January 5, 2023

3 labor market trends that will impact talent planning in 2023

Aligning the workforce with business needs is challenging, even under more predictable conditions. Today’s economic and labor market climates, riddled with uncertainties, only exacerbate that difficulty.

Yet again, organizations are looking at a turbulent year, which will undoubtedly impact HR teams and talent-planning strategies. While it is impossible to foresee every eventuality, some key issues may impact talent planning more than others — and it’s critical to plan for them. 

Below, we explore three labor market trends that will impact talent planning in 2023 — and ways HR leaders can navigate talent planning in 2023 as they face another year of uncertainty.

An economic recession

The strained economy is already impacting the labor market and organizations’ ability to acquire and manage talent.

High-interest rates, a cooling housing market, and an ongoing hiring freeze at big tech companies are leading people to stay in place longer, both in their homes and at their jobs, said Shannon Gaydos, Customer Success Executive at Eightfold AI. Unfortunately, this makes it more difficult for employers to fill open positions, especially once they feel they’ve exhausted their local talent markets.

The impending recession is also causing people to re-evaluate priorities, said Rebecca Warren, Director of Customer Success at Eightfold AI. Warren said many people are switching industries, returning to school, creating new revenue streams to work more flexible schedules, and looking for remote-only positions. These trends make it more challenging to build workforces with traditional methods. 

Related: Learn how DICK’S Sporting Goods develops a winning talent strategy with AI-powered insights to upskill and redeploy its workforce.

The downturn may also require companies to find ways to do more with fewer people, but there’s a risk in letting too many people go to save money.

Colin Emerson, Strategic Account Manager at Eightfold AI, cautions talent teams to be careful about shrinking their workforces because when the economy picks back up, there will be a “hiring feeding frenzy” for top-quality candidates to refill roles. 

Federal policies that dampen employment

The Federal Reserve is looking to combat the highest inflation rate in the United States in 40 years. Those policies are going to impact the labor market. 

“If the economy continues to slow at this gradual pace, and without a significant downshift in the labor market, the Federal Reserve will continue to raise interest rates at a rapid pace in 2023, increasing the chances of a ‘hard landing,’” said Sania Khan, Chief Economist at Eightfold AI. “Fitch Ratings expects the U.S. economy to face a recession starting the second quarter of 2023, but robust U.S. consumer finances will help cushion its impact.” 

The Associated Press writes that the Fed is anticipating slower economic growth, higher unemployment, and a possible recession as the critical factors to taming inflation.

3 labor market trends that will impact talent planning in 2023

The Fed’s mission is to tame inflation, even if that means nudging unemployment numbers upward. That’s why decisions at the federal level can potentially hamper companies’ abilities to meet their workforce needs. As a result, businesses might be more cautious about hiring and could try to find ways to do more with fewer people and resources. 

Evolving worker expectations

Another factor contributing to talent-planning struggles is the change in worker expectations, particularly the option to work remotely or to have a hybrid work schedule. People have new expectations for how and where they work, and they will battle for remote roles. And when they don’t get it, they leave for other opportunities.

When people have the chance to work flexibly, 87 percent of them take it,” McKinsey reported in a survey about flex work. “This dynamic is widespread across demographics, occupations, and geographies. The flexible working world was born of a frenzied reaction to a sudden crisis but has remained a desirable job feature for millions. This represents a tectonic shift in where, when, and how Americans want to work and are working.”

Khan also shared in a GoBankingRates interview that the surge in the number of workers out sick due to ongoing long COVID infections could also lead to more workers choosing to join the gig (and remote) economy.

In fact, according to Eightfold AI data and analysis, there could be a 25 percent increase in the number of contingent workers in the United States in 2023 due to these changing worker demands.

HR must take a more holistic approach to talent strategy

One way to do that is to bring everyone in HR together to build out talent strategies. 

Andrea Shiah, Head of Talent Strategy and Transformation at Eightfold AI, said, “There seems to be a growing realization that talent strategy should be holistic and not siloed by different HR functions like talent acquisition, talent management, workforce planning, learning, and diversity.”

3 labor market trends that will impact talent planning in 2023

That more holistic approach enables organizations to put people first throughout the employee lifecycle. This allows employers to focus on bringing in and building up the best talent with the right skills, whether they are full-time employees or contingent workers. 

But building comprehensive, cohesive systems requires cooperation from functions within the HR ecosystem that often have complex relationships. This is particularly true for recruiters, people managers, and procurement teams, who often work independently of each other even though their roles are complementary.  

“It doesn’t pay to make a great hire if that person doesn’t stick around for very long,” writes Annamarya Scaccia, Director of Communication at the Korn Ferry Institute. “That’s why going forward, talent acquisition and talent management teams should work together more closely, from the start of the hiring process through career development and succession. By partnering together, recruiters and talent managers can create a more positive employee lifecycle.”

Talent systems need to be more agile

One lesson talent teams have learned from the pandemic is that rigid systems can harm planning when uncertainties arise. Being prepared for anything means building more agile talent systems. 

For many organizations, that means putting more focus on internal mobility. 

Hiring freezes and labor shortages require talent teams to reach beyond external recruiting to fill critical open roles. To become more flexible, HR teams need to create internal talent marketplaces to find current employees with the skills and potential to meet workforce needs.

3 labor market trends that will impact talent planning in 2023

AI drives efforts to insulate talent systems

Data is the critical element in solving talent challenges. 

“The use of AI and predictive analytics will become more prolific in forecasting to help identify the right roles, skills, and geographies to focus on the changing business,” Scaccia at Korn Ferry notes.

The big question for company leaders and HR teams: How do you leverage that data to solve pressing business challenges that arise? 

Predictive analytics can answer that question, helping talent teams build internal mobility programs. For example, AI can provide data on current employees’ skills and their skills adjacencies so they can be considered for new roles. 

AI also enables employers to quickly identify current and future skills gaps and offer data-backed solutions to close them. With more comprehensive sourcing, faster skills assessments, and job-matching capabilities, talent intelligence ensures that talent teams can adapt as necessary to changing environments — internal and external.

The technology also brings different HR functions together by centralizing data, enabling various teams to work within the same platform. That builds unity and supports a more holistic approach to talent strategy. 

Organizations need all the best tools to weather 2023. Understanding which external forces may impact talent planning, developing holistic and agile talent processes, and bringing in AI to accelerate strategic talent planning will get leaders to the other side.