January 2023 NC Economy Watch: The Labor Market Is Loosening, but It’s Still Very Tight

Welcome to the January 2023 edition of NC Economy Watch: an update on what’s happening in the North Carolina economy and what it means for you, brought to you by the Labor & Economic Analysis Division (LEAD) of the NC Department of Commerce. 

In this edition, we provide an update on hiring challenges in our state. The labor market has eased slightly in recent months, but hiring conditions remain historically tight, and demographic trends suggest labor shortages may become a routine feature of life during future periods of economic growth.

The Labor Market Is Loosening, but It’s Still Very Tight

One of the most important trends in North Carolina’s economy the past several years has been our tightening labor market. A shortage of workers and an excessive level of job vacancies has generated increased opportunities for jobseekers but also led to challenges for employers struggling to fill open positions, headaches for customers trying to obtain scarce goods and services, and upward pressure on prices. 

After a torrid pace of growth in 2021, the economy slowed during 2022 as the Federal Reserve raised interest rates to get a handle on rising prices. As a result, North Carolina’s labor market has softened somewhat. However, hiring conditions remain historically tight.

Data from LEAD’s Labor Supply and Demand dashboard demonstrate the impact of slowing economic growth on our labor market. A decline in the number of job openings in North Carolina has led to a marginal easing in labor market conditions: we had 1.0 jobseeker per job opening in October 2022, rising from a low of 0.9 in July [Figure 1]. But conditions are still much tighter than they were in February 2020—when we had 1.6 jobseekers per job opening—and remain tighter than they’ve been in at least two decades.¹

Figure 1

We find similar evidence of slight improvements along with continued hiring challenges in surveys of employers. Figures from the Richmond Fed’s Carolinas Survey of Business Activity indicate companies in our region are having somewhat better luck recruiting qualified talent as of late, but hiring remains as difficult as ever [Figure 2].

Figure 2

Our office is often asked: what’s up with labor force participation, and what impact does it have on our state’s hiring challenges? North Carolina’s labor force participation rate fell during the COVID-19 recession and remained below its pre-pandemic level in 2022. But contrary to popular belief, the current shortfall in labor force participation is not primarily caused by health concerns, or childcare problems, or the “Great Resignation”, or any other consequences of the COVID-19 pandemic. While these factors may have driven participation rates lower during 2020 and 2021, the most important factor right now is simple, old-fashioned demographics: our population is getting older. Older people are more likely to retire. The aging of our population explains most of the shortfall in North Carolina’s labor force participation rate between 2019 and 2022 [Figure 3].

Figure 3

The labor market has indeed softened in recent months, but the Federal Reserve has made clear the economy needs to slow even more before price inflation can be brought under control. Moving forward, a slowing economy and the prospect of a potential recession will likely bring further weakening in labor market conditions: the number of job openings will decrease, and the unemployment rate will rise. Employers tend to have an easier time filling open positions, and jobseekers tend to have a harder time finding work, during economic downturns.   

But that doesn’t necessarily mean the era of tight labor markets is behind us. The aging of our population means labor shortages could outlast the current economic moment. Hiring challenges aren’t simply an artifact of the COVID-19 pandemic or its economic aftershocks. As population growth slows and labor force participation declines, barring a major shift in technological or demographic trends, labor shortages may become a routine feature of life during future periods of economic growth.

For inquiries and requests, please contact:

Meihui Bodane, Assistant Secretary for Policy, Research and Strategy

NC Department of Commerce, Labor & Economic Analysis Division (LEAD)

mbodane@commerce.nc.gov

¹In figures going back to December 2000, the pre-COVID record for lowest number of jobseekers per job opening in North Carolina was 1.2 (in October 2019) and the pre-COVID average was 3.0.