Skills-based hiring will continue to resonate even as the economy cools.
By Roy Maurer
Talent acquisition (TA) professionals are staring a possible economic recession in the face as 2023 advances, causing some to consider pulling back on hiring. At the same time, employers that are experiencing a skills shortage will be focusing on retention and candidate priorities, like flexibility and career development. And the buzz about skills-based hiring will only get louder.
Labor Market Will Cool
Coming off an economic roller coaster, 2023 will bring a sharp slowdown in hiring, most economists agree.
“This year we are seeing a slower pace of growth, as the economy comes back down to earth after a meteoric rise last year in one of the fastest recoveries we have ever seen,” said Karin Kimbrough, chief economist at LinkedIn. “Nevertheless, labor-market dynamics remain tight. So in many ways, employees still hold the power to demand more from their employers when it comes to salary, flexibility and benefits. But this power balance is likely to start leveling out in the coming months.”
The number of job openings, which reached its highest level in 21 years last year, is predicted to slowly decline in 2023. The Great Resignation started to lose steam last year, and although recession fears are still present, the unemployment rate fell to 3.4 percent in January.
“Our best-case forecast is that we will gain about 1.2 million jobs this year,” said Jay Denton, chief analytics officer at LaborIQ, a compensation and labor market analytics software company based in Dallas. “That may have seemed optimistic but is more plausible after January’s blockbuster jobs report. A more pessimistic case, which could still be in play, is that we lose half a million jobs overall. There are still plenty of question marks out there.”
He added that certain sectors will remain very strong, such as health care, and leisure and hospitality. “Talent shortages will also remain,” Denton said. “The competition for talent is not easing, even with a slowdown in hiring. There is more than enough new job creation to cover any layoffs.”
Johnny Campbell, CEO of Dublin-based SocialTalent, a learning platform for recruiters, said the technology industry is already experiencing the brunt of layoffs as the year begins. “But don’t be fooled,” he said. “Hiring will still be incredibly difficult. As big as the recent number of layoffs seem, this is only a fraction of total current vacancies. Combine this with global workforce shrinkage, and it only adds to the challenge of recruiting.”
Experts agreed that even when the labor market contracts and hiring freezes spread, recruiting operations should not be slashed.
“Given how hard it will be to find talent in the coming years, you need to ensure your hiring machine remains solid, enabled and ready to fire once we get back to business as usual,” Campbell said. “When COVID hit, the talent acquisition function was drastically reduced, only for there to be a scramble to reform these teams when the function was needed most.”
Neil Costa, CEO of Boston-based HireClix, a digital recruitment marketing agency, said he’s seeing some recruiters already being laid off and some clients pulling back on hiring, but he’s still also seeing a lot of enthusiasm for recruiting.
“If there is a slowdown in hiring, TA teams can put their focus elsewhere, like revamping their career site and employer brand. Many companies still need a refresh on different aspects of recruiting strategy.”
Amy Schultz, global head of talent acquisition at Canva, a desktop publishing design software firm based in Sydney, senses a more pessimistic shift in the recruiting industry. “With more recruiting teams being laid off again, I predict we will see people leave recruiting for good, which will cause a further talent shortage when the market picks back up and recruiters are in high demand. Since the pandemic began in early 2020, some recruiters have been laid off three or more times. I don’t blame folks for not wanting to return to this kind of ongoing turbulence.”
The last two years have put exceptional pressure on HR and recruiting, said Nicola Hancock, managing director for the Americas at AMS, a recruitment services and advisory firm based in London. “With all the burnout, I could see people rethinking their careers in the short term. But recruiters love recruiting. It’s a real passion. Ultimately, it is very rewarding—you help people find jobs and move up in their careers. And the recruiting role has never been more critical. For many business leaders, attaining the right skills during a talent shortage is a top concern.”
Candidates Still Value Flexibility
Job candidates and employees will continue to seek out employers that value flexibility and work/life balance, two priorities that spiked to prominence during the pandemic and will remain core to an employer’s value proposition. As an added benefit, supporting flexibility will improve retention.
“I expect work/life balance and flexible-work arrangements to remain top talent drivers for years to come,” said Jennifer Shappley, vice president of global talent acquisition at LinkedIn. “These days, candidates are looking for companies that will value their whole selves and provide support in achieving work/life balance.”
Hancock said remote roles have been reduced since the height of the pandemic, but some flexibility is what candidates are looking for consistently, after compensation and benefits. “Organizations must try to balance their goals with what’s important to candidates, especially in such a competitive market,” she said.
Flexibility no longer means just working remotely, said Jeanne Meister, executive vice president with Executive Networks, a San Francisco-based resource group for HR leaders. “More workers want flexibility in when work gets done over flexibility in where work happens. It can mean working four or even three days a week while working longer hours each day. For knowledge workers, working asynchronously requires an employer to make a cultural shift where work/life boundaries are respected, workers are trusted to do their jobs outside of a traditional 9 to 5 workday and employers set guardrails on where live synchronous work can take place.”
Flexibility in work schedules is also possible for front-line workers, Meister said. “For example, Chick-fil-A allows workers the ability to work 13 to 14 hours on three consecutive days with full-time pay, which has resulted in increased employee retention.”
Jeanne McDonald, president of global RPO solutions at HR and management consulting firm Korn Ferry, agreed that in 2023, more candidates will look for companies that promote work/life integration—foregoing the traditional 9 to 5 workday in favor of a more fluid schedule.
“That means being able to put in hours when it’s most convenient to take care of personal responsibilities when needed,” she said. “Watching the clock will become less important as managers assess success by the output of employees and not the time frame of their workday.”
Meister added that the hybrid work model will continue to be shaped. “HR and business leaders will need to set clear principles for success rather than mandate policies. That starts with defining what hybrid means in the organization, defining the workspaces where work will happen, the technology tools needed, the team norms, core collaboration hours and rituals for success.”
Employees got a taste of what autonomy, empathy and trust in the workplace could mean during the pandemic, Campbell said. “And while it was an imperfect experiment, it showed how important these elements are for sustaining a positive impact on engagement and well-being. We need to stop pretending that life outside work isn’t important. Having the breathing room to alter your start time for example, or pop out midday for an appointment, could be game changing for some employees.”
Internal Mobility Will Get Stronger
More employers will seriously consider internal mobility as the desire for it grows and technology has made it easier to accomplish.
Costa said it takes a factor of trust to work, but candidates have expressed a strong interest in career development from prospective employers, and research shows that the investment in skills building and career pathing leads to a strong return in retention.
“Employees want to have the flexibility to explore different roles and acquire new skills,” said Linda Jingfang Cai, vice president of talent development at LinkedIn. “Helping employees transform their careers as their interests shift instead of keeping people in rigid pathways will make it easier to keep great talent.”
MacDonald added that investing in internal mobility not only will boost the attractiveness of the company to candidates and develop more diverse pipelines, but also will help fill open roles and critical skill gaps amid stalled hiring.
LinkedIn data shows that employees who have moved around internally have a 64 percent chance of staying with the organization after three years, while the percentage lowers to 45 percent for those who haven’t made a move. Implementing career pathing also sets up a skills-first mindset within the organization, creating a workforce that is more adaptable to the changing external environment.
“People are looking to be engaged and re-engaged,” said Eric Sydell, executive vice president of innovation at recruiting technology firm Modern Hire. “There are a lot of things people can do that they don’t necessarily know they can do. And as engagement lessens, one way to motivate people is through internal growth opportunities.”
But implementing effective internal mobility programs isn’t easy, experts said. Internal mobility is much more complex than offering a promotion or a lateral move. Employers can fail to create a culture where mobility is encouraged, and organizations often lack processes that connect employees with opportunities.
“The challenge is how you operationalize it,” Hancock said. “HR must first understand the difference between the strategic practice of talent and skills mobility versus simply filling a role internally. Organizations will need to build a skills and careers framework in order to understand what skills exist already and how they can move people most effectively.”
MacDonald said more companies will use talent analytics to determine which new roles are needed to future proof the business and which employees might be a good fit for those roles.
“Increasingly, companies will use artificial intelligence platforms with predictive analytics to shortlist promising internal candidates, provide tailored career development content, and develop personalized career paths based on goals and interest areas,” she said.
“Technology can help drive the process and the experience, but ultimately, it is about a culture where internal mobility is celebrated and recognized,” Hancock added.
Skills-Based Hiring Will Gain Momentum
More companies will gradually move toward a skills-first mindset when hiring, putting more emphasis on candidates’ competencies and less on traditional criteria such as college degrees and work experience. Labor-shortage struggles in recent years have forced companies to broaden their recruiting lens, and job listings data since the pandemic show fewer degree requirements. The trend has bipartisan support, with state and federal lawmakers from both parties proposing skills-based hiring measures.
“The shift toward skills-based hiring will accelerate in 2023 as skills emerge as the currency of the labor market,” Meister said. “In addition to broadening the talent pool for employers, skills-based hiring helps to remove career and salary barriers for over two-thirds of adults in the United States who do not have a bachelor’s degree. For employers, skills-based hiring broadens the talent pool, increases the speed to hire and adds greater diversity in the workforce.”
The shift is picking up adoption in the technology sector, where many workers do not need a degree to perform their jobs, Meister said.
“It’s smart to look for the best talent versus the perfect resume,” Costa said. “I started in accounting. Did someone think I would build a recruitment advertising agency? No. But over time, I picked up new skills. It’s a practice that will give value to both employers and employees, but it’s still a very new concept for most organizations.”
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Hancock agreed that skills-based hiring will continue to gain traction, but it will not be easy to operationalize. She added that the practice may be more common in years to come, but recruiters will have to do more to educate and influence hiring managers.
Like with every new workplace trend, HR technology vendors are innovating to make the process easier for users, Costa said.
Sydell noted that one of the biggest early problems is defining skills. “The term ‘skills’ is being used to mean everything under the sun, so you have taxonomies with millions of skills out there, but not everything is a skill, and not all are equally important for a given job.”
He said traditional predictive assessments that measure human characteristics shouldn’t be thrown out in the skills revolution. “You want to use a hiring process designed to measure not only skills, but also job fit, work style, potential to learn and grow, and other attributes that make a whole hire.”
Meister said a disruption in skills is underway, with soft skills like communication, customer service and collaboration being more sought after by employers than technical skills, which remain highly valued.
“Business and HR leaders have always known that human skills are critical, but now we’re seeing a heightened demand for them,” she said. “They rely on human connections, the ability to lead others, and they cannot be automated.”
