Fifth District Businesses Weigh in on Hiring and Wages

The Richmond Fed surveys a sample of businesses across our district on a monthly basis in order to gauge regional economic activity. These regional surveys provide timely information to our economists, Bank president, and the public about economic conditions in our district. In addition to standard questions about changes in new orders, hiring, and inventories, we often ask additional questions.

For the past several years, each November we have asked our survey participants about their hiring expectations for the year ahead and about their use of wages to attract and retain staff. This year's results showed that a smaller share of responding Fifth District businesses, compared to last year, were expecting to hire in the next 12 months. Those that were planning to grow their staff were largely doing so because they expected their sales or demand to grow or because their current staff were overworked. A large majority of firms said that they had increased wages in order to fill open positions and that wages were increased broadly for most job categories across new hires and existing staff.

Although a small number of responding firms said that they had reduced headcount in recent months, most did so through attrition rather than through layoffs. Looking forward, if firms were to experience a 10 percent drop in demand, most expected to either keep employment levels unchanged or they would not try to fill positions as workers left rather than resorting to laying off employees.

Survey Results

Of the 193 firms responding to our November 2022 survey, 37 percent expected to increase employment in the next 12 months. That share was down considerably from last year when more than half of businesses indicated plans to hire, but it was similar to firms' pre-COVID expectations in 2019 when the labor market was strong. Although only a small share of firms (10 percent) expected to reduce employment in the coming year, that was the largest percentage in the last five years.

The firms that said they expected to increase employment were also asked to choose their top three reasons for why they planned to hire. The two most selected reasons, by a good margin, were because the company's sales were expected to grow and because current staff were overworked. The third most selected response was that their current staff did not have the necessary skills. As the chart below shows, the next most selected was the "other" response, which allowed respondents to fill in their own answer. Several of the write-in comments were around turnover, needing seasonal employees, being understaffed, and having positions open that they were still trying to fill. Additionally, there were a few comments stating that their businesses were expanding, entering new markets, or opening new locations.

This year's survey also asked firms if they reduced headcount in recent months and, hypothetically, what action they would take if demand declined by 10 percent over the next six months. For the first question, the vast majority of firms said that they did not reduce headcount; however, 11 percent of firms indicated that they had reduced the number of open positions without filling them. Only 4 percent of respondents said that they had laid off workers, but a slightly larger share (12 percent) said that they had effectively reduced headcount by not trying to fill positions that were left by former employees.

This approach to reducing headcount was also the most selected for the hypothetical question, with 52 percent of firms saying that if their demand fell by 10 percent, they would not try to replace workers that leave. (Note: respondents were able to choose more than one answer.) Meanwhile, 32 percent indicated that they would not change headcount at all, while 29 percent said they would have to make layoffs.

Businesses were also asked about the approaches they have taken in order to find qualified workers but only if they had trouble filling a position within the last three months. Out of the 135 firms that responded to this question, 75 percent said that they had raised wages, offered signing bonuses, or raised the total compensation for new hires. More than half of firms also said that they were focusing on retention of existing employees to reduce the need to hire. More than half of responding firms increased their advertising, and about a third used a temporary staffing agency to fill positions.

All survey participants were separately asked about how widely they were raising wages for both new and existing employees. Among companies that were actively trying to hire, more than half of firms said that the wage increases were broad-based across most job categories and another 30 percent said that they were increasing wages but for only select positions. Only 14 percent said that they were not raising wages for new hires.

Similarly for existing staff, more than half of firms said that they were raising wages broadly and by more than in previous years, with an additional 17 percent raising wages for only some positions but by more than in the past few years. A similar share as above (14 percent) indicated keeping wages unchanged for existing staff, and only 3 percent said that they had recently cut the wages of their existing workers.

Conclusion

This year's survey results showed that more than a third of responding businesses plan to increase employment in the next year while 10 percent expect to cut employment. Although these expectations are less optimistic than when we asked the same questions last November, they were roughly in line with pre-COVID expectations. Overall, firms reported challenges finding qualified workers, that current staff were overworked, and wages rising broadly across job categories and for both new and existing staff.

Although a small number of firms said that they had reduced headcount in recent months, they did so by not attempting to fill positions as workers left. Looking forward, if demand were to soften by 10 percent, the majority of firms indicated that they would likely keep employment unchanged or reduce employment by not attempting to fill vacant jobs rather than laying off workers.