Is This the Strangest Labor Market of All Time?
I’ve had many conversations with HR and business leaders throughout my time at Ceresa. I've attended numerous HR and learning conferences. It's not surprising that people are increasingly asking me about my thoughts on the future of the labor market, particularly investors inquiring about the fate of HR and L&D budgets.
Well, there are so many conflicting signals in the market that it's difficult to comprehend how things will unfold. Despite having taken four statistics classes, studied economics, and gone to business school, I'm clearly not an economist. Therefore, I won't attempt to predict how the US economy will fare for the rest of 2023 and into 2024 (let alone touch on other countries!).
However, I can provide insights based on what we are observing on the ground. In a recent poll we conducted with 50 HR leaders, 73% of them stated that their companies had experienced layoffs in the past 12 months, and 59% also expressed difficulties in retaining their teams. How can these two seemingly contradictory things be true?
Let's begin by examining two major downward trends: layoffs and pressure on profitable growth.
Layoffs, particularly those making headlines, are predominantly concentrated within the technology sector. Public tech companies saw their valuations decline by 30% in 2022 (some even up to 90%), which increased the emphasis on profitability in light of revenue concerns. This trend also extends to the private markets, with venture capital funding slowing down and valuations falling.
Additionally, interest rates are making it harder and more expensive to access debt financing. This market correction is largely a response to the bullish market we experienced over the past decade. While the tech sector has seen significant gains in profitability this year (still below the reset from 2022), other sectors, such as retail, are also experiencing reductions due to lower consumer confidence and revenue pressure.
In addition to layoffs, the focus on profitability and preserving cash is affecting external expenditures. Many companies have implemented a "new vendor freeze" or postponed expenses/programs by one or two quarters. This across-the-board trend appears to be causing a significant slowdown in deal time rather than a large reduction in deals.
Seems straightforward, right? This would suggest that HR and L&D budgets are declining.
Not quite.
Let's consider five other factors, keeping in mind the words of Sophocles, an ancient Greek philosopher: "without labor nothing prospers."
First -
Despite the layoffs, many companies are still struggling to retain critical talent within three categories: high performers, early-career professionals, and frontline employees. So, while companies are downsizing, they are simultaneously investing more in their people. We witnessed this firsthand when one of our largest contracts for leadership development was underway while the company publicly announced major layoffs.
Second -
There are problematic long-term trends in the labor market. The US has experienced a significant slowdown in workforce growth, with workforce participation decreasing considerably post-COVID, particularly among women and older workers. The cost of childcare in the US is four times higher as a share of parents' income compared to the EU and 19 times higher than in Japan, which has resulted in fewer women participating in the workforce.
Third -
There is an increasing need for different skills. Upskilling and reskilling are hot topics at almost every HR and EdTech conference. The World Economic Forum estimates that 1 billion people (one-third of all global jobs) need to be reskilled by 2030. Two major areas of focus are digital and technical skills, as well as human skills related to critical thinking and empathy—skills that enable leaders to approach the talent equation with more empathy and interpret AI and data results from a human perspective.
Fourth -
Although our lives are gradually returning to normal after the COVID-19 pandemic, there are meaningful permanent shifts in the workplace and workforce. According to our poll, 77% of HR leaders are operating in a hybrid work environment. The social contract between employers and employees has fundamentally changed, with employers now expected to support the holistic well-being and mental health of their workforce. Younger generations, in particular, make employment decisions based on access to learning and growth opportunities. Improved access to learning is the primary reason why people leave an employer.
Finally -
While not all leaders prioritize diversity, equity, and inclusion (DEI), there is an undeniable business case for having more diverse teams, as well as a social justice case. I have personally witnessed some leaders treating DEI as a mere checkbox for public and employee relations, which becomes less of a priority during tight budget periods. However, there are leaders who are genuinely committed to building more inclusive cultures and providing opportunities for underrepresented talent to advance their careers. We continue to see investment in DEI initiatives from high-profile global organizations like Walmart, Dell, and Blackstone, as well as smaller organizations like Planview and Solera, albeit with less public visibility.
So, overall, labor and HR trends present a mixed bag of challenges and opportunities. The need for effective talent strategies remains crucial due to underlying labor market and skills trends. There is still room for HR providers to thrive. However, until we overcome recessionary concerns, we should expect tighter budgets and longer deal times for HR and learning providers.
At Ceresa, we value patience as a virtue. By treating customers with the gold standard, even if they are not ready to renew or sign a contract, we position ourselves to succeed when confidence returns and companies have no choice but to invest in winning the talent equation.