As we approach 2025, LaborIQ’s outlook for the labor market is that the labor market will continue to cool following years of record growth. Based on insights from Chief Economist Mallory Vachon on a recent podcast episode, here’s how leaders can navigate the labor market and interpret the confusing signals from hiring and compensation using data.
Slower, Steady Growth Is the New Normal
The economic landscape has evolved considerably over the past four years. Throughout 2021 and 2022, demand for talent was strong; and businesses added 14 million new hires in just a 12-month period. This year we’ve seen closer to 2.5 million new hires, which is more in line with normal levels. This drop may feel like a downturn, but it’s simply a move toward sustainable growth.
The labor market is stabilizing – a promising sign for long-term economic health. However, many industries may still face challenges. Job gains have been concentrated in a few sectors, with government, healthcare, and leisure and hospitality accounting for nearly two-thirds of new jobs added over the past year. Private sector growth has been more sluggish. The good news is that layoffs have not increased substantially, and we haven’t seen a big spike in the unemployment rate or unemployment insurance claims.
The Continued Push for Pay Transparency
One trend shaping the landscape is pay transparency. About one-third of U.S. workers live in areas where pay transparency laws are in place, and many companies are adopting this model ahead of regulation.
“Job candidates are more likely to click on postings with disclosed pay ranges,” Mallory notes. " HR teams have been underwater for quite some time. You don't want them wasting time with a candidate who is not going to be a fit, or you're not going to be able to align on compensation.”
Generational Shifts and Workplace Expectations
The rise of younger generations in the workforce brings new expectations around workplace culture and communication. In particular, Gen Z is pushing for more openness, from mental health to salary discussions.
As Mallory points out, this shift is reshaping how companies approach compensation conversations: “Communication is key. Companies need to equip their managers to handle these discussions, reinforcing the values behind their pay strategies.”
Culture shifts aren’t the only generational changes making an impact. Over the next few years, the number of baby boomers leaving the workforce may be as high as 20x the number of young workers entering the workforce. This will force companies to make dramatic internal changes to adapt, like moving younger workers into management roles.
To get more depth and insight into these hiring conditions, subscribe to LaborIQ’s newsletter. LaborIQ Insights empowers HR teams to make informed decisions, whether it's setting realistic hiring targets or building transparent compensation structures.
