What will 2023 be like for… the labor market?

Historic labor market shortages, sharply fluctuating stock prices and inflation reaching into the double digits. 2022 has been quite an eventful year economically. But what will 2023 bring us? In this series, Charles Kalshoven, macroeconomist and senior strategist at APG, explains what we can expect regarding the housing market, our purchasing power, the economy and more, in the coming year. Today part 2: What 2023 will be like for the labor market?

The labor market broke three records in the first quarter of this year. There were 133 job openings for every 100 unemployed in the first quarter. The total number of job openings increased by 59,000 to reach 451,000. And the number of jobs rose sharply, by 127,000, reaching the record number of 11,244,000. Will the tightness in the labor market continue or will the upcoming recession throw sand in the wheels?

Job opening rate
There are still a lot of job openings: 121 for every 100 unemployed, CBS figures for the third quarter show. “And there is also another way of measuring that shows the tightness in the labor market. That is the job opening rate, also by CBS,” Kalshoven explained. “That one looks at the number of vacancies per 1,000 jobs, which is currently at 51. Only in the last quarter was that figure higher, at 54. If we look at the average vacancy rate over the past 25 years, you end up with 23. We are now at more than double that. That does indicate that, despite the approaching recession, it is still fairly easy to find a job.” Kalshoven expects the same to be true next year. “Of course, in a weaker economy, the number of ‘hands’ needed tapers off, but I think it translates mostly into less significant shortages. For many employers, conditions also have to get very bad before they want to part with staff that was recruited with great effort.”

There are four sectors where the vacancy rate is above average: construction, hospitality, information & communications and mineral extraction. “In construction, you could say that the number of openings might decrease somewhat if projects have to be postponed due to the nitrogen issue, but even in that case there would still be a lot of vacancies,” Kalshoven says. Remarkably, education has one of the lowest vacancy rates at 21 vacancies per 1,000 people in employment, even though the government is taking measures to combat the shortage in that sector. “However, if you compare it to the last 25 years, the current vacancy rate for education is also high. And of course, a class without a teacher is socially more drastic than a pub without a bartender.” 

Wage-price spiral
Rising employment opportunities, according to the Central Planning Bureau (CPB), will occur mainly among employees rather than among the self-employed who, on the contrary, showed stable growth during the Covid years. The fact that demand for workers remains high translates partly into more jobs and partly into higher wages (around 4 percent). Next year, that will yield an improvement in purchasing power. Still, Kalshoven doesn’t think there will be a wage-price spiral. “Wages are not following this year’s inflation, which is trending into the double digits. That reduces the chance that inflation will reinforce itself.” 

The CPB expects there to be more employed people in 2023, but also more unemployed. Kalshoven: “That seems contradictory, but what’s behind it is a rising labor force. This is partly because the population between the ages of 15 and 75 is growing, and partly because a larger part of that population wants to work. The estimate is that about 140 thousand more people will come forward, of which roughly two-thirds will find a job - and one-third will not.” The CPB assumes that unemployment will rise from 3.4 to 3.9 percent, or from 340,000 to 385,000 unemployed. A number that, Kalshoven says, is all within limits: “If you become unemployed it can be financially and personally devastating. In that sense, any increase is undesirable. At the same time, an unemployment rate of 3.9% is historically very low. Apart from this year, 2022, we have to go back to 1974 for that kind of rate. That was quite a long time ago: that year the world was just getting to know ABBA and Ike and Tina were still together.”

ICT is a sector with many job openings. Yet the number of vacancies is less above the long-term average than in other sectors. The sector excels less in relative growth. It is a trend that has been going on for some time in the United States, where many tech companies have recently laid off many employees. “ICT workers have less to choose from compared to the past, but their job prospects are still far from poor,” Kalshoven said. “Incidentally, you also often see that a recession leads to a realignment in the labor market and to new opportunities for the future. For example, Google started hiring after the dotcom bubble burst, when many techies were looking for new jobs, allowing the company to grow rapidly.”

Insanity
“The job vacancy rate is still very high, wages are up about 4 percent and the minimum wage is actually up 10 percent,” Kalshoven summarizes. “That means most jobs will pay better in 2023 than they did this year. This year, of course, the job market was very extreme. Just think of those ads where employers would come and ‘apply’ at an employee’s home. You also sometimes saw that you could apply via WhatsApp or snapchat or without a resume. That insanity will probably dissipate some by next year, but it’s still a good market to find a job.”