The Great Labor Market Rebalancing

Author: Sam Kuhn
01 Mar 23

2022’s Labor Market: A Recap

Last year’s labor market can be described succinctly as “unpredictable.” Some industries, like leisure and hospitality, experienced growth not seen since the post World War II boom. Other industries, like transportation and warehousing, experienced whiplash from 2020 as consumer demand receded, which lowered hiring demand. 

Below is a chart that visualizes this puzzle in four distinct quadrants mapping employment and wage growth from the last quarter of 2022. As expected, leisure and hospitality stood out,  as well as retail and transportation & warehousing. 

These “out of whack” industries experienced turbulence due to underlying volatility in consumer demand. The unpredictable nature of 2022’s labor market and broader macroeconomy will hopefully ease back to normal in the year to come.

Employment and wage growth in nine key labor market sectors in Q4 of 2022. Transportation and warehousing, leisure and hospitality, and retail require a rebalancing in 2023. Created on February 28, 2023 for Appcast.

The Three Outliers

From the above chart, let’s focus on the three industries that stood out the most in 2022, and what their likely path will be this year: 

Leisure and Hospitality: Demand for service workers was robust, resulting in a 7.5% increase in employment and 6.5% increase in wages. Leisure and hospitality wins the prize for best performing industry in 2022. 

Retail Trade: Due to shifting consumer demand, employment growth for retail workers was nearly flat last year, gaining just 0.6%. Weaker demand for goods hampered both online and in-person shopping, resulting in a cooling of hiring. Despite weak payroll employment gains, wage growth was surprisingly strong – workers increased their pay by 5.5% from the last quarter of the year. In a surprise beat, retail sales in January were up 2.3% from the month before – a positive trend that spur hiring needs. 

Transportation and Warehousing: In contrast with the retail industry, transportation and warehousing grew their payrolls by 5.2% with comparably weak wage growth at 3.5%. In fact, this sector had the lowest wage and salary growth out of all nine major BLS supersectors. 

A Rebalancing Act

If 2022’s labor market was defined by unpredictability, hopefully 2023 will be characterized by a “rebalancing.” A rebalancing in terms of the composition of growth – industries that experienced lackluster or impressive gains in 2022 will likely trend towards the middle.

This shift will be driven by a collision of several competing factors: continued interest rate hikes from the Fed, unpredictable inflation patterns, slowing wage growth, and easing recruiting costs

Jerome Powell underscored this labor market imbalance in his February 1st speech, stating plainly: “Although the pace of job gains has slowed over the course of the past year and nominal wage growth has shown some signs of easing, the labor market continues to be out of balance.” 

How Will This Rebalancing Go? 

For the three major outlier industries in 2022 (leisure & hospitality, retail trade, and transportation & warehousing), we have provided some forecasts of wage growth under the “soft-landing” scenario. 

Leisure and hospitality’s growth last year stood out the most by far; gains for both wages and employment exceeded expectations. The peak may have happened in Q1 last year, as wage growth appears to be decelerating quickly. Into 2023, we anticipate that wages will continue this trend, ending in the 5-5.5% range in Q4 of this year. 

Leisure and hospitality wage growth shown as a quarterly percent change starting in 2005 and forecasted out to 2024. Wage growth is set to normalize after reaching highs in 2022, rebalancing the sector. Created on February 28, 2023 for Appcast.

For retail, many of the same patterns that emerged in the service industry will be mirrored in this sector. Wage growth was equally as strong in 2021 and the first half of 2022, with an incremental decline in the latter half. We anticipate that wages will follow the same trend and end in the 3.5%-4.0% range at the end of the year. 

Retail wage growth shown as a quarterly percent change starting in 2005 and forecasted out to 2024. Wage growth is set to normalize after reaching highs in 2022, rebalancing the sector. Created on February 28, 2023 for Appcast.

Lastly, transportation and warehousing had much more modest wage gains last year compared to the previous two industries – though still historically robust. Wages were up 3.5% from the year before in Q4, and we anticipate the possibility of upside growth in the 3.75%-4% range by the end 2023. 

Transportation and warehousing wage growth shown as a quarterly percent change starting in 2005 and forecasted out to 2024. Wage growth is set to grow slightly after reaching dipping in 2022, rebalancing slightly. Created on February 28, 2023 for Appcast.

What Does This Mean For Recruiters?

The labor market remains tight and wage growth is elevated. However, shifts within major industries indicate a coming change. There is no one labor market – recruiters need to pay special attention to the ultimate drivers of growth within their industry, as well as broader macroeconomic factors. For recruiters in leisure & hospitality, monitor the sales of food and drinking places. Likewise, for recruiters in the goods-sector, watch retail trade sales closely. For transportation & warehousing consider durable goods orders.  


A series of autoregressive integrated moving average exogenous variables (ARIMAX) models were used to forecast quarterly growth rates in wages for the three industries presented. Additionally, macroeconomic indicators were included to capture changes in the labor market including the labor force participation, unemployment rate, and consumer price index.

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