Though talent shortages continue in many areas, labor market conditions are more favorable to companies than they were at this time last year.
As leaders engage in 2025 planning, the October U.S. jobs and
inflation reports suggest continued stabilization and resilience of
labor markets despite high levels of geopolitical and economic
uncertainty. Effective leaders incorporate these market factors
into their plans as they continue to work toward normalcy in a
complex business environment.
Job gains. Total nonfarm payroll employment in the U.S.
increased by 254,000 in September, higher than the average monthly
gain of 203,000 over the prior 12 months and outpacing job gains in
recent months.
Job openings, layoffs and hire rates. The number
of job openings in the U.S. changed little at 8.0
million in August (down from 9.3 million a year ago and from a high
of 12.0 million in March 2022). The number and rate of hires were
little changed at 5.3 million and 3.3%. The layoff rate of 1.0% was
slightly below the previous month and a year ago.
Unemployment rate. The U.S. unemployment rate fell in September from 4.2%
to 4.1%. This figure is higher than a year ago (3.8%) and far lower
than the 7.8% rate in September 2020 during the pandemic.
Labor participation rate. The overall U.S. labor force participation rate was 62.7% in
September for the third month in a row and consistent with a year
ago. U.S. labor participation rates have been dropping for decades.
The pandemic created a disruptive gap that has closed gradually to
align with the longer-term trend.
The current labor participation rate is approximately 0.6 points
lower than February 2020, versus a much larger gap of 3.2 points in
April 2020. The labor force participation rate for people ages 25 to 54 (a core active workforce
segment) has returned to its pre-pandemic level. While talent
shortages continue in many areas, labor market conditions are more
favorable to companies than they were at this time last year.
Quit rates. The August U.S. quit rate fell to 1.9%, well below the
pre-pandemic figure of 2.3% (it increased to 3.0% during the height
of the Great Resignation). The quit rate fell to
2.3% for four consecutive months starting in July 2023, then
further fell to 2.2% in November and gradually below 2.0% for the
first time in August 2024. The current level and stability of quit
rates indicate that labor markets overall are less volatile now.
Employees are choosing to remain with employers at more consistent
rates.
Inflation. The U.S. Consumer Price Index increased 2.4% during the
12 months prior to September. This represents a continued downward
trend and is considerably lower than the 12-month rate of 6.4%
ending in December 2022. This also was the smallest 12-month
increase since February 2021. The September rate remains higher
than pre-pandemic levels, which were close to 2.0% on average, but
are approaching that level. While inflation remains higher than
most government targets, rates reflect greater stability in markets
and in the buying power of employees.
Wage and salary increases. Average hourly earnings in the U.S. have increased by 4.0% for
the 12-month period ending in September. According to a WTW survey, the overall median pay raise in the
U.S. for 2024 was 4.1%, compared with 4.5% in 2023. Overall salary
budget increases are expected to rise by 3.9% in 2025, which
despite declining since 2023, remain higher than averages over the
past 20 years.
2023 was the first year since 2020 where U.S. pay increases were
higher than inflation. Pay increases in the U.S. had been higher
than inflation every year from 2008 through 2020 – a return
to that pattern indicates greater stability in labor markets and
less of a need to raise employee pay, which also drives
inflation.
How are effective leaders managing talent shortages?
In planning for 2025, effective leaders practice focused human capital governance at the board and
senior management levels. They understand that talent shortages are here to stay despite the
easing of talent pressures, and they predict that inflation will
likely continue to decline in 2025 but could fluctuate. They
closely monitor salary surveys for indications of salary increases
in the markets where they operate.
Effective leaders have long moved beyond the phenomena of the Great Resignation and quiet quitting to address deeper workforce
challenges. Today, these leaders embrace talent strategies to
create workplaces where people want to be regardless of
circumstance.
They differentiate culture and employee experiences while maintaining
competitive pay and bonus levels. They know that providing workers
with flexible work, pay, benefits and skill development programs is
key in the current environment. They update total rewards programs
to meet the needs of 2025's workers and new ways of working.
Effective leaders foster culture and purpose so their companies and their people
thrive in an ever-challenging business environment.
A version of this article originally appeared on Forbes on October 18, 2024.
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