Talent   //   December 21, 2022  ■  5 min read

Soft hiring environment, tight labor market – recruiters predict 2023 challenges

Nearly 9 in 10 HR decision makers believe hiring in 2023 will be equally as or more difficult than it’s been this year, as the year ahead will be defined by the dual challenge of a softening hiring environment and a still-tight labor market. 

In its most recent survey, based on responses from 1,200 HR professionals, the recruiting platform Employ found that job seekers are being more selective, with recruiters reporting that 40% or fewer job offers are being accepted. As a result, 61% of recruiters believe it will remain difficult to hire new people in 2023. 

“Although job seekers still continue to hold the power, hiring is also being impacted by the looming threat of recession,” said Allie Kelly, CMO of Employ, whose clients include Netflix, Spotify and Logitech. “Right now, we’re seeing a disconnect between how recruiters and organizations feel today about the labor market and how they think about their hiring efforts in the future.” 

Even though 77% of organizations have not implemented a hiring freeze or reduced 2023 hiring plans, more than half of HR decision-makers are worried about layoffs impacting their organization next year, the report emphasizes. Meanwhile, 8% believe that they will make fewer hires in the next 12 months. 

“This contradiction reinforces the uncertainty that exists in the current economic climate and reality of the labor market,” Kelly said, “As a result, we can expect organizations to align business expectations and employee headcount in early 2023. This will translate into a continued softening of open jobs as businesses pull back on job openings.”

From an industry perspective, Employ’s data reveals that several sectors saw increases in total jobs open between the second and third quarter of this year, while others saw notable losses. Total jobs open in healthcare grew by 5.2%, while professional services rose 5.6%. Meanwhile, internet software and services decreased by 7.6%, financial services fell 10.5% and information technology saw a significant drop of 12.3%. 

The decline in jobs for internet and financial services are due in part to the current economic climate as well as the tight labor market. According to the report, 60% of software and technology recruiters said competition from other employers was the main challenge facing their industry.

The report determined that organizations with an annual revenue of less than $25 million are among the most vulnerable. Many of these companies struggle most with the hiring process taking too long, according to 35% of recruiters. Sixty-three percent of these organizations report that there’s not enough people to fill positions, while 39% report that they are not able to compete with job seekers’ salary requirements. 

Looking toward the year ahead, employers can attract talent by way of factors like providing a quality hiring process and prioritizing the diversity, equity and inclusion (DEI) initiatives which are valued by so many prospective employees, according to the report.

“In 2022, millennials and Gen Zs began to demand social responsibility, diversity and inclusion as necessary conditions to consider working anywhere and as a motivating factor in the workplace,” said Ravi Gundlapalli, founder of the employee engagement and recruitment platform Mentorcloud, whose clients include Marriott, Merck and Santander. “The younger, and growing workforce will continue to demand that their leaders have strict ESG-focused policies and initiatives.” 

Reskilling has also become a strategic imperative and that will continue into the new year, Gundlapalli added. “If leaders embrace this, it will motivate workers to stay in their position and will be key in finding new talent,” he said. “The rapid pace of technological changes and changing business conditions have forced companies to use tools like AI for predicting future skills and ensuring employees learn new skills quickly and from each other.”

Linda Shaffer, chief people and operations officer at the HR background check platform Checkr, used by companies like Uber, Doordash and Warby Parker, pointed to a number of other factors that will aid companies in finding the best people in the coming year, including prioritizing the quality of applicants over the quality, developing strong brand strategies to reach prospects, and looking beyond traditional job descriptions in order to hire for roles that may not have even existed a few years ago.  

Crucially, employers must also continue to remain agile and flexible, noting that work/life balance remains a key priority of the workforce. “Businesses must take this into consideration when recruiting in order to attract the best possible talent,” she said.

To be sure, companies that underestimate employees’ continued desire for remote and hybrid work arrangements do so at their peril — and that includes prospective employees. According to the Employ survey, recruiters say one of the main reasons job seekers are rejecting offers is that there is no remote or hybrid option. 

After it shifted to permanent remote work in August 2020, the small business marketing firm Vista saw a 300% surge in job applications, according to Paul McKinlay, vp of communications and remote working at Vista and its parent company Cimpress. Significantly, 71% of Vista remote team members polled said their work/life harmony had improved because of the company’s remote-first approach, while the same percentage believe the policy gives the company a competitive advantage. 

“I think that for those who can work remotely and who have through the pandemic, they’ve experienced a level of freedom and empowerment,” McKinlay said. The experiences employees have enjoyed throughout the pandemic with the rise of remote work — from having lunch with a partner to picking the kids up from school to having the opportunity to be more connected to friends and family — “are just things that can’t be replicated,” he stressed.

Employers will need to continue to expand their workplace models to meet the needs of employees in all aspects of work life, including remote vs. in-person, compensation, benefits and culture, added Danielle Crane, chief people officer at OneStream, an intelligent finance platform which counts among its clients The Carlyle Group, AAA and Fruit of the Loom. 

“Job seekers know exactly what is meaningful to them when choosing a new employer,” as Crane put it. “If companies do not adjust to their employees’ or potential employees’ desires in 2023, they will miss out on strong talent.”