After years of fast-moving changes and unprecedented disruptions, the new year offers a chance to look ahead and ask: what will the labor market bring in 2024? Will a recession finally come? What will follow the trends of The Great Resignation and Quiet Quitting that saw workers exercise reevaluate their relationships with their workplaces? How will the labor market react to other factors reverberating through the economy?
Looking at Lightcast job posting data and the first reports of the new year from the Bureau of Labor Statistics, Lightcast experts see three key trends: we’ll achieve a soft landing without a recession, the push and pull between workers and employers will find a more even balance, but unlike past years, the labor market will feel the impact of other trends, rather than exerting its own impact.
No Recession In Sight
The latest Employment Situation Report from the BLS reported that the US added 216,000 jobs in December, and the unemployment rate held steady at 3.7%. Though up slightly from its record low at 3.4%, which it hit twice in 2023, unemployment has shown remarkable consistency, staying under 4% since January 2022.
“If you’re looking for signs of a recession, they’re just not there,” said Lightcast Senior Economist Ron Hetrick, who has advised Federal Reserve chairs, Congress, and the White House Council of Economic Advisors. “Employers may be doing less hiring, but most are holding onto the workers they tried so hard to find in ‘21 and ‘22. If unemployment remains in the historically low, under 4% range in coming jobs reports, then we’re looking at a tight labor supply for at least the start of 2024. That alone could keep us out of a recession.”
The job growth and low unemployment are complemented by an uptick in wages, which rose by 15 cents per hour in December. The year-over-year wage growth accelerated from 4% in November to 4.1%, with a more pronounced increase in the three-month annualized rate. This wage growth reflects a labor market where businesses are actively competing for employees, further indicating that the economy is not heading towards a downturn.
Greater Bargaining Balance Between Employers and Workers
While employers still have openings to fill, other shifts are signaling a departure from previous trends: workers don’t have quite the same degree of leverage they’ve enjoyed over the past several years. This change is a subtle yet significant shift from the recent dynamics, where high job openings and the rise of remote work had heavily tilted the scales in favor of employees, especially as businesses rushed to hire back the workers they laid off in the early weeks of the pandemic.
The most recent Job Opening and Labor Turnover Survey (JOLTS) reported stable job openings at 8.8 million and a minor decrease in quits to 3.5 million. At the peak of the reshuffle that sent workers looking for new opportunities, quits topped 4.5 million in November 2021, and came close to tying that record at 4.49 million in April 2022.
The steady decline in quits suggests that the bargaining power in the job market is reaching a state of equilibrium. Workers are less likely to quit their jobs if they’re less confident in their ability to find a new one. As a result, quits can serve as a useful proxy for worker confidence, and any dip is significant. The ongoing tension about return-to-office mandates is another place this might play out: corporate leaders may feel like they have more leeway to make demands if workers have fewer alternatives.
But it’s important to note that greater balance doesn’t mean that employers hold all the cards. The labor force participation rate dropped in December, down 0.3% to 62.5%—the lowest it’s been since February. That dip could lead to increased wage pressures, as fewer workers in the labor market often result in heightened competition among employers for talent. This trend also highlights potential long-term challenges to the labor force, especially considering the aging population in the US.
“Workers may not have bargaining power they had in 2021, but overall they’re in a good position,” said Lightcast Senior Economist Layla O’Kane, author of several research reports in partnership with policy organizations including UNESCO, OECD, and the Gates Foundation. “Employers and employees have been working through a lot of the issues around remote or hybrid work, and employers are making more of an effort to retain workers. The churn in the market is easing, but there are still enough openings to give workers options.”
External Pressures Keep Mounting
The labor market has dominated conversations about the economy since the scramble to adapt to and recover from the pandemic first took hold. But in 2024, that dynamic is likely to shift: instead of considering the labor market first and foremost, employers and workers will have to consider it in relationship to other factors, such as housing costs and investment money.
“High housing prices leave workers tethered to a specific region and unable to move for a new job,” Hetrick also said. “And higher interest rates have slowed down investment, which has had a major impact on how much hiring startup companies can do as they bring products to market.”
The December Consumer Price Index came in slightly hotter than expected, at 0.3% for the month and 3.4% annually, even as other signals and past reports have suggested the Federal Reserve is winning the fight against inflation. As mentioned above, wages continue to increase for workers, which is good news for individuals but bad news for anyone (like the Fed) hoping that inflation will cool. This puts the central bank in a difficult position: though investors and homebuyers are eagerly anticipating interest rates to come down, a hot labor market might dissuade them from doing so. Whether from uncertainty or from high interest rates, private equity investors are less likely to support big hiring pushes in the foreseeable future—but that doesn’t mean that overall hiring will be paused, because openings still need to be filled.
“Right now employers are hiring to keep the doors open, rather than to expand, but they’re also not letting workers go,” said Lightcast Senior Economist Elizabeth Crofoot, former senior economist at The Conference Board and former supervisory economist at the BLS. “That’s close to the ‘Goldilocks’ job market that the Federal Reserve has been trying to achieve. But this is still a tight market that’s facing a long-term worker shortage. So it wouldn’t take much of a jolt to set labor demand racing off again.”
Another significant factor will be the US presidential election, which will dominate news coverage and could leave many businesses cautious about making plans in an uncertain political climate.
So with the high-pressure worker shortage of the past few years behind us, and no indication of a looming recession, the labor market of 2024 promises mostly good news. But with the uncertainty of external economic and political pressures still ahead, employers need to be intentional and deliberate about their workforce planning. With better data driving better decisions, everyone involved with the labor market can be better prepared to achieve success—no matter what 2024 brings.
