robots’), not ones that replace workers – like the pharmacists at Walgreens.
That’s more likely because cobots are relatively cheap, with an average cost of about $40K (versus over $200K for an industrial robot). They can also be more easily added to existing workplaces.
Jobs that are physically demanding and unappealing, like cleaning and disinfection, may also be automated as few people want them anyway. Service robots, some of which cost only a few thousand dollars, will be increasingly deployed for work as food delivery, food prep, and busing tables.