This week, a headline in the Wall Street Journal announced the best labor market growth in a year. Does this suggest that the “Labor Groundhog” has seen its shadow? Probably not and it is too early to tell. The economic headwinds impacting labor markets have been improperly characterized as part of the politically divisive volleyball game that U.S. economic data is now subject to each report cycle. The realities of the labor market are more obvious than folks in the political spectrum want to admit. Economic uncertainty has gripped both employers and employees.

I have written previously about some of these topics, but the thaw is coming as eventually pent-up demand will have to be addressed. Employers buffeted by constant changing inputs to their risk matrix involving legislation, tariff polices, and regulatory policy shifts are concerned about not only whether to invest but also where to invest. The analysis of paralysis is overwhelming. Add to this toxic potpourri of anxiety the looming promise of AI. It is looming but unrealized based on all available studies. However, corporate boards push for the use of AI not because they understand either its potential or its shortcomings, but rather as a proxy for the term “hiring freeze.”  This obsession, by non-operational leaders at the Board level, with filling jobs with AI today happens despite the length of time it takes to both analyze processes and implement the AI systems. This pressure to hire AI bots ignores both the need for investment and the time required. It, however, successfully delays hiring humans.

Also, the labor market is being impacted by immigration policy. The low-skilled labor that may or may not be fulfilled by undocumented workers (a violation of the law as we all know), is less the issue than the fact that legal immigration channels need to be opened. Our sluggish labor market only shows a 4.3% unemployment rate. If the economy is booming  in North America, where are all the people coming from to work in the boom time?

Lastly, the workforce itself is nervous. Voluntary attrition remains at historic lows. Employees are not quitting in search of greener pastures, and there are limited workers available to change jobs if an employer has an opening. Most economic slowdowns are the result of employers being nervous; this is one of the few times the employees have joined the “angst fest.”

I do fear for some of the talent acquisition providers in the recruitment industry. Some are making horrible short-term decisions primarily pushed by private equity investors that believe in optimizing margins. The firms are doing this by cutting sales and marketing, which will damage future growth and cutting operational staff, which damages client services. These staffing industry players are being pressed by their investors to preen for a buying audience that does not exist right now. This drive to maximize margins driven by PE investors who do not understand the businesses is, frankly, short-term insanity.

For the HR leaders, the question is not whether the market will improve this year. The question is when. It will see improvement, but if it breaks open as it did during the early part of this decade after the pandemic, what plans do you have to be ready?  The pent-up demand issue is still there, and this portends a potential for a period of intense activity. I am not suggesting you invest to meet that demand today, but that somewhere in your office you have plans or partnership arrangements you can quickly dust off and activate when and if that time comes.

Elliot S. Clark
CEO