Reasons for Cautious Optimism in 2024

January 4, 2024 – The labor market didn’t follow the script many people wrote for it last year. Despite many projections for a recession, a historically fast tightening of monetary policy by the Federal Reserve, a banking crisis, and geopolitical crises and uncertainty, the labor market stands strong. Getting to this spot required a few unexpected things to happen, according to Indeed’s 2024 U.S. Jobs & Hiring Trends Report. 

Indeed points to the following events: Job openings and job postings fell considerably, but layoffs stayed low. Workers came flooding back into the labor force, and employers continued hiring at a solid clip, but wage growth slowed. The so-called “Great Resignation” that marked the early post-pandemic years ended, but workers still felt comfortable leaving their jobs. A host of new artificial intelligence tools were introduced that threaten to upend how many workers do their jobs, but there’s no immediate sign of it displacing workers.

But past performance is no guarantee of future results. “Everything that needed to go right for the labor market in 2023 largely has,” the Indeed report said. “For this year to end on a similar high note, a few trends need to hold up or accelerate in 2024.” This report digs into these broad trends.

Demand for Workers has Moderated

As of November, the Indeed Job Postings Index is down 22.5 percent from its December 31, 2021 peak, and the federal government’s job openings number is down 20.6 percent from its March 2022 high as of September. Part of the decline in these measures is because employers have been able to fill many positions. As of October, total employment was three percent above its February 2020 pre-pandemic peak.

Related: Predicting 2024’s Talent Acquisition Trends

“At the same time, many employers have rethought their staffing plans in light of slowing economic growth, shifting consumer demand, and higher interest rates,” the Indeed report said. “The pullback in job postings has been most stark in sectors tied to previously high-flying industries, including tech, where stock valuations have fallen and hiring plans have returned to earth. Sectors connected to companies that provide in-person services, including restaurants, hotels, and hospitals, represent a continued source of robust hiring demand.”

The divergence in hiring outlooks can be seen in the different trends for jobs depending on whether they need staff to be in person, according to the Indeed report. While job postings are down overall, postings in sectors with the highest shares of roles that can be done remotely have fallen the most — essentially back to pre-pandemic levels. Job postings for the sectors most likely to require in-person work have actually increased since mid-year, up 3.1 percent from June to November, while overall postings were down one percent over the same period. The report notes that the continued resilience of hiring in these sectors depends on continued strong consumer spending for in-person services which flows through to desired hiring.

And while employers may be less enthusiastic about adding more workers to their payrolls, they seem content to keep the workers they already have — falling demand for workers overall is coming primarily through less demand for new workers, according the Indeed report. After a brief rise early in the year, the overall layoff rate as of September was just one percent, a level that would have represented a record low before the pandemic. The report also found that there has been a dramatic decline in layoffs over the course of the year in a handful of industries, including retail trade. In February 2020,  just prior to the onset of the pandemic, the layoff rate for the retail trade sector was 1.9 percent. By September 2023, the latest available data, the layoff rate in retail had essentially halved, to just 0.9 percent.

“Next year’s outlook will depend not only on the direction of demand for workers — whether it continues to fall or not — but also on the means through which employers reduce that demand,” the Indeed report said. “If demand for new hires continues cooling at roughly the same gradual pace as it has throughout 2023, then the labor market can be expected to continue on its current path without a spike in unemployment. But while postings and openings remain elevated relative to historic norms, they are still at a much lower level than recent highs. A further, rapid descent from these lower levels could mean that fewer currently unemployed workers are getting hired, leading to a rise in unemployment.”

And Indeed also notes that a prolonged contraction in overall demand for workers could also mean that employers would start to shed current workers and layoffs would start to mount. “Job postings and job openings could fall even more without a large rise in unemployment if employers hoard labor, as many have hypothesized. But that’s uncharted territory for the U.S. labor market,” the report said. “Keeping an eye on not just the growth of job postings and openings, but the level as well, will be important next year.”

Shifting Demographics

Without a tremendous surge in immigration in the next few years, the U.S. will continue to age. According to projections from the Congressional Budget Office, the share of the working-age population 65 and above will grow from 17.5 percent in 2023, to 20.9 percent in 2035. An aging population means the pool of available workers will shrink in the years to come.

Related: Strategic Talent Acquisition Planning in 2024

But over the past year, the labor force has defied these dynamics and grown quite quickly. The U.S. labor force grew by an average of 276,000 people per month through the first 10 months of the year — faster than both the 2021 monthly average of 98,000 workers and the average of 131,000 in the three years prior to the pandemic.

In short, Indeed found that the participation rate of prime-age workers, those aged 25-to-54, rose to levels not seen since the early 2000s. As of October, the participation rate for these workers was 83.3 percent, down from a recent peak of 83.5 percent the month prior, but still comparable to rates 20 years ago. “Consistently high demand for workers has both pulled more people into the labor force, and kept more current participants attached to the job market,” the report said. “A rebound in immigration from depressed pandemic-era flows has boosted prime-age participation as well. Even though foreign-born workers were just 18 percent of the labor force a year ago, roughly a fourth of the growth in the labor force over the past year has come from foreign-born workers. Short-term strength has managed to push back against the long-term trend. At least for now.”

It’s unclear how much longer these short-term boosts to the labor force can continue, according to the Indeed report. While 25-54-year-olds are participating at a rate in the range of what we saw 20 years ago, the current prime-age labor force participation rate is still short of its all-time high of 84.6 percent reached in January 1999. “Even if participation among prime-age workers rose to match that high, and more workers aged 65+ pushed their participation rates to all-time highs, the labor force participation rate would only slightly increase next year, and then stabilize in 2025,” the study said. “After that, the weight of demographics would take over, and the participation rate would start to drop.”

Indeed explains that one way to counteract this seemingly inevitable slide could be through increased immigration, which may continue to be a meaningful source of workers in the next few years, but likely not a growing one. “Foreign interest in job postings on Indeed has picked up since the pandemic and is well above 2019 levels,” the report said. “About four percent of clicks on job postings in the US came from outside the country in September 2023, up from roughly two percent four years prior. However, foreign interest seemingly plateaued over the past year. If interest from job seekers outside the U.S. is any indication, immigration is unlikely to accelerate next year and provide a larger boost to the labor force.”

Replicating the strong labor force growth of the past year will be difficult, but Indeed says that continued strong demand for workers, and robust immigration, may offer a temporary reprieve from the long-term trend. “Because so many Americans have simply aged into retirement over the past few years, and with many more behind them in the years to come, overall labor supply will remain more limited than it was pre-pandemic — though it will still respond to a strong labor market,” the study says. “The currently resilient labor market might test the bounds of how much further participation rates can rise for some workers, but it can’t defy the gravity of demographics forever.”

Watch for the Usage of Generative AI in Jobs That Don’t Create AI

Artificial intelligence, particularly generative artificial intelligence, rocketed into public consciousness at the end of 2022. These technologies have great potential to reconfigure a wide variety of jobs, and potentially create many more new jobs. Indeed explains that the impacts will likely be felt widely but unevenly, with some occupational sectors — including software development — highly exposed to generativeAI, while others — including driving — will feel fewer direct impacts. Even so, regardless of intensity, those effects will take some time to play out.

“We’ll have to wait to see the long-term effects of GenAI, but it’s clear right now that jobs related to the field are surging,” the report said. “At the beginning of 2023, 0.003 percent of job postings mentioned terms related to Generative AI. This share stood at 0.06 percent by the end of October, a 20 times increase. Only six in every 10,000 job postings is related to Generative AI meaning these aren’t nearly as common as conversation suggests, despite rapid growth.

Related: What Talent Acquisition Trends Will Dominate 2024?

Indeed’s measure not only captures jobs that create generative AI tools, but it also accounts for postings that mention if the role will use a GenAI tool. Marketing jobs are a good example — while most marketers aren’t actively creating AI tools, they are certainly using them in their work, and showing up in Indeed’s tracker as a result.

Increased usage of GenAI and other technologies — in addition to an increase in jobs developing those tools — could reshape the broader labor market, the Indeed report explains. “GenAI jobs might increase in the years ahead, but if the growth comes primarily from those jobs that create the tools, without corresponding growth in roles that simply use these tools, the economic impact of AI and GenAI could be small,” the study said. “For example, the power of personal computing didn’t become apparent until it was used in a mass capacity, not just in a few technology and research companies. So when it comes to GenAI jobs moving forward, we’ll be sure to track the overall level and the occupational sectors leading the way.”

Conclusion

In many ways, these first few post-pandemic years are uncharted territory. The Indeed report notes that more evidence emerges daily that our economic maps and contingency plans may be outdated and insufficient to guide us on what comes next. “So far, the labor market has shown that a high-demand environment and tight labor supply need not be permanently inflationary,” the report says. “Wage growth can slow without a spike in unemployment. Workers who left the labor market can be drawn back. The optimistic view of the market may actually be the correct view.”

Indeed explains that it’s also possible that we are entering a period in which the easiest hurdles on the road to a soft landing have already been cleared, leaving only the highest and most difficult for the last mile of the race. “That the labor market’s journey to this point has been relatively painless does not guarantee that actual pain is not coming,” Indeed said. “The full effects of the past 20 months of tightened monetary policy may be ahead of us, and things may slow further, as is widely expected. And if conditions do not continue to cool as expected, then the Federal Reserve may feel it has no choice but to tighten the screws even further, forcing a more immediate slowdown in place of the only gradual one we’ve seen so far. There’s a case for optimism for 2024, but it’s best not to oversell it.”

To read the full report click here!

Contributed by Scott A. Scanlon, Editor-in-Chief; Dale M. Zupsansky, Executive Editor; Lily Fauver, Senior Editor – Hunt Scanlon Mediai