The 2020 hiring and compensation vision

“We are seeing demand softness building in every market segment,” wrote a Wisconsin metal products producer, reflecting recent reports of a slowdown in manufacturing.

Still, in spite of such reports, firms in the Federal Reserve’s Ninth District continue to report difficult hiring conditions, according to a recent survey conducted by the Minneapolis Fed about hiring and compensation plans over the coming year.

About 90 firms in an array of industries from across the district responded to the survey, conducted in late November. Nearly half of them (49 percent) reported that they were planning to increase total employment at their firms. Most of the remainder were expecting to leave employment unchanged, but some of those firms were still hiring to replace turnover, just not increasing total head count.

Just over 10 percent were planning to cut staff (Chart 1).

Solid demand appeared to be driving hiring expectations. Among those firms that were planning to increase employment, 57 percent cited expected high growth of sales as the most important factor behind their plans. An additional 18 percent of firms cited strong sales as their second-most important factor behind expanding their workforce.

Having overworked staff was also a prominent consideration behind hiring plans, as a quarter of respondents cited that as the most important factor behind increasing employment, and 34 percent identified it as the second-most important factor. While only 7 percent of firms reported that needing skills not possessed by their current staff was their most important factor, it was cited as the second-most important factor by 27 percent.

Still, a tight labor supply and a skills gap continued to hamper hiring, according to respondents. Nearly half of all firms (49 percent) reported that being unable to find workers with the required skills was the most important factor restraining their hiring plans.

Expected low growth was next-most frequently cited as the biggest restraint on hiring, at about 17 percent of respondents. An additional 15 percent of respondents cited either lack of skilled workers or expected low sales as their second-most important constraint on hiring. A quarter of firms indicated that a desire to keep labor costs low was the second-most important restraint on hiring, and about a fifth of businesses cited high labor costs. One firm in 10 reported no sources of restraint on hiring.

Given solid hiring expectations and tight labor markets, it might be expected that employers are raising wages to attract new workers, and that appears to be the case. Of firms that are hiring either to increase head count or to replace turnover, 44 percent reported that they were raising starting salaries or wages for most job categories, and an additional 28 percent said they were raising pay for some (but not all) jobs. Still, more than a quarter of firms that were hiring said they were not raising starting wages.

Additionally, some firms were taking steps to hang on to existing employees. Half of all respondents (including those who weren’t actively hiring) reported increasing pay for most existing employees at a faster rate than in recent years in order to retain them. A fifth of firms indicated that they were raising pay at a faster rate for some, but not all, employees.

Businesses also reported some other strategies outside of wages. Of respondents who were dealing with hiring difficulties, 47 percent reported that they were hiring less-qualified workers in the hope of training them on the job (Chart 2). Nearly half indicated that they were increasing advertising of open positions. And 43 percent of those businesses said they were investing in technology to reduce the need for new hires.