March was another big month for the labor market despite continued global unrest and inflation headlines. The U.S. added 431,000 jobs during the month, bringing the year-to-date total to almost 1.7 million. That is almost three times the pace of job gains prior to the pandemic.
With so many jobs being added and turnover continuing to hover near record levels, HR, and talent acquisition roles are in high demand.
Speaking of turnover, the number of voluntary quits remains elevated at just under 4.4 million, slightly below the record of 4.5 million last November. With 11.3 million jobs open and fewer than 6 million people unemployed, it does not appear the shuffle in talent is going to slow down soon unless something changes. There are close to twice as many open jobs as there are people to fill them. Just a few months into the year, and the forecast for the number of job openings has already been increased to more than 100 million for 2022.
On the other side of the spectrum, job security has likely never been as high as it is right now. Based on analysis by The Wall Street Journal, there were only 1.1 jobless claims per 1,000 people in the labor force in March, the lowest number on record. With record turnover and voluntary quits, businesses simply can’t afford to lose talent right now.
The Impact of Inflation
Compensation is often one of the most important factors when it comes to job-switching, but higher wages have also become necessary due to the rising price of goods and services. Inflation hit a 40-year high in March at an 8.5% annualized rate. This dynamic is creating a bit of a circular reference — businesses are increasing prices, in part, to offset the cost of rising wages. Still, consumers are looking for some form of relief as prices have surged in recent months for things such as energy, food, and housing.
The U.S. Bureau of Labor Statistics refers to real wage growth as the gap between how quickly wages are increasing relative to the price of goods and services. Even though compensation has increased significantly during the last year, real average hourly earnings declined 2.7% due to inflation.
It can be hard to comprehend that the spike in salaries we have witnessed during the last year results in consumers being able to afford fewer things.
Inflation related to the cost of housing emphasizes why many people prefer remote work to relocating. Moving to a new city means buying or renting a place to live. The Case-Shiller U.S. Home Price Index shows a 32.6% jump in home prices in the last two years. And on top of increasing home prices, consider that interest rates for a 30-year fixed-rate mortgage have risen from 2.8% last summer to 5% in April, according to Freddie Mac.
For people looking to rent, apartments have been setting records for rent growth and occupancy rates. Making the move to a new location comes with a price tag that could be challenging without a significant bump in pay. And even if workers are willing to relocate for a new job and can afford housing in a new city, low housing inventory and high rental occupancy rates mean finding a place to live presents another challenge.
This dynamic presents a tension for businesses that are looking to return to the office but also have job openings that they may need to fill using remote talent.
The good news for everyone trying to find talent is that 418,000 people rejoined the labor force in March. There is a very good chance that next month’s article will highlight the labor force returning to its pre-pandemic level. As of now, the labor force is within 174,000 of the level from February 2020, so even a moderate gain in April will put the labor force above pre-pandemic levels.
Additionally, the unemployment rate has declined considerably during the last year, making the labor market incredibly tight for certain occupations. On a non-seasonally adjusted basis, the unemployment rate for all occupations dropped from 6.2% in March 2021 to 3.8% in March 2022.
For some roles, like those in management, education, legal, technology, architecture, engineering, community service, or healthcare practitioner jobs, it may seem especially difficult to find talent. That’s because the unemployment rate is less than 2% for those occupations. In other words, for every 100 people in those fields of work, only one or two are currently unemployed and looking for work.
While unemployment rates have declined substantially in the last year as millions of jobs have been created, there continues to be pronounced differences across gender and racial and ethnic groups. Overall, the unemployment rate is 3.5% for women and 4% for men. As of March, the unemployment rate for the Asian population is the lowest at 2.7%, while the unemployment rate for Black workers is the highest at 6.3%.
Of all groups, Black men have the highest unemployment rate at 6.6%. But the good news is that the unemployment rates for all gender, racial, and ethnic groups have declined substantially on a year-over-year basis since March 2021, with the largest declines for non-white men and women.
A Looming Slowdown
Despite many challenges, the job market has shown a lot of resilience throughout the pandemic. However, recent global uncertainty — Russia’s invasion of Ukraine and pandemic lockdowns in China — contribute to record inflation and increase the risk of an economic slowdown in the U.S. and abroad. As a result, economists have started to cool their projections for job growth for the next few years.
A slowdown in hiring in late 2022 or 2023 should bring the pace of compensation growth more in line with historic norms. Businesses need to monitor and adapt to the changing economic landscape as it relates to compensation demands. Today, the case is often keeping up with rising wages to make sure you do not miss out on hiring talent. As the job market changes, making sure not to overpay for talent will likely become more of the topic. I think some degree of balance is what we all seek after the rollercoaster ride of the last two years.