How global labour markets can repeat 2023’s success in 2024

What goes up must, eventually, come down. But the global labour market in 2023 proved that coming down isn’t always the same as falling down and that job markets can cool without turning cold.

There are several reasons for cautious optimism that the same forces that helped cushion markets in 2023 will hold in 2024 – if a handful of key global trends continue to evolve as they have.

After a searing runup in 2021 and 2022 that saw employer demand and competition for workers soar, wage growth surge and unemployment sink worldwide, 2023 was set up for a comedown. But while markets did cool, they largely did so from a position of strength, correcting without cratering.

Employer demand softened and total job postings declined but remained comfortably above pre-COVID-19 pandemic baselines. Wage growth slowed alongside inflation but remained strong enough in many places to give workers a boost in purchasing power. Unemployment remained low, layoffs did not spike, and labour market churn slowly faded.

Employers worldwide clearly have jobs to fill. While well below 2022 peaks, total job postings at the end of November were above pre-pandemic norms in seven nations tracked by the Indeed Job Postings Index.

Many employers are also reluctant to let go of their current employees. Layoffs, discharges and redundancy notifications in the US, Canada and the UK, for example, all remain historically low. If employer demand for workers levels off at or around current levels, 2024 could look much like 2023. But further reductions in demand may be more troubling. Next year’s outlook will depend not only on the direction of worker demand but also on whether any future declines come primarily through less hiring or more layoffs.

Workers also seem more reluctant to leave their jobs. After a historic surge in 2021 and 2022, the US's quit rate returned to its pre-pandemic level. Less quitting means employers may need to fill future open roles from the ranks of the unemployed rather than the already employed. In 2024, this could be welcome news for employers who may no longer need to offer big pay raises to lure candidates away from competitors, helping to further cool wage growth – a key ingredient in taming inflation.

Given the current cooldown in wage and price growth, a classic wage-price spiral seems increasingly unlikely. But inflation remains a concern, and the pace of wage growth must find a tricky balance in 2024: Strong enough to exceed inflation and boost workers’ purchasing power, but not so strong as to re-ignite inflation. That balance is largely being struck for now in the US and Europe, though wage growth in the UK – while above the rate of inflation – remains uncomfortably high amidst an ongoing cost-of-living crisis there.

Continuing to draw new workers into the workforce from the ranks of the unemployed and under-employed will also help counteract an ageing global workforce, arguably the biggest threat to continued labour market stability going forward. In the US, the share of the working-age population aged 65 and up is expected to grow from 17.5% in 2023 to 20.9% in 2035. In Japan, less than 40% of Japanese citizens aged 65-69 were employed a decade ago; today, more than half of those older citizens are employed. Ageing populations mean the pool of available workers will shrink in the future, even as demand for workers remains high – especially in sectors, such as healthcare, that will tend to the needs of these older populations.

Over the past few years, many advanced economies have succeeded in boosting total labour force participation rates to high levels, partly by drawing previously sidelined workers – including women and workers with disabilities – back to the labour market. Immigration has also helped. Foreign-born workers represent almost 20% of the total US workforce. And roughly 17% of searches for Australian jobs on Indeed came from outside Australia in mid-2023, well above 2017-2020 averages that never exceeded 10%. But only so many workers can be pulled from the sidelines or enticed to move far from home to fill necessary jobs, and the weight of demographics is heavy.

In the future, the labour market will need to do more with less, boosting productivity even as the labour force shrinks. Emerging artificial intelligence technologies may help enable precisely that. Early indications suggest that generative artificial intelligence (GenAI) tools, particularly tools like ChatGPT that create human-like text, audio and images, are more likely to augment most jobs rather than fully replace them. They have the potential to take on repetitive and mundane tasks and free humans to focus on more productive work. The technology also promises to create entirely new jobs. Jobs related to GenAI have risen from virtually nothing to a still-small but quickly growing share of all jobs as employers worldwide rush to hire workers who can harness the technology.

Increased usage of GenAI and other technologies, in addition to an increase in jobs developing those tools, could reshape the broader labour market. But if the growth comes primarily from those jobs that create the tools, without corresponding growth in roles that simply use these tools, the economic impact and productivity boost from AI and GenAI could be small.

In 2023, global labour markets showed us that a high-demand environment need not be permanently inflationary. Wage growth can slow without a spike in unemployment. Workers who left the labour market can be drawn back. But it’s also true that conditions are weakening, and while the US economy has so far remained fairly strong, several European and Asian economies are flirting with, or may have already fallen into, mild recessions.

We may be entering a period in which the easiest hurdles on the road to a relatively painless rebalancing have already been cleared, leaving only the highest and most difficult for the last mile of the race. There’s a decent case for optimism for 2024, but nothing is guaranteed.