Alongside with further improvements within inflation, enabling the Fed to stick with its anticipated schedule of three interest rate cuts in 2024, employers might see further deceleration within labor costs which would enable their demand for talent to pick up sooner rather than later.
The last two WEBOs have examined the issue of labor churn from the perspective of employees and employers today. ASA research and analysis have shown that employees are beginning to feel more confident about their own job security, while employers are maintaining sales and the income necessary to add headcount once they feel ready to grow. In other words, employees and employers are slowly gaining the necessary incentive to pursue their interests on the open market, thereby bolstering labor churn. This last installment within the WEBO series on labor churn focuses on the economic conditions that are hampering further confidence among employers and employees.
For the past two years, unsustainable levels of inflation have pushed the Fed to embark upon a historic tightening campaign which has elevated interest rates to 22-year highs. The economy has largely withstood the pressure of increased borrowing costs, which is why employees are more confident in their prospects of maintaining employment. Employers are not feeling the same elation because their labor costs, afflicted by the position of interest rates today, remain elevated. These opposing dynamics suggest that an increase in labor churn will begin with increased job seeking by talent followed by additional hiring from clients.
However, the gap between talent and client demand could be relatively short-lived. Employers are also attuned to future economic conditions relative to where they are today. Since the Fed paused its tightening cycle in September, labor costs have slowly decelerated given economywide adjustments to this high-rate environment, primarily less activity on the open market. By allowing the Fed to stick with its anticipated schedule of three interest rate cuts in 2024, along with further improvements in inflation, employers might see further deceleration within labor costs which would then enable their demand for talent to pick up sooner rather than later.
A mixture of labor market uncertainty and higher salary requirements among workers, along with lower unemployment rates, means that hiring may well remain a challenge in the year to come.
Workers surveyed by the Federal Reserve Bank of New York estimate a 50.9% chance that they would be able to find a new job within three months if they lost their job today, according to the April 2024 data from the Survey of Consumer Expectations. Excluding the pandemic years of 2020 and 2021, it is the lowest reading since November 2014 (50.1%). The postpandemic high is 58.2%, last reached in November 2022, during the earlier stages of the Fed’s rate hike campaign.
However, this decline in perceived likelihood of finding a job is not universal among all workers—at 55.5%, workers over the age of 60 are more confident in their ability to find a new job at any other time since the pandemic began. This is good news for an economy where contributions from older workers will be essential for maintaining continued growth.
In an uncertain environment, it can be harder for companies that are hiring to pry workers away from their current jobs. Compounding this challenge is a metric called “reservation wage”—according to the March 2024 Survey of Consumer Expectations, workers would require an average offer of $82,000 to leave their job, up from $76,000 in March 2023 and $62,000 in March 2020. This mixture of labor market uncertainty and higher salary requirements among workers, along with lower unemployment rates, means that hiring may well remain a challenge for some time. Similarly, it affirms that employees still have further progress to realize before reaching the necessary confidence to move around the labor market.
