The U.S. labor market has undoubtedly undergone various changes since March of 2020. From historical wage growth to a shift in worker habits, today’s economy is much different from what it was just a few years ago.
Still, with ongoing inflation and repeated interest rate hikes from the Federal Reserve, we’ll likely continue to experience additional shifts in the market. For executives, understanding how to navigate these situations can aid in improving overall employee retention.
What the Data Shows
Throughout September, U.S. employers added some 263,000 jobs to the market, the lowest monthly increase since April 2021, according to the latest Bureau of Labor Statistics report. Additionally, the figure comes below August’s job growth of 315,000 and the monthly average of over 400,000 seen throughout the first half of 2022.
In a similar cool down, wage growth continued to trend upwards only slightly in September, with hourly earnings increasing by only 0.3 percent. Compared to September 2021, total wages have increased by 5 percent. However, while earnings may be historically high, workers’ wages continue to be stunted by a year-over-year inflation rate of 8.2 percent.
“We’re seeing labor demand cool,” says Wells Fargo economist Sarah House. However, we still have a “long way to go towards restoring the balance between supply and demand for labor.”
The Federal Reserve has continued to hike interest rates, doing so a total of five times throughout 2022. Still, the Fed has hinted at the likelihood of additional hikes by December. As the effects of each increase begin to impact the market, we’re seeing some organizations react by slowing down on hiring and team expansions.
Across all sectors, companies within industries sensitive to interest-rate changes (such as real estate, finance, and technology) have begun to either slow hiring or lay off employees. Similarly, organizations that witnessed an increase in demand early into the pandemic are struggling to adjust as consumer habits shift.
Major companies such as Meta, Amazon, and Alphabet have all announced their plans to limit hiring going into 2023.
A Loss in Confidence
Organizations are stepping away from expansion plans until they gain further confidence in where the economy is heading.
In a survey conducted earlier this year, CFOs across varying sectors were asked if they believe a recession is on the horizon. Out of all respondents, nearly 70 percent of CFOs believe we’ll enter a recession during the first half of 2023. Additionally, no CFO respondent considers it possible to avoid a recession in 2023, citing inflation and aggressive hikes as primary catalysts.
While September has provided signs that the labor market is slightly cooling, it may take months to determine how the Fed’s interest hikes impact the job market and a recession. All and all, businesses are “very much preparing for the possibility of a downturn,” says chief economist at ZipRecruiter Julia Pollak. For companies still hiring, they are “focusing on essential hires rather than nice-to-have hires,” she says.
What Businesses Can Learn from Patagonia
In a tight job market, wage increases are often used to attract the best talent to an organization. But as September’s wage report reveals, wage growth has begun to slow down, so what can executives do to attract employees that will be proud of the company they work for? As companies like Patagonia have shown, the answer may be as simple as sticking to your values.
Besides salaries, companies have countless approaches to building value for their employees. For example, increasing work-life balance benefits, engaging in charitable causes, and being an industry pioneer can provide value to your employees without necessarily changing their pay.
On September 14th, Patagonia founder Yvon Chouinard boldly announced that he would transfer 100 percent ownership of the company into a trust and nonprofit, putting future gains towards helping combat climate change. According to Chouinard, the unprecedented move was the only way to ensure that Patagonia’s core values, such as protecting nature, could be preserved after Chouinard’s departure.
“As of now, Earth is our only shareholder. Instead of going public, you could say we’re going purpose,” says Chouinard.
Patagonia’s move is only the latest in the company’s long history of empowering its employees. Since its inception, the company has famously allowed for flexible hours, was an early adopter of parental leave, and has consistently maintained its core values by reinvesting in causes important to its fundamentals. As the company shows, being a thoughtful employer with a high-quality product can help cement a brand as a leader in the marketplace.
Setting the Stage and Attracting Talent
How have candidates reacted to the market cool down? According to labor statistics, the number of total quits remained relatively unchanged overall, with only a slight decrease within the professional and business services sector—a stark contrast to the “great resignation” that filled headlines throughout much of 2021.
What we are observing is a growing hesitation to leave current positions based on economic uncertainty. In such markets, how can organizations set themselves apart to recruit top talent?
Not every organization will be able to follow in the direct steps for Patagonia, nor should they. However, starting small by investing in your company’s culture and connection to its principles can have rippling effects that help attract the best candidates. Pay is a strong metric to bring an individual in but it alone isn’t enough to encourage long term retention.
Consider the following examples of companies that have made strides to connect their labor force with the company’s mission and how it has positively impacted the organization.
Toms — As a certified B corporation, Toms is no stranger to using its profits for social causes important to the brand. Famous for its one-for-one model, the company has long stepped forward as an industry pioneer. As a result, it has some of the highest retention rates among similar-sized companies. When people are tasked towards a social good, it’s easier for them to be proud of where they work.
Shopify — As a multinational e-commerce brand, Shopify has high-level employee advocacy and one of the highest retention rates among its competitors. While no simple feat, the company can accredit much of its success to sticking to its core values of “always learning.” Since 2018, the company has relied on two parallel growth tracks that foster an environment focused on continuous learning. Because of this, employees are given the chance to develop their skills while having a clear path ahead, creating lasting value.
Buffer — In any workplace, trust is fundamental, and few companies demonstrate this as well as Buffer. As a remote SaaS company, Buffer builds trust by being fully transparent with its pay scales, annual reports, and overall expenses. As a result, employees are shown that they are valued, and they can easily identify their role in the company’s overall purpose. Compared to similar companies in the San Francisco area, Buffer ranks in the top 25 percent for retention.
As shown, there are various ways to attract and maintain top talent within your organization. The key is to create a company culture where employees can find purpose while working towards the overall mission. Whether it’s giving back to social causes, encouraging career advancement, or being transparent, such actions show potential candidates that your organization is a place where they can feel proud to work.
Moving Forward
During times of economic uncertainty, maintaining company values and efficiency is essential.
As we can see, the job market entering Q4 is beginning to lose the traction it built throughout the first half of 2022. So, while we prepare for a new year filled with economic suspense, it’s important for executives to take a step back and fully assess their business plans to prepare themselves accordingly.
With a recession looming, having unified teams within your organization is critical. At Executives Unlimited, we have dedicated our years of service to helping companies find and recruit elite executive talent. With a growing client list of more than 700 companies worldwide, Executives Unlimited has been at the center of this evolving landscape and will continue to monitor any changes within the labor market.