During the most recent earnings season, CEOs across the staffing industry were among many using the word “uncertainty” to describe the economic outlook. For the most part, these industry leaders were echoing the words of their own clients – companies unsure whether to expand their payrolls or even replace departing workers – when at times it felt like trimming ranks was more prudent. Many turned to hoarding workers given ongoing labor shortages. The resulting paralysis slowed growth for most staffing firms that engage in filling empty roles or otherwise benefit from workforce turnover. If anything, since third quarter earnings season, sentiment has deteriorated.
Yet the longer-term secular trends in favor of the worker – both blue collar and professional – appear intact and likely to cause lower workforce participation and resulting labor shortages for the foreseeable future. Indeed, worker confidence inspired by generationally low unemployment, rising wages, and a lull in layoffs, is currently thought to be driving consumer confidence and an important reason the economy continues to chug along. Staffing companies and those involved in the broader Human Capital Management (HCM) space tend to benefit from this secular trend, as their clients seek additional help filling vacant slots.
Another secular trend in favor of employees is that of workers taking control of their own careers like never before. On the professional side, knowledge workers in accounting, IT, finance and other disciplines are living where they want and even moving into semi-retirement by taking on only gig-type roles that offer newfound flexibility and control over one’s career. Blue collar workers, who started the trend (think Uber), also continue to shun conventional employment by flocking to Gig Economy jobs. These trends began years ago and gained steam during the pandemic, granting many workers even more ability to name their own terms.
The pendulum may be ready to swing in the other direction, with many companies insisting their workers return to the office, although once again “uncertainty” is prevalent. Such dictates may only harm workforce participation while driving workers further from a conventional employment mindset. In fact, many other companies are taking the opposite tact, embracing “hired guns” and flexible workforce arrangements, especially for project work, which helps manage costs during times of – you guessed it – uncertainty. New-age staffing companies (think Fiverr and Upwork) are more than happy to capitalize, as are the more established staffing firms now touting their ability to provide on-demand talent.
So where do we go from here? We regularly advise staffing companies to avoid prognostication and we’ll take our own advice. Whether the economy manages a soft landing is the most significant variable, and therefore, we advise management teams to remain flexible and be ready for whatever the future may hold. At the time of this writing, unemployment claims have ticked higher and quit rates have slowed, along with weaker job and wage growth – all signs that labor markets are finally weakening, with scales tipping ever so slightly back in favor of employers (healthcare a notable exception). Without a doubt, a rising unemployment rate in 2024 would hurt most companies in the HCM space. However, the longer-term secular changes including lower workforce participation and the desire to control one’s career seem to be here to stay, with CEOs likely citing “uncertainty” for some time to come and with staffing companies hoping to lead the way forward.
For more 2024 trends in sectors from energy and investor access to healthcare, visit the ICR Insights blog.
