Nonfarm payrolls rose 225,000 for the month, well above Wall Street estimates, and the unemployment rate ticked higher, to 3.6%. Labor force participation rose 0.2% to 63.4%, matching its highest level since June 2013, according to data released Friday by the Labor Department.
But for businesses across the U.S., there seems to be a general consensus that hiring is a major challenge. In fact, a recent survey found that 26% of small businesses say finding qualified talent is their biggest problem right now — a 46-year high.
On the heels of the Great Recession, businesses may feel that hiring is impossible and bound to improve soon. But in 2020, businesses should prepare for a greater hurdle in their hiring challenge: an actual tight labor market where workers call the shots.
The idea that labor markets aren't tight — yet — will come as a surprise for many business owners who are currently feeling the pressure of hiring. And with unemployment at just 3.6%, the data may seem to be confirming that labor markets are tight already. However, the share of prime working-age adults with a job, which is a wider and more accurate measure of labor market tightness, is still below where it was for much of the late 1990s.
Even December's lower-than-expected job growth of 145,000 was more than enough to keep up with population growth. Additionally, when taking a step back and looking at the overall health of the labor market, employers are still managing to add 2 million new workers every year without raising wages at a fast pace. Does that sound like there is nobody left to hire?
To understand why businesses think it's hard to hire, it is important to keep in mind that it has been nearly two decades since the labor market has been genuinely healthy. Business owners and hiring managers have gotten used to the glut of workers that is characteristic of a weak labor market. They have not had to manage in a truly tight market in a long time, and many under the age of 35 have never had to do so. They have grown accustomed to applications rushing in without raising pay much and to workers who don't have much bargaining power.
Now imagine instead of plenty of workers on the sidelines who need a job, it's two years from now: Hiring has continued apace, and labor markets are truly tight. Many who have the skills businesses need already have work, and the balance of power is in labor's hands. The stronger economy will mean that workers will get to dictate the terms of when and how they want to work and businesses should be prepared.
Aside from requests for wage increases and bonuses, more flexibility will be a top demand from talent. This will look different for every worker, but businesses should be prepared for demands for more flexible schedules and the ability to work remotely and even greater choice to be an independent professional.
We already see this shift occurring. Upwork's "Freelancing in America: 2019" (a survey Upwork co-commissions with Freelancers Union) found that for the first time since 2014, more workers are freelancing as a long-term career choice than as a temporary one. This shows that those who want to work independently are increasingly able to do so.
This tightening labor market does not mean that businesses can't succeed, but it will mean that they need to prioritize hiring. This means investing and developing greater capabilities in one aspect of their business: finding and retaining workers. To do this, businesses will need to rethink their current strategies to accommodate this change in the labor market. Here are four strategies for hiring and retaining top talent in a truly tight labor market.
For business owners, my advice is simple: It's time to prepare. While we are still not yet at full employment, take the time to understand and leverage both the risk and opportunity of tight labor markets. Businesses may not like having to work harder to hire, but that's a crucial ingredient for widespread prosperity. Growth in income for workers and broader opportunity to work in more places will spur consumer spending, and the economy overall will grow, which is ultimately in everyone's best interest.
—By Adam Ozimek, Upwork's chief economist
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