On Friday, June 2nd, the US Bureau of Labor Statistics announced that American companies had created approximately 138,000 new jobs and that the Unemployment Rate had dropped to 4.3%, a level not seen since May 2001. Unbeknownst to many is that the U.S. was in the early stages of a recession back in the Spring of 2001. In fact, according to the National Bureau of Economic Research (NBER), what many commonly refer to as the dot-Bomb recession started in March of 2001 and ended in November of 2001.
I remember that timeframe well. Sales at a variety of firms whipsawed over the course of the Summer. Good months were intermingled with rough months. Getting traction was challenging and the general business climate felt slippery. Many companies put the brakes on spending. Tragically, 911 unfolded and further inhibited an already wobbly economy.
In our current economic climate, the 4.3% unemployment rate has yielded a general sentiment among many economists that hiring demand is going to slow for several reasons: 1) A general lack of quality workers, 2) Scaled back corporate growth goals (attributable to a basic lack of talent), and 3) an unsettled political climate where the likelihood of growth being fueled by government stimulus programs looks less realistic, at least in the near-term.
In considering the 4.3% Unemployment Rate, I started to wonder, “How low can it go?” After all, unemployment was 9.9% in 2010 and has been trending downward for over seven years. Has the unemployment rate hit rock bottom? I’m taking a contrarian view – barring something unforeseen, I believe that the overall rate can still trend a bit lower even though some economists argue we are now at “full employment.” On Tuesday, June 6th, the Business Roundtable released its Q2 economic outlook for CEOs, which reflected heightened confidence regarding the outlook for both sales and capital spending. While there was a modest dip in sentiment regarding new hiring, firm’s that anticipated a decreasing their workforce also dropped. Beyond questioning whether the unemployment rate can go lower, I think it’s valuable to understand what a progressively tightening employment market may mean for recruitment in the near-term. I expect that we are likely to see some semblance of these four near-term impacts:
Companies will do more to focus on talent retention. The cost of turnover (losing an experienced employee and hiring/training a replacement) is only getting more expensive. Smart companies will increasingly adopt practices (i.e.: sign-on and retention bonuses, mentoring and career development programs, and other incentives) to lock in talent and make the process of departing more challenging.
Companies will work harder to further streamline and enhance their talent brand and the overall recruitment process. The recruitment experience will become an increasingly better-choreographed affair, with firms striving to distinguish and differentiate themselves to prospective candidates.
For those skill sets that are in acute demand, expect to see ongoing wage inflation and more counter-offers. In an era of specialization and sub-specialization, mission-critical talent is just that: mission-critical. Companies will be forced to pay more for key players.
Finally, I think that more companies will begin to invest, or increase their investment in growing and developing their own talent reservoirs, if only as a means of a more reliable source of talent. Internal training programs may also serve as a retention mechanism and could help to reduce attrition.
In summary, I believe that unemployment can go lower than 4.3%. As a result, employers will have to get ever more creative – not only with respect to their pursuit of talent to fill new positions created by growth but also in terms of how they hold onto and preserve existing talent. The firms that figure out how to accomplish these objectives are likely to enjoy a true competitive advantage in both acquiring and sustaining a dynamic and responsive workforce.
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