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Jobs 101 (Part Two): 7 Key job market trends

Aug. 03, 2023

Learn about 7 key job market trends—and why traditional metrics aren’t capturing offshoring, the green economy and underemployment.

Technological Innovation & Disruption

Tech innovation has always played a disruptive role in the job market. The steam engine, for example, drove an extraordinary reduction in the demand for human-powered manual labor across every sector of the economy. Today, mechanization continues to reshape the job market—joined by computers and increasing computing power, robotics and automation, and now artificial intelligence—enabling businesses to produce more with less labor.

The increased efficiency of a disruptive tech innovation typically leads to a short-term dip in labor demand—a dip that has nothing to do with the business cycle. In fact, tech innovation is generally a boon to businesses, driving higher productivity and profitability. Disruptive tech also shifts the labor demand to new areas, and creates entirely new types of demand. In fact, a recent article from Goldman Sachs points out that 60% of U.S. workers today have jobs that did not exist in 1940.

The labor supply takes time to respond to changing demand. Tech innovation subtly shifts skill requirements, necessitating upskilling and reskilling in the workforce. And while tech disruptions can displace jobs or entire businesses (think film development in the 2000s), the net number of jobs often bounces back as those same technologies create new opportunities for businesses. For example, as a firm leverages new tech to produce more or new types of products, they may reallocate labor demand from manufacturing to sales and marketing to help them move all that efficiently produced product.

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Skills Mismatches

As alluded to above, tech advancement often shifts skill requirements for existing jobs, while leading to the creation of new jobs with completely new skill requirements. People need time to catch up with this shifting demand and to upskill and reskill—to obtain new training or go back to school to get a specialized degree. Educational and job-training institutions, as well, take time to develop and expand instruction in new and emerging areas.

This lag period, where the skills possessed by the available labor supply do not align with the skills demanded by employers, can produce higher unemployment along with higher job vacancy rates. These job market dynamics don’t necessarily correlate with the business cycle and can defy the standard understanding of how these metrics typically interact.

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Demographic Changes

Demographic shifts, such as aging populations and changing workforce composition, have profound effects on the labor market. The retirement of the baby boomer generation in many countries is leading to a shrinking workforce and skill gaps in certain sectors. Additionally, increasing workforce diversity, including gender, ethnic, and cultural diversity, is shaping labor market dynamics and highlighting the importance of inclusive policies and practices.

The changing demographics of the U.S. population naturally play a major role in the qualities of the labor supply in the job market. Currently, the biggest demographic factor influencing the U.S. job market is the “graying” of the American workforce. As the baby boomer generation moves toward retirement, the U.S. Census Bureau reports that the median age of the population has gone from 30 in 1980 to 38.9 in 2022. BLS stats echo this, showing that the median age of the U.S. workforce rose from 39.6 in 2001 to 41.7 in 2021. The percentage of the US workforce who are over the age of 55 went from 13.1% in 2000, to 23.6% in 2020.

A rapidly aging workforce impacts the labor force participation rate, while also weighting the labor supply toward the more experienced (and higher priced) end. It also presents the oncoming challenge of the so-called Silver Tsunami—the wave of retirements that will hit in the coming decades—reducing the overall available supply of labor and leaving large skill gaps in many areas of the job market.

Age is just one demographic factor which impacts the job market. Workforce participation among women surged over the last several decades, increasing the overall labor supply. Women’s workforce participation also saw a larger drop during the pandemic than that for men, though it has since bounced back.

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Gig Economy and Flexible Work Arrangements

Gig work has surged over the past several years. Accelerated by the pandemic, advances in technology and connectivity make gig work more seamless for workers, and new and better platforms more efficiently connect employers and gig workers. Estimates suggest around 8.5% of the U.S. workforce now participates in the gig economy.

The fuzziness in the size of the gig economy alludes to one of the primary issues as it relates to the broader job market: Traditional job market metrics—which intentionally leave out part-time workers and self-employed persons, and often exclude demand for part-time work—do not fully or reliably capture the impacts and dynamics of the growing gig economy

Yet it’s clear that the growing gig economy is changing job market dynamics in significant ways. Workers increasingly feel empowered by the opportunity to choose their own schedules and take greater control of income and work-life balance. Employers are shifting more work to project- or gig-based models. These changes have major implications on labor force participation, job openings and hiring rates, and challenge traditional understandings of job security, job quality, and worker protections.

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The most well-known job market impact of globalization is job offshoring: U.S. companies moving operations to other countries to take advantage of lower labor or operational costs or preferential regulatory or tax structures—and thus taking labor demand overseas with them.

Global competition often increases the adoption of job offshoring strategies, as it adds pressure to find cost-efficiencies, which can also include leveraging automation, reductions in the overall workforce, and other cost-cutting strategies that impact labor demand. On the flip side, globalization creates new business opportunities, driving growth and potentially increasing labor demand for U.S. companies. Foreign investment, too, can drive growth (and expand labor demand) in the U.S. job market. And globalization promotes the movement or migration of workers between countries, changing the size and makeup of the labor supply. Globalization also produces more complicated impacts, such as increased labor specialization in certain sectors or skill sets.

An overarching reality is that globalization increases the pace of change across the economy and the job market. Technological innovation, skill mismatches, and even the gig economy are closely interrelated with increasing globalization.

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Environmental Sustainability

The growing awareness, focus and urgency regarding environmental sustainability continues to drive more sizable impacts on the economy and job market. The transition to a green economy increases labor demand in emerging sectors focused on renewable energy, clean technologies, energy efficiency, waste management, sustainable agriculture, and environmental conservation. And as businesses in every sector prioritize sustainable practices, labor demand is evolving to include new skill requirements in sustainability-related areas—from renewable energy systems, environmental sciences, and sustainable design and construction, to green finance and environmental policy.

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Workforce Well-being

The last few years have seen a notable rising focus on workforce wellbeing, mental health, and work-life balance. The societal prioritization of workforce wellbeing (and changing definitions of job quality) is empowering workers to ask for more and to expect better working terms and conditions. It’s also leading some to voluntarily sit on the sidelines of the job market, rather than accept lower-quality labor demand—impacting the labor force participation rate.

Employers have been responding by improving benefits and compensation, as well as by reconsidering expectations and requirements that impact worker productivity. These changes affect essential employer equations around the cost of labor (the incremental cost to add labor) and labor demand (how much labor is needed to achieve a targeted level of productivity).

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