New government jobs data shows the U.S. labor market is still strong, with a record low unemployment rate of 3.5%.
“The unemployment rate is the lowest in 50 years,” President Joe Biden said on Friday. ”We have just finished the two strongest years of job growth in history.”
Yet as the Federal Reserve looks to curb inflation, there is the risk the job market may decline in 2023. The question is whether that will result in a “soft landing” or full-blown recession.
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“A soft, beautiful perfect landing is still going to mean a lot more layoffs and a much softer labor market,” said Andy Challenger, senior vice president at outplacement firm Challenger, Gray & Christmas.
For workers who are looking for jobs now, there’s a lot of urgency, he said.
“Today is better than it’s going to be six months from now,” Challenger said. “So I would try to make your moves as soon as possible.”
Job-switchers more likely to get a raise above inflation
The latest data shows job switchers have seen 7.7% wage growth as of November, while workers who have stayed in their jobs have seen 5.5%, noted Daniel Zhao, lead economist at Glassdoor, citing figures from the Atlanta Federal Reserve.
However, workers may not be currently seeing wage bumps quite that big, due to the fact that data looks back over the past year, he said.
Higher pay has been needed to keep up with inflation. The consumer price index, a measure for a wide basket of goods and services, was up 7.1% in November compared with the previous year.
Wage growth, based on average hourly earnings, is up 4.6% from a year ago.
“People who switch jobs are much more likely to be getting a raise above inflation than people who are staying in their jobs,” Zhao said.
One caveat is that real wage growth may exceed inflation in 2023, if present trends hold, according to Curt Long, chief economist and vice president of research at the National Association of Federally-Insured Credit Unions.
But with a possible economic downturn looming, workers seeking higher pay face a more complex decision as to whether to stay or go.
‘Best way to know your worth is to get an outside offer’
The gap between wage growth for job switchers and job stayers is the highest on record, at 2.2 percentage points versus 0.7 percentage points historically, noted Julia Pollak, chief economist at ZipRecruiter.
“There’s a big incentive for workers to job hop,” Pollak said.
New pay transparency laws, which require employers to disclose the pay ranges they’re willing to offer new employees for advertised positions, may also help, she said.
Those laws are currently in effect in Colorado, California, Washington and New York City. In September, New York state will follow.
People who do not live in those areas can still find pay information on websites such as ZipRecruiter, Glassdoor and others, she said.
With pay rates so competitive now, even some laid-off workers are finding higher offers than what they were earning before, according to Pollak.
“The best way to know your worth is to get an outside offer, which makes the whole thing real,” Pollak said.
Look for a pay match in your current role
Workers who see new hires getting paid more may want to approach their current employer, Pollak noted.
Tell them you love your job, have learned a lot and are committed to the company, yet you have learned your income would be higher elsewhere. “If you can match that, I would be thrilled to stay,” Pollak suggested saying.
Employers may have more reason now to pay to retain talent. A record 4.5 million workers quit their jobs in November, an 8.9% increase from the previous month.
“We’re still seeing a lot of job churn,” Long said. “People are leaving current jobs, finding new jobs, at a rate higher than it was previous to the pandemic, but it’s lower than it was early in 2022.”
Often to have a valid request for more pay, you have to put in the work and win job interviews and get job offers, according to Challenger.
“It’s the way you go out and verify your worth in the market,” Challenger said.
If you go that route, you must be prepared for the fact that your current employer may not match the offer.
“You do have to be willing to move,” Challenger said.
Changing jobs before a downturn is ‘a balance of risk’
Admittedly, the decision of whether to make a big career move right before an economic downturn is “always a balance of risk,” Challenger said.
If a company decides to pursue layoffs, they may follow a “last in, first out” policy that leaves the newest hires with pink slips. “It’s not risk-free to move jobs in the middle of a falling market,” Challenger said.
“But right now you have more leverage than you’re going to have six months from now,” he said.
While the job market is still healthy, it is not as hot as it was six or 12 months ago, Zhao said. In 2023, that may translate to slower hiring and subdued plans for pay raises, he said.
Before making a move, it’s worth considering whether there are aspects of your job that can make up for not getting the exact raise you want. For example, if you can negotiate working from home one more day per week, that can help save money on gas or other transportation costs, Zhao said.
Also, consider other compensation in the form of benefits and the value of your happiness in your current position. “Base pay isn’t everything,” Zhao said.
After evaluating your options, the best approach is to take an “educated risk,” he said.
“If you never take any risks, then it’s going to be difficult to get the pay raise or job that you want that’s the right fit for you,” Zhao said.