What Is Going On with the Labor Market in 2023?!

Unpacking the conflicting signals about low unemployment, higher wages and inflation, and layoffs

Is the job market still red-hot, or is it growing cold? Do employers or candidates have more leverage compared to a year ago? As with many things in life (and macroeconomics), the answers regarding today’s labor market are complex.

The overall assessment: unemployment remains very low, and hiring is robust. But an uncertain economy and the Federal Reserve’s interest rate hikes have encouraged certain companies to slow hiring—or conduct layoffs—while preparing for a possible recession. And it depends on the roles and industry.

The job market is still strong, but …

Uncertainty about persistent inflation and Fed rate hikes causing a “hard landing” for the economy has spurred some companies to cut jobs or pause hiring.

The latest job numbers from April show persistently strong employment, however. The unemployment rate fell “back to a 53-year low of 3.4%,” and “wages increased 4.4%” over last year. That’s great news for many job seekers but not for some companies struggling to hire and the Fed’s efforts to dampen inflation.

The Fed increased interest rates for a 10^th consecutive time in early May, and these hikes have had some effect on slowing prices. The annual inflation rate fell “to 4.9% in April 2023, the lowest since April 2021.” But as supply chain issues and the pandemic subside, a tight labor market leads to increased wages and continues to drive inflation.

“[O]ver time a very tight labor market has begun to exert increasing pressure on inflation … That share is likely to grow and will not subside on its own,” conclude former Fed Chair Ben Bernanke and Olivier Blanchard, the past chief economist for the International Monetary Fund.

Mixed messages and mitigating factors on employment

Despite strong employment numbers and many businesses struggling to fill roles, the news is also rife with high-profile layoffs.

Disney, Tyson Foods, 3M, Lyft, Deloitte, Dell, and Wells Fargo are a few big names letting numerous workers go. And layoffs at Amazon, Meta, and Microsoft, among others, demonstrate a significant shift in the tech industry. Analysts attribute cuts to fears of a recession, compensating for too much hiring during the pandemic, efforts to satisfy investors, combating costs, and various company-specific factors.

These high-profile layoffs seemingly conflict with the overall employment numbers, but the devil is in the details: who is letting people go and why. One factor is the pandemic’s “legacy of weirdness,” as described by David Kelly, the global chief strategist at JP Morgan Asset Management.

Many larger and publicly traded companies are retrenching to prepare for economic headwinds, but numerous smaller businesses, specific positions, and sectors are adding workers.

For example, service industries like leisure and hospitality are still hiring and increasing wages in the face of high demand. And when brand-name companies make cuts, some do it only for certain positions while increasing others. For example, Boeing is hiring significantly overall, with plans to onboard 10,000 workers, “many of them in manufacturing and engineering.” But it “will also cut around 2,000 corporate jobs, mostly in human resources and finance departments.”

Distinctions like these might help explain why there are many layoffs at tech companies, even though many technology-specific roles are among the fastest-growing jobs.

The impacts of labor-force participation and new ways of working

The proportional number of people hunting for a job has decreased, and those working are putting in fewer hours. Both factors contribute to a tight job market.

The US Chamber of Commerce reports that “Workforce participation remains below pre-pandemic levels” at a rate of 62.6%. Its most recent survey of non-participating workers found:

• 28% “have been ill and their health has taken priority over looking for work”
• 27% “indicated that the need to be home and care for children or other family members”
• “Nearly one in five have altered their livelihood”
• 24% “say government aid packages during the pandemic have incentivized them to not actively look for work”

Additional reasons include respondents developing new skills, retiring, and prioritizing finding remote jobs before compromising by taking an in-person position.

Cultural changes wrought by the pandemic play a significant role. Yongseok Shin, a professor of economics at Washington University, proposes that “demand for labor is outstripping labor supply” mainly because “those who do work are choosing to work fewer hours:”

As a general rule, the labor market is tighter or looser because more or fewer people are employed or looking for jobs. 

However, the recovery from the pandemic has been an exception. Total hours worked in the U.S. fell from 2019 to 2022 — by the equivalent of 33 fewer hours a year per person. Our estimate […] is that fewer people working accounted for 15 of these, while the rest was due to workers reducing their hours.

Yen suggests that COVID caused some individuals to “reassess their life priorities and recalibrate their work-life balance.”

In addition, duplicate “ghost job” ads posted by companies can distort estimates of available positions vs. available candidates. And many applicants in this ostensibly booming market report frustrating and fruitless searches.

“I’ve applied for at least 200 roles, and I’d say probably only about 30 of them have actually come back and said, ‘No, we’re going with someone else,'” one highly qualified manager told Business Insider. “A lot of times I’m just sitting there waiting in limbo, wondering what’s going on.”

The piece cites ghost jobs as a factor in difficult job searches, plus the “oddness” of the economy and a role-specific demand for workers:

[M]any positions that are available are in industries that are either highly specialized, like healthcare, or ones that many find unattractive, such as manufacturing, gig work, or service and retail jobs. If you’re a worker in an industry like real estate, media, and tech — where nearly 200,000 people have been laid off so far this year — these job openings aren’t helpful.

So, what is the REAL status of the labor market?

Our best answer: “The job market is still strong overall. But situations vary.”

Some job seekers report frustrating searches, and headlines trumpet high-profile layoffs, while others see a different picture.

“These headlines [about layoffs] don’t align with what I, as a recruiter, am experiencing on-the-ground,” writes executive search firm CEO Atta Tarki in the Harvard Business Review.

And high-level statistics continue to show robust hiring, historically low unemployment, and decent wage growth.

In the end, seemingly opposing views—the job market is on fire vs. cooling down—can be simultaneously correct to some degree.

A software coder at a tech company might be safer from layoffs, while individuals in HR or marketing might not. Many servers, hosts, or hotel clerks in the right area should easily find jobs at a higher post-pandemic wage. And many job candidates have better chances of obtaining positions in specialized fields.

Much of this situation is subject to change, especially if increased interest rates cause the “hard landing” of a recession. For now, the labor market remains robust … but somewhat weird.

Karp HR Solutions helps businesses master the mix of finance and human resources. Contact us today for a free consultation.