Recent waves of tech layoffs combined with record inflation and talks of a U.S. recession are causes for concern for employers and employees alike — does this mark the end of a worker-friendly job market?
According to Willis Towers Watson, not necessarily. In WTW's latest Salary Budget Planning Report, salary increases are forecasted to jump by 4.6% in 2023, which is 0.4% higher than 2022. In fact, 77% of companies surveyed reported being motivated to boost earnings due to inflationary pressures, while 68% say they are still motivated by a tight labor market.
"Generally, what [companies] are seeing is a tight labor market, as well as employee expectations that have come from the impact of rising inflation," says Lesli Jennings, a senior director of Talent and Reward Consulting at WTW. "I'm very intentional with those terms because the increase of 4.6% is not directly due to inflation, but rather employee expectations."
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In other words, employers are being pushed to increase salaries because employees expect their pay to make up for the rising cost of living — employers do not plan to adjust their salary budget based on inflation itself. And companies still want to remain competitive, explains Jennings. This may come as a surprise, given that some of the biggest companies in the world have laid off thousands of workers this year. Meta, for example, laid off 11,000 employees and Amazon eliminated 10,000 employees from their ranks.
However, the majority of the market is on a different page. WTW found that 75% of respondents are experiencing problems with attracting and retaining talent. This is three times higher than what it was in 2020, showing how this concern has endured for three years now, even in the face of a potential recession.
As historically seen with previous recessions, inflation has hit record rates and the Federal Reserve is trying to slow the economy by hiking up interest rates, lowering consumer demand and consequently dropping the high prices the U.S. is seeing. But this time, something is different: the unemployment rate remains at 3.7%, nearly sitting at the 50-year low rate.
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"In previous recessions, you have high inflation but not a tight labor market," says Jennings. "I don't foresee a situation where organizations go right to cutting salary budgets because, at this point in time, the data is pointing to organizations looking for ways to continue attracting and retaining talent."
Jennings notes that companies may be trying to tighten costs going into 2023, but many companies are not looking to take it out on their current employees or stop hiring altogether.
"We're not seeing signs of the end of the Great Resignation," she says. "In fact, our data reiterates the challenges for organizations."
Nearly 60% of WTW's respondents have hired candidates at the higher end of their salary ranges, and 76% have increased or are considering increasing their salary ranges by 2% to 5%. However, Jennings underlines that money is not the only way to
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"How do we ensure we're spending money on the right rewards?" says Jennings. "Conduct total rewards optimization studies, which is a way to better understand what your employees truly value."
Many employers are already on the case, with 67% of respondents providing more workplace flexibility, while 46% are planning to improve the employee experience.
Alongside a new look at salary and benefits, Jennings advises employers to plan ahead for various economic scenarios and ensure every employee has the tools to be productive.
"What does attraction and retention look like? What does engagement look like?" says Jennings. "And based on where the economy may or may not go, prepare. This doesn't necessarily mean cutting or restructuring, but making sure people are doing the right things at the right added value."
