Companies and their leaders are struggling to balance competing priorities under the weight of continued uncertainty and disruption. The economic outlook for 2023 remains mixed, with the possibility of a slowdown. Meanwhile, the competition for talent is fierce.
This is a historic combination of economic uncertainty with confusing, mixed signals and a tight labor market. Historically, these conditions lean clearly in one direction or the other—not at the same time. No one has dealt with this exact situation before.
Leaders find themselves swaying across the “talent tightrope”: carefully balancing trimming budgets and retaining key talent, protecting the business in the near-term yet setting it up for success in the long-term.
The tightrope has never been this taut. How did we get here—and what can companies do about it?
Companies may remain short on talent in 2023
Even if the economy slows, companies could be short on talent for longer than they may expect. Here’s why:
- Employers can’t find the workers they seek. There are approximately 3 million more new job openings in the U.S. alone compared to February 2020 (exhibit 1). This translates to a historic tightness of the U.S. labor market, with 4 million more job openings than unemployed workers (exhibit 2). Digital talent, healthcare, and skilled blue-collar labor are key areas in particular where demand continues to outstrip supply.
- Employed workers are willing to quit. Regardless of economic uncertainty, people are still willing to leave their jobs. In the U.S., October 2022 quits were about 600,000 higher than in February 2020 (exhibit 3). Many of those who did quit haven’t gone directly into new jobs, choosing instead to leave the workforce entirely—further tightening the demand for talent in a depleted labor market.
- Industry churn and post-pandemic corrections continue to cause ripple effects. Workers are not only more willing to leave their positions, but 48 percent of them are moving to different industries. Industries like accommodation and food services, government, and arts and recreation are losing workers. While healthcare, manufacturing, and construction have held steady, some industries—professional services, wholesale trade, finance and information—have gained jobs (exhibit 4). This high level of churn across industries is one reason that total job openings have consistently remained high. Moreover, the areas that saw the largest gains during the pandemic are now showing signs of retreating. Many of those sectors are experiencing hiring freezes or layoffs.
Companies can invest in talent to stay ahead of the competition
Talent is key to enduring these storms and emerging stronger. Take a talent-first approach with these actions:
Focus on talent most critical for value creation—now and in the future. As companies see competitors reduce their workforce through layoffs or hiring freezes, they may consider reaching for the same labor lever to cut costs in preparation for leaner times. Rather than following the herd, assess the company’s specific needs. Business leaders should protect pools of talent which are essential to future value creation and key skills such as digital and analytics. Layoffs from other organizations may even expand hiring pools for organizations short on hard-to-find skills.
Build talent from within—and stop chasing unicorns. Even in the face of economic uncertainty, many organizations struggle in finding “unicorns”, or workers with the exact combination of degrees and specific work experience required for a role. By moving to a skill-based hiring model, organizations can identify talent who have the foundational skills required for a job—and then invest in upskilling these “near-skill” candidates into the specific skills required for the job.
Organizations with skill-based models find that they are able to widen the front-end of the hiring funnel to attract more applicants, build more internal mobility pathways for current employees, and attract a more diverse set of employees.
Redesign the value proposition to attract untapped talent. Many employers continue to target traditional, career-oriented workers who are less likely to quit without another job lined up. However, this neglects the potential of the non-traditionalist labor market that could be as large as 23 million people.
An expanded recruiting pipeline can bring in workers outside the typical talent pool. For example, consider the 55+ age group who are deciding between full-time retirement or full-time work. This population would benefit from new, more flexible working arrangements with shades of gray instead of these black-and-white options. To attract and retain traditional and non-traditional workers alike, smart companies will consider increasingly flexible ways of working and ecosystems that support their people.
Despite uncertain signals from the economy, businesses should consider this moment a chance to reflect on how they invest in talent. With strategic decisions in the short term, they can establish a resilient company culture to carry them across this ongoing talent shortage and reach the other side stronger than when they started.
The authors would like to thank Gurneet Singh Dandona, Matthew Daza, Sebastian Kohls, and Derek Schatz for their meaningful contributions to this post.