Talent   //   January 5, 2023

New Year presents mixed bag for hourly workers

With the cost of living sky-high and economic indicators pointing to a potential recession in the coming year, employers are considering the financial pressure on their workers — including hourly employees, which make up a majority of the U.S. workforce.

According to data from more than 100,000 small businesses across the U.S., the number of hours worked were on the decline in the last three months of 2022, falling by about 3 percentage points since October, small business management platform Homebase reported. The trend has been most pronounced across most major metropolitan areas and across industries, particularly entertainment and hospitality.

That could spell trouble for hourly employees in the year ahead.

“Today’s hourly workers will be up against many challenges in a year riddled with uncertainties,” said John Waldmann, founder and CEO of Homebase, which works with small businesses across sectors including retail, health care, and hospitality and leisure. “The slowdown in hours worked and employees working over the last couple of months generally tracks with seasonal decline trends, so early 2023 may require workers to take on more to make up for lost wages. This comes during a time when hiring isn’t as strong as in the past two years.”

Still, recent government statistics would indicate that it’s a good time to be an hourly wage earner. Nonfarm payrolls increased by 263,000 in November, as the unemployment rate was 3.7%, according to the U.S. Department of Labor. As CNBC reported, that was well above the 200,000 that had been projected. Meanwhile, average hourly earnings rose 0.6% in the month, or double what had been predicted. 

"We're already seeing less upward pressure on hourly pay at the end of this year, and I expect that to continue as the labor market loosens further next year."
Daniel Altman, chief economist at Instawork.

One thing is certain, as Waldmann sees it: Should companies seek to recruit and retain top talent in the coming year, they must focus more on what their hourly workers and prospective ones are demanding. “Employers should lean into the benefits that are unique to small businesses and what their hourly workers want — competitive wages, the ability to learn new skills, flexible work weeks, more paid time off, access to their pay and better health insurance,” he said. Recent feedback from small business owners indicates they are leaning into such thinking for 2023, he added.

“Employers will find that when workers have better perks and experiences in their day jobs, we will also see productivity increase, which will help businesses be more successful in the new year,” Waldmann said.

Employers are clearly doing more to keep their hourly team members happy. For example, Tyson Foods said it would pay its 90,000 hourly employees in the U.S. a one-time, year-end bonus of between $300 and $700, based on tenure — an investment of some $50 million for the company, Axios reported. Furthermore, while the federal minimum wage stands at $7.25, Tyson claims its average hourly pay rate is $19, not including health insurance and other benefits.

“We’re already seeing less upward pressure on hourly pay at the end of this year, and I expect that to continue as the labor market loosens further next year,” said Daniel Altman, chief economist at Instawork, a flexible work platform that provides businesses with access to more than 3 million hourly workers.

Altman added that it is also unlikely we will see such big swings in consumer spending between sectors next year, leading to a more stable employment environment and fewer spikes in hourly pay due to urgent demand for labor. “Overall, we see more businesses using flexible work as a core part of their payrolls, to increase both their own agility and their workers’ loyalty,” he said.

Yiğit Konur, founder and product manager at search engine optimization consultancy Wope, said he believes the market for hourly labor will remain strong moving forward, as companies continue to look for cost-effective ways to staff specific projects and tasks. The benefits of using hourly employees can include fewer long-term costs, as well as the ability to quickly scale up or down depending on a company’s needs, he said. 

“We have found that hourly employees can be a great way to fill short-term needs or seasonal spikes in demand,” said Konur, whose clients include BMW, Bayer and Amazon. “We also find that hourly employees are often more flexible than salaried employees, allowing us to quickly pivot in response to changing customer needs. Additionally, they can provide us with access to specialized skills or expertise that are not available with salaried employees.”

There are drawbacks as well, including higher labor costs due to overtime pay and the potential for high turnover. 

Omer Usanmaz, cofounder and CEO of mentoring software firm Qooper, sees two possible outcomes for hourly workers in the event of a possible recession. Businesses may be more hesitant to hire new employees or give raises to existing employees and may instead opt to cut hours or reduce staffing levels through attrition, leading to fewer opportunities for hourly workers, he proposed. 

"We also find that hourly employees are often more flexible than salaried employees, allowing us to quickly pivot in response to changing customer needs."
Yiğit Konur, founder and product manager at SEO consultancy Wope.

With that said, businesses may also be more likely to rely on temporary or contract workers during a recession, as they are more flexible and can be hired or let go as needed. “This could create more opportunities for hourly workers who are able to be flexible with their hours and availability,” said Usanmaz, who works with employers like Google, Subaru and the U.S. Air Force.

Overall, he cautioned, the market for hourly labor is likely to become more competitive in the event of a recession, as more workers go after fewer available positions.