Firms' Employment and Wage Outlook Going Into 2025
Introduction
Every November, the Richmond Fed asks businesses a series of questions about their expectations for hiring, wage adjustments, and other employment-related topics. This year, in addition to the usual set of questions, we asked firms if they have reduced the size of their workforce over the past three months and what workforce decisions they would make if business conditions deteriorated in the next six months.
Consistent with past results, most responding businesses expect to maintain or increase employee headcount over the next 12 months. However, there were some shifts in responses compared to previous years. For example, in 2024, firms reported labor availability as less of a restraint as well as reported smaller wage increases for existing employees. The November survey also found more firms have reduced headcount over the previous three months compared to last year. However, an increasing share of these firms reduced headcount by removing open job posts rather than through layoffs and attrition.
Labor Availability Less of a Restraint to Hiring
Similar to prior years, approximately half of firms expect to maintain their current number of employees, and another 40 percent expect to increase employment in the next year. Only 10 percent of responding firms plan to decrease employee headcount, which is also similar to previous years.
The most cited hiring restraint in 2024 was uncertainty about economic conditions (44 percent). The second most cited reason was difficulty finding workers with the necessary skills. However, the share that chose this answer in 2024 has fallen from previous years, which also mirrors findings from our monthly surveys.
The easing of labor availability could help explain why firms cited wage growth as less of a restraint in 2024. The percentage of respondents citing that labor costs were too high was 30 percent, which was similar to 2023, but down from 44 percent in 2022. This result supports previously published research about the "normalizing" of wage growth in the Fifth District. Additionally, a larger share of firms in 2024 reported that wages for existing workers were increasing by a smaller amount than the previous year. In 2023, a significant portion said the opposite: Wages were increasing by a larger amount than would be typical — 28 percent in 2023 compared to 14 percent in 2024.
Few Firms Have or Would Resort to Layoffs to Reduce Headcount
Around two-thirds of firms said that they had not reduced the total number of employees in the last three months. Among the one-third that did, most firms reported that they did so by not replacing workers as they left, or by cutting the number of job openings. Only a handful of businesses (9 percent of all firms surveyed) said that they had actively laid workers off.
Furthermore, when asked what they would do if demand were 10 percent lower than expected in the next six months, most firms said that they would keep the same number of employees, potentially cut back their hours, not replace any workers who left, and/or reduce the number of open positions. Only about 30 percent of firms indicated that they would lay off workers.
Conclusion
Firms expect to maintain or increase employment over the next 12 months, which was similar to previous years. However, firms expressed that they were likely to increase wages for employees by smaller levels compared to previous years, which could be due to less difficulty finding workers with the right skills. Economic conditions are different today than the past two years — specifically, lower inflation and fewer workers quitting their jobs — which could put less pressure on wages. As we move into 2025, the Richmond Fed will continue to monitor business conditions to assess any changes in employment and wage levels.
Views expressed are those of the author(s) and do not necessarily reflect those of the Federal Reserve Bank of Richmond or the Federal Reserve System.
