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Report: Inflation, Labor Shortages Top HR Concerns in 2023

May 2, 2023 No Comments

By Kathy Gurchiek

Finding good job candidates and keeping employees will be the key priorities for organizations in 2023, according to a report the Society for Human Resource Management (SHRM) released Jan. 30. But the clash between the desire to offer competitive pay and what organizations’ budgets will bear will create challenges for those concerned about inflation.

The 2022-2023 SHRM State of the Workplace report is based on findings from surveys of 1,793 HR professionals, 276 HR executives and 585 non-HR employees conducted in November 2022. The report looks at the greatest struggles U.S. organizations face, how HR is managing these challenges, where U.S. organizations were most and least effective in 2022, and their priorities and plans for 2023.

“Last year, we cited the twin talent challenges of recruiting and retaining employees as the most important issues for companies in 2022,” said Mark Smith, SHRM director of HR thought leadership and author of the study. “This was an accurate prediction, and we expect these challenges to continue through 2023.”

Employees, HR professionals and HR executives reported recruiting and retaining talent among their top five priorities for 2023, noted SHRM President and Chief Executive Officer Johnny C. Taylor, Jr., SHRM-SCP.

“Based on this report, 2023 is going to be a pivotal year for both employees and executives,” he said. “We expect to see big changes in regard to budgetary concerns—while  still considering talent and retention challenges.”

Greatest Struggles US Organizations Faced in 2022

Inflation and labor shortages were top external challenges U.S. organizations faced in 2022; and compared to HR professionals, employees in other departments have substantially more negative views of their employers.

Inflation. Inflation hit a 40-year-high in June; 86 percent of survey respondents rated inflation as their organizations’ top concern, up from 73 percent in 2021.

The average inflation rate was 3.8 percent per year from 1960 to 2021. But in 2020, the Consumer Price Index jumped to 7 percent, and in 2022, it rose to 7.7 percent, according to the U.S. Bureau of Labor Statistics.

The result: Scores of employees were looking for higher-paying jobs and other ways to pay their bills. In fact, the minimum salary that employees say they would take for a job has risen to its highest level—nearly $74,000, according to the Federal Reserve Bank of New York’s November 2022 SCE Labor Market Survey. 

Labor shortages. This was still a top concern for 80 percent of HR professionals in 2022, a slight drop from 2021. Thirty percent of HR professionals indicated their organizations had been effective at recruitment, a slight improvement since 2021, but retention became a bigger challenge. The most serious issues around filling positions, HR professionals and HR executives said, were:

– A lack of qualified candidates.

– Not offering competitive compensation.

– Limited workplace flexibility.

Employee engagement. Non-HR employees remain very disengaged going into 2023 and are “substantially less likely to recommend their organization as a good place to work, or to trust their employer to treat them fairly” compared to 2021, the SHRM report noted. More than one-fourth (26 percent) plan to look for another job elsewhere.

Although HR professionals report more positive feelings about their jobs than non-HR employees do, 24 percent still plan to look for another job elsewhere in 2023. As the COVID-19 crisis has waned, HR professionals feel senior leaders rely on and recognize their contributions less. However, HR executives continue to feel strongly that they have a seat at the leadership table.

HR 2022 Scorecard

HR professionals, HR executives and employees all agreed that navigating the pandemic’s impact on the workforce and the related safety practices was the No. 1 area where organizations performed well in 2022. Also in the top five for all three groups: providing good health care coverage and managing a remote/hybrid workforce.

“Whereas earlier in the pandemic, many employees loudly voiced fears of having to choose between their health and their livelihood, the implication of this year’s findings is that organizations have found ways to protect both employees’ health and livelihoods,” Smith noted in the report.

Workers thought HR’s efforts to support employees with mental health concerns and achieve greater workplace diversity, equity and inclusion were more successful than HR professionals or executives did.

Employee mental health concerns emerged as the third greatest challenge in 2022, with 72 percent of HR professionals mentioning it.  

“We are continuing to see mental health emerge as a critical workplace issue,” said Alex Alonso, SHRM chief knowledge officer. “Discussions about employee mental health were rare prior to the pandemic. But now employees at all levels, even at the corporate board level, are focusing on mental health.” 

Priorities, Plans in 2023

Among the 147 HR executives who knew their organizations’ 2023 budget, only 5 percent expected a decrease. A slight majority (53 percent) expected their HR budget will increase, and of that group, 41 percent expected an increase of 4 percent to 6 percent. Talent acquisition is expected to see the biggest budget increase, followed by compensation for HR employees.
Nearly three-quarters of organizations are planning to expand their workforce.

“Importantly, HR professionals and executives are open to sourcing talent from traditionally underemployed groups such as people with disabilities or people with criminal histories,” Smith noted in the report. “This is good news for employers and for prospective employees alike.”

The top three priorities for 2023 among HR professionals, HR executives and workers reflect the recruitment and retention challenge:

1. Maintaining employee morale and engagement.

2. Retaining top talent.

3. Finding and recruiting talent with the necessary skills.

Fair and competitive compensation evaluations and adjustments jumped to sixth place for HR professionals and first place for workers—a notable increase from last year. Perhaps also related to talent retention, Smith noted, are fair and effective performance evaluations, which vaulted to eighth place.

Reflecting the economic uncertainty, 61 percent of HR professionals cited finding ways to reduce costs and improve efficiency as a priority, up 15 percentage points from 2021. Nearly half (48 percent) also viewed budget constraints as a major barrier to their organizations’ success in 2023. If the economy enters a recession, HR professionals feel their organizations are far more likely to implement a hiring freeze than layoffs or reductions/eliminations of bonuses for existing employees.

Should inflation continue to rise, more HR professionals are concerned about how their employees’ lives would be affected than employees are about their personal budgets (86 percent and 77 percent, respectively). More than two-thirds of organizations (68 percent) are planning salary or cost-of-living adjustments in 2023, mostly in the 2 percent to 6 percent range.

Dropping significantly as priorities for 2023:

– Navigating COVID-19’s continued impact on the workforce (down 41 percentage points).

– Adjusting to public health policy changes from the administration (down 11 percentage points). The report suggests this drop can be attributed to the federal government no longer advocating for vaccination or mask-wearing requirements.

Additionally, an emphasis on bringing more of the workforce back onsite decreased by 13 percentage points, with slightly more than one-third of HR professionals (35 percent) citing this as a priority.

“Altogether, these findings signal that organizations believe they are able to manage COVID-19 and its subsequent effects on where and how work is done,” Smith said. “Providing good health care coverage, supporting employees with mental health concerns, and increasing HR budgets for wellness and benefits are all increasing in importance as HR departments recognize the heavy burdens the workforce has borne during the pandemic.”  

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