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Is worker poaching becoming less commonplace?

The tightness of the labour market in recent years has seen higher levels of reported poaching of talent, as businesses competed for workers. Anecdotally, we have been hearing from employers that worker headhunting and poaching are becoming less commonplace. But does the data support this?

The labour market will be the last to turn

In its efforts to get the inflation rate back within its target band of 1-3%, the Reserve Bank has been raising interest rates to take the heat out of the economy. And it is starting to work. GDP growth, consumer spending growth, house prices, and consumer price inflation have all been weakening.

We expect the labour market to be the last sector of the economy to show signs of easing. Well, those early signs are starting to appear. The recent surge in net inward migration has eased some of the workforce capacity constraints that employers have been facing since the border was closed back in 2020. The Quarterly Survey of Business Opinion (QSBO) reports that in the June 2023 quarter a net 37% of employers were having difficulty finding skilled labour, down from 44% in the previous quarter.

We are also hearing from businesses that they are increasingly concerned about the expected weakening in demand conditions. The QSBO reports that in the June 2023 quarter the proportion of firms reporting sales as the primary constraint on their business continued to increase. Those reporting that finding labour was their primary constraint continued to decline. Weaker sales make businesses more cautious about recruiting new staff. In the June 2023 quarter, online job ads fell for the third consecutive quarter, down 22%pa on the June 2022 quarter. Fewer job vacancies should also lead to a reduction in poaching.

So, broader economic conditions do seem to be creating an environment in which poaching is less intense than it has been. But what does the data say?

A cautious conclusion

First, a note of caution. Much of this analysis is focussed on the latest (June 2023) quarter of labour market data. We should always be cautious about drawing conclusions from one quarter of data. Having said that, the available data on worker turnover, job-to-job transitions, and wage increases resulting from people changing jobs all show early signs that employees are changing employers less than they have been.

Is the Great Resignation over?

The most direct measure we have of worker turnover is from the QSBO which asks employers whether staff turnover in the past three months has increased, and whether they expect staff turnover to increase in the next three months.

The June 2023 quarter saw both these measures decline (see Chart 1). Expectations of staff turnover in the next three months nosedived from a record net 41% of employers in the March 2023 quarter to a net 5% of employers in the June 2023 quarter.

Chart 1 shows that worker turnover in recent years has been at unprecedented levels. This recent surge in staff turnover has been dubbed the ‘Great Resignation’. The closing of our borders and the COVID-related economic stimuli by the Government and Reserve Bank created the perfect storm of a booming economy and deep skill shortages. In this environment it was easy for workers to change jobs, often for hefty pay rises. Add into the mix more recent cost-of-living pressures which have made changing jobs to get a pay rise more of a necessity.

We can also look at Stats NZ’s experimental employment stocks and flows series to measure the number of people moving between jobs month to month as a percentage of total employment – the job transition rate (see Chart 2). We need to be cautious using this data because some of the job transitions are not measuring what most of us would consider to be a job change. For example, the healthcare industry has seen an elevated rate of job transitions in recent years, some of which could be interpreted as the transfer of staff from District Health Boards to the recently established Te Whatu Ora - Health New Zealand.

Similar effects might also be observed in the education industry. Significant numbers of staff have transitioned from Industry Training Organisations and Polytechnics to Workforce Development Councils and Te Pūkenga in recent years as part of the Reform of Vocational Education (RoVE). In the education industry we also see a significant number of job outflows every January and job inflows every February and March, which could be due to tertiary education provider staff on 12-month, fixed-term contacts rolling on to their new contract.

Bearing all this in mind, there are tentative signs that job transitions are starting to weaken with the rate across all industries falling to 2.4% in June 2023, its lowest rate since October 2021.

Moving jobs to get a pay rise

The adjusted Labour Cost Index (LCI) measures changes in wages resulting from people getting pay rises in their current job. Changes in average hourly earnings measured in the Quarterly Employment Survey (QES) also measures wage rises resulting from people getting pay rises in their current job, as well as wage rises from people changing jobs or getting promoted. So, the difference between the adjusted LCI and the QES enables us to isolate wage increases resulting from job changes or promotions.

As Chart 3 shows, since the second quarter of 2022, the QES and the adjusted LCI have diverged. At the peak of this divergence in the March 2023 quarter, the QES increased 3.3 percentage points faster than the LCI. Which suggests a lot of people were getting pay rises either from changing jobs or promotions. In the June 2023 quarter, wage growth measured by the QES fell back a touch, rising 2.6 percentage points faster than the LCI. This narrowing between the two measures could be tentative signs that wage growth resulting from job changes or promotions is starting wane.

Time will tell

Broader economic conditions are beginning to create an environment in which workers will be more reluctant to change jobs and employers will be more cautious about taking on new staff. And there are very early, tentative signs that worker poaching is beginning to tail off. Only time will tell how quickly poaching falls away and for how long.

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