2023 kicked off with fear of an impending recession, but a recession never came. Interest rates rose. Inflation fell. Wage growth slowed. In response to economic uncertainty, job openings declined, hires dropped, and quits rates returned to pre-Great Resignation levels.  

In other words, the job market has reversed from the hiring bonanza of two years ago, at least for corporate positions, but we’re not precisely in an economic downturn.  

For HR, it’s important to understand how this shift has impacted talent strategy, what it means for market pricing and pay increases, and what is at stake in 2024.  

Impact on talent strategy

The War for Talent is on hiatus.

According to data from the Bureau of Labor Statistics (BLS), labor force participation is low, suggesting that we should still be in an employee-driven market in which job seekers have power — even if turnover is less extreme than two years ago. Job openings have dropped substantially but remain elevated, suggesting that employers still want to hire but can’t find the skilled talent they need to fill their open roles.

But the data shouldn’t be taken at face value.

Throughout 2023, job seekers have taken to social media with seething accounts of poor hiring experiences that tell a different story. Highly qualified job seekers report applying to hundreds of open positions without getting interviews. People who do get selected complain of grueling interview loops that last months, unpaid assignments that take days or weeks, and being rejected for trivial reasons or ghosted by the organization at the end of the process.

These are mostly knowledge workers in white-collar salaried positions.

At the same time, hourly workers in skilled trades are unionizing and organizing labor strikes to secure higher wages and better working conditions. Not by coincidence, Payscale’s list of the top 10 in-demand jobs in 2023 are almost all hourly positions in highly skilled trades — or else they are jobs for the self-employed, such as job coaches.

In other words, a lot of employees are unhappy in corporate America, but they can’t leave their jobs because the Great Resignation is on pause and getting a new job is exceptionally difficult.

This situation is being driven by economic insecurity. Organizations are afraid to hire when they don’t know if a recession is just around the corner, and the United States has been ringing the recession alarm bell for over a year. To avoid risk, employers are only hiring talent for mission-critical positions that can provide immediate value upon starting. Jobs are also opening and then dissolving due to budget cuts, layoffs, reorgs, and reprioritizations.

However, a gloomy economic outlook is not the only explanation. Hiring practices were getting longer and more complicated even before the pandemic. Increasingly painful candidate experiences roughly align with the rise of quits rates, suggesting that high turnover causes organizations to hesitate over hiring and leads to more drawn-out hiring processes. Unfortunately, there is no evidence to suggest that longer, more complicated interview processes lead to better hiring outcomes.

After all, it is usually not a failure to vet job skills thoroughly that leads to high turnover. The problem is usually inside the walls. In fact, according to Payscale’s 2023 Retention Report, the biggest factor impacting job seeking behavior is employees feeling that their organization doesn’t have a bright future.

The second-biggest factor impacting retention is employee perception of fair pay.

Impact on compensation management

Payscale’s 2023 End-of-Year Report provides a list of the top in-demand jobs by fastest-growing wages as well as the top jobs that employees are most seeking to quit in 2023.

Not coincidentally, there are no white-collar knowledge-worker positions among the top in-demand jobs by wage growth this year. However, wages are still increasing by a substantial amount for those that are in high demand — between 18–24 percent for the positions at the top of Payscale’s list.

For compensation managers, this is a good reminder that recent salary data is needed to market price jobs accurately as well as to retain employees through pay increases and market adjustments. Market adjustments can be overlooked in the pay-increase planning cycle, especially when economic conditions are more favorable to employers.

However, it is never a good strategy to underpay employees, even if the market allows it. And while no white-collar knowledge workers made the top in-demand jobs list in 2023, this is only a partial list of jobs that have seen pay increases well above base pay averages. It is important for organizations to conduct their own market analysis using up-to-date salary data to see if the median pay for their jobs has moved significantly in the last year — and to adjust pay for their employees accordingly.

Of course, pay increases must also be managed for the rest of the workforce. Pay increases in 2024 are expected to be similar to pay increases in 2023 — which means elevated over the 3 percent average that was the norm for the decade preceding the COVID-19 pandemic.

According to Payscale’s Salary Budget Survey, which was released in the summer, pay increases are expected to average 3.8 percent in 2024. Other sources have predicted about the same or a few notches higher. Of course, this does vary by location, industry, and business performance. It can also be affected by economic conditions.

For organizations following the trends, communications around pay increases should be more soothing to employees than they have been in previous years. This year, pay increases should outstrip inflation, which is projected by the International Monetary Fund (IMF) to come down to 2.8 percent for the U.S. in 2024. However, employers do have to be cognizant that the cost of living is still higher than it used to be. For organizations that performed well in 2023 despite economic uncertainty, employees may be expecting a boost to their incomes to offset rising expenses, especially in hourly positions that are more in demand and also more impacted.

Note: If you are revising your salary-increase budget, please make sure to take Payscale’s Compensation Best Practices Survey, which is open for participation now. The report will be released in Q1 to show what organizations finally decided when it comes to this year’s pay increases.

Finally, compensation professionals should be thinking about which of their employees may be flight risks in 2024, especially where compensation is concerned and if the market turns around. According to Payscale’s 2023 End-of-Year Report, the jobs that people are most seeking to quit include a lot of positions in technology as well as a lot of positions in healthcare.

Both the technology industry and the healthcare industry have been under considerable stress in recent years. Technologists have faced a wild market, with demand surging during the pandemic followed by layoffs when central banks hiked interest rates to tame inflation, which particularly impacts technology startups. Technologists who have been laid off are struggling to get jobs while those who remain are having to do the same amount of work with fewer people and are at risk of burnout. Healthcare is in a similar position, with overtasked workers in high-stress environments seeking employment that is a better work-life fit.

To retain valuable employees, compensation managers should run a fair-pay analysis on jobs that are experiencing high turnover, consider higher pay increases to offset labor shortages, and explore other avenues of recognition and rewards to make sure employees feel valued and appreciated.

Predictions for 2024

While the job market in 2023 can best be described as maddening, what happens in 2024 depends largely on economic conditions. It should be noted that 2024 is also a presidential election year in the United States, which means that moves might be made to reinvigorate the economy — such as cutting interest rates to encourage economic growth.

But anything can happen.

Although it is impossible to accurately forecast the future with certainty, Payscale has sourced predictions from members of our leadership team on topics that are most relevant to our audience of HR leaders and compensation professionals. These include:

• People leadership and the talent market
• Compensation management and equity-based pay
• Changing pay legislation and labor standards
• AI and the future of work

To access these insights, download our guide on the Top Predictions for HR and Compensation Leaders, which is offered to employers at the bottom of the End-of-Year Report.

Regardless of what happens with the economy in 2024, employers are advised to think long-term and concentrate on actively improving their work culture and employer brand, which includes the employee experience as well as recruiting experiences and is inclusive of compensation strategy and total rewards.

Instead of stressing job candidates with a full-scale inquisition during the interview process, employers might do well to focus on creating positive work cultures that employees don’t want to leave and human-centered recruiting processes that validate and respect candidates even when they are not selected for a job. Unlike a third-degree interrogation hiring strategy, human-centered recruiting will have a positive effect on the employer brand for years to come, regardless of how market conditions change.

For assistance with your compensation strategy, especially related to market adjustments and pay increases in the new year, reach out to your customer representative to see how Payscale can help or ask for a demo to learn more about our data, software, and services.