The current US labor picture contains familiar themes: unemployment is down and the war for talent continues unabated. But there are three key trends that bear closer scrutiny: inflation, the ongoing COVID-19 pandemic, and the impact of the Ukraine war. Let’s dive in.
The current state of the labor market
The U.S. Bureau of Labor Statistics reported that unemployment rates were lower in March 2022 than a year earlier in 386 of 389 US metropolitan areas. In fact, more than one-third (108) of these regions are posting jobless rates of less than 3.0% – that’s record-low unemployment in 10 states! Nonfarm payroll employment was up year-over-year in 147 metropolitan areas, while the national unemployment rate in March was 3.8% (not seasonally adjusted) – down sharply from 6.2% in March 2021.
Clearly the job market is on a solid trajectory, as robust demand and strong wage growth – wages and salaries increased 4.7% for the 12-month period ending in March 2022 – pull more workers in; Hiring Lab reports that monthly job growth averaged 562,000 jobs in the first quarter of 2022. Meanwhile, labor force participation has increased, as the employment-to-population (EPOP) ratio spiked among people in their prime working years. Labor supply concerns continue to fade.
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Impact of inflation
Labor shortages have pushed up wage growth, benefitting low-wage workers but adding to inflation risks. In March 2022 those risks were realized, with US inflation hitting a 40-year high. The US consumer price index (CPI) rose 1.2% month-on-month in March, for an annual rate of inflation at 8.5%, the highest rate since December 1981.
Recently, policymakers at the U.S. Federal Reserve have outlined a plan they say can help address two of the US economy’s biggest challenges: inflation and the very tight labor market. Fed Chair Jerome H. Powell and his colleagues argued that a steady series of seven interest rate increases this year can not only bring down soaring inflation, but can also help reset the job market by cooling off demand for labor. Powell often cites the fact that there are about 1.7 job openings for each person looking for work.
Other experts disagree on the efficacy of Powell’s plan. “The Fed’s tools are designed much more around encouraging employers to want to hire than at getting people to want to work,” said Jason Furman, who served as a senior economist in the Obama administration. “I think our labor market is too tight, but the solution isn’t to have less employment, but more people who want to work.” For now, wage growth remains strong while inflation digs into workers’ gains.
Impact of the pandemic
Meanwhile, there are signs that more people want to work and are returning to the workforce. This is an about-face from what the Federal Reserve Bank of Saint Louis calls “the COVID retirement boom,” when roughly 4.2 million people left the labor force. Early retirements drastically reduced the talent pool available when the post-pandemic hiring boom kicked in.
“Unretirements” are on the rise, as waning COVID concerns and high inflation are bringing more people out of retirement and back into the workforce. Inflation plays a major role in their decisions. Pandemic retirees enjoyed a low-interest rate, low-inflation economic environment, and that has drastically changed. The Wall Street Journal summarizes, “Everything costs more, and that’s disrupting retirement for many.”
The newly un-retired are re-entering a thriving job market in which workers virtually have their pick of where to go. As of March 2022, 3.2% of workers who were retired a year earlier are now employed.
Impact of the war in Ukraine
The Great Resignation isn’t yet over, but inflation and the war in Ukraine could cool it. Where supply chains were arguably positioned to recover from the COVID-19 shock, conflict in Eastern Europe has exacerbated global supply and demand disruption. The war in Ukraine has a far-reaching impact on the global economy, driving up the price of oil and other commodities such as wheat. As a result, the cost of living has increased, spurring employees to rejoin the workforce.
The current scenario is a stark reminder of just how global life has become – our economies, businesses, and everyday lives are undeniably intertwined. For example, Ukraine is a huge “exporter” of tech services. Ukraine’s Office of Foreign Affairs says that more than 100 of the Fortune 500 outsource to the country, in addition to countless smaller firms. The upheaval and uncertainty of war has taken thousands of the country’s IT specialists out of the workforce, putting Ukraine’s tech sector at risk. The sudden drop in labor supply, a negative shock to the global IT economy, has contributed to increased demand for local talent.
The takeaway for recruiters
Employers can continue to expect some familiar themes in recruiting new workers:
- War for talent continues: A tight job market continues to be a candidate’s market, with job growth still outpacing the number of new and returning entrants.
- High wage expectations: Job seekers recognize the competition for talent and the impact of inflation, keeping their demands high.
- Recruitment spends remain high: With high demand, the overall cost to fill positions will remain high. As demand stabilizes over the next few months and labor force participation grows, recruitment media cost per hire may plateau or even decrease a bit.
For now, the hiring market remains strong and there are no signs of a pull back on hiring plans due to the war, inflation or increases in US interest rates.
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