Why is The 2024 Economy and Labor Market so Tough, and How Can Businesses Survive?

The last few years have brought unexpected shifts in our economy and job market. From the massive job losses and economic turmoil of the 2020 COVID-19 pandemic shutdown, to the subsequent spike in inflation once consumer spending rebounded, businesses haven’t had much relief from the tumult. Unemployment is now at near-historic lows despite stubbornly high federal interest rates and highly publicized layoffs at large companies. High competition in the labor market combined with increased salary and benefit expectations from prospective employees have made for a challenging labor market in the first quarter of 2024.

A tumultuous labor market is especially challenging for small businesses looking to attract and retain top talent while maintaining their bottom line. How can businesses navigate uncertainty in the business landscape and plan for a future that’s hard to predict? Here, we’ll shed some light on the current state of the labor market, and business growth strategies to thrive in an uncertain future.

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Economic changes in 2020
The 2024 labor market and inflation
Business growth strategies for a difficult climate
How to survive inflation in 2024

An economic boomerang: Unprecedented highs and lows throughout the 2020s

Since the dawn of the 2020s, the economy has seen rapid and extreme ups and downs. A global pandemic and significant geopolitical disruptions have affected the economy so significantly that it’s hard for businesses and workers to keep up, let alone get ahead.

Prior to COVID, the economy was booming, with low unemployment and wage growth on the rise. But the pandemic lockdown led to significant job losses as businesses were forced to close. The U.S. shed 22.2 million jobs in March and April 2020, and the unemployment rate reached 10%. Any jobs that could be done remotely became remote essentially overnight, and this transition caused additional struggles as businesses had to suddenly adapt.

To ease the burden of job loss on American families, the federal government expanded state and local aid and sent out more than 476 million stimulus checks to U.S. residents. The efforts to boost the economy led to increased spending power for consumers, causing a surge in demand for products that far exceeded supply. Some industries were already behind in their production due to supply chain issues, so the extra demand was impossible to keep up with. Businesses were forced to raise their prices significantly. 

This heightened consumer demand, along with the following additional factors, led to inflation spiking:

• A tightening labor market due to increased wage expectations, leading to higher labor costs for businesses
• Volatility in energy prices due to geopolitical factors
• A lack of affordable housing, driving up cost of living for consumers

Inflation soared throughout 2021 and 2022, eventually climbing to a whopping 9.1% in June of 2022, the highest it had been in 4 decades. A recession seemed increasingly likely, almost unavoidable. Stock prices plummeted as investors attempted to cut their losses.

Yet, the doomsday predictions didn’t quite come to fruition. Once the Fed raised interest rates, spending cooled steadily without a sharp drop-off and hiring slowed gradually. The economy relaxed without crashing, and the job market remained surprisingly resilient.

Though the inflation rate has been steadily falling from its post-lockdown peak, now simmering at 3.1% as of January 2024, the rate is still higher than economists hoped it would be at this point. 

2024: A resilient job market, persistent inflation

While hiring and employment have remained surprisingly consistent despite economic headwinds, many employers are feeling the strain. The labor market has inextricably changed since the pandemic, making hiring more difficult. And investors are seeing less bang for their buck, causing them to pour less money into new startups. Starting or maintaining a business in this current landscape is challenging to say the least.

In addition, technological advancements such as AI development are rapidly changing consumer expectations for businesses, and reshaping how companies operate. While AI tools can be an asset to productivity, the time and money required to implement new tools can be significant - yet those who don’t stay on top of the new technologies may lose their competitive edge.

Lower ROI, less venture capital

Due to increased economic volatility as well as high interest rates, venture capitalists (VCs) are less eager to invest in startups. ROI from investment in small businesses has generally trended downwards in recent years, and the interest rates today are making it even more difficult to turn a profit. In this climate, founders of small businesses are seeking more funding, while VCs are putting investment opportunities under more scrutiny than ever.

In this difficult environment, it’s especially crucial for new businesses to develop a focused, profit-forward strategy early on, aimed at growing and maintaining their customer base.

A highly competitive labor market

The pandemic has, for several reasons, caused the labor market to shrink. These reasons include:

• The U.S. now has a smaller population - down by about 1.4 million - due to deaths from COVID-19
• Some individuals with “long COVID” have a reduced ability to work, or can’t work at all
• Some older workers retired early during periods of layoffs in 2020, and won’t be coming back to the workforce
• The U.S. population is aging, so even those of retirement age who didn’t retire during 2020 are now doing so, or are planning to do so soon

The tighter market has given workers more leverage to push for higher wages and better benefits, evidenced by the “Great Resignation” of 2021. Workers are feeling empowered to seek out better jobs if they’re unhappy in their current role.

In addition to wages and benefits, a significant number of workers are prioritizing work-life balance, the ability to work remotely, and flexible hours in their job search. In a Pew Research study that surveyed people who quit a job in 2021, 45% of respondents cited lack of flexibility in their hours as a reason for quitting.

As of December 2023, unemployment was quite low, sitting at a rate below 5%. According to the Bureau of Labor Statistics, there are approximately 0.7 unemployed persons per job opening. This means the hiring process may take longer, and it may be more difficult for businesses to find the right fit.

Technological advancements

Since ChatGPT became an overnight sensation in November of 2022, the AI craze has continued to ramp up, accelerating the predicted timeline of widespread automation in the workforce. The McKinsey Institute now estimates that half of today’s work activities will be automated between 2030 and 2060 - a decade earlier than their previous estimates.

According to findings by Nielsen, AI has real, quantifiable benefits on productivity. Per Nielsen’s research, when customer support staff use AI, they can field 13.8% more customer inquiries per hour. And programmers who use AI can code 126% more projects per week, more than doubling their output.

In addition, consumers expect more from businesses than they ever have, and AI is a part of those expectations, whether directly or indirectly. 80% of consumers consider the experience a company provides to be as important as its offerings, and much of that experience involves personalization. As businesses have greater and greater access to digital personalization tools, often powered by AI, customers will feel the difference when a business is not using them.

Though in-person retail has mostly bounced back, consumers expect an omnichannel experience and enjoy the convenience of purchasing online.

All this being said, it doesn’t make sense for every business to use AI as a main aspect of their strategy. But many tools and programs, from CRMs to Google Ads, have AI or machine learning incorporated into their services, so most businesses with digital strategies are likely to use AI-enhanced tools at some point. 

Adopting AI always requires some effort upfront though. Workers may need to be retrained or upskilled, processes may need to be changed, and in some cases roles may be created, eliminated, or significantly changed.

How can businesses succeed with digital transformation?

Between heightened consumer expectations, the tight labor market, high interest rates, inflation, and the ever-changing digital landscape, businesses need to work harder than ever to maintain their edge. But keeping up doesn’t always mean jumping on every new technology for the sole reason that it’s new, or switching up your strategies on a whim.

The way forward is scalable digital transformation; evaluating new technologies and adopting them into your organization as needed. Your tech stack is there to help you grow your revenue and increase internal efficiency - not confuse your employees, overcomplicate your processes, or blow through your budget.

What is digital transformation?

Digital transformation is the process of reexamining your organization’s workflows, goals, skill sets, and growth opportunities, and building a tech stack that helps your team move forward. The concept is centered around digitizing and modernizing your processes as much as possible, in a way that aligns with your strategy and budget.

The tech you’ll ultimately end up using depends on your organization’s goals. No two digital transformation journeys are the same. Some examples of technology you might start using include cloud computing services, CRM systems, and mobile platforms.

What are the benefits of digital transformation?

Organizations that audit and re-imagine their digital setups will see a wide range of benefits including:

• Developing a single source of truth. No matter what products or services you provide, you need to closely monitor your customer interactions, revenue, and sales cycle. And if all your customer data is kept within one system, or you have the data architecture to integrate your systems effectively, you’ll have more accurate data and fewer team silos.
• Flexibility in work location. If you want to work remotely, or offer your employees the option to do so, building standard operating procedures (SOPs) that ensure effective communication and role-appropriate access to needed systems and data is crucial.
• Upskilling opportunities. Giving employees the ability to learn the latest tech can be motivating and engaging.
• Increased customer acquisition and retention. Having a clean and updated record of all customer interactions means your support team is better able to address their post-purchase issues, and your marketing team can develop more personalized campaigns according to your target audience.
• Improved resiliency. Using the latest technologies and adopting a culture of efficiency means you’re better prepared to weather economic headwinds. 

How can digital transformation help you succeed in a difficult economic climate?

During periods of uncertainty such as the one we’re currently in, it’s difficult for business leaders to make strategic decisions for the future. The societal and geopolitical disruptions that have occurred over the past few years have triggered a new economic era, and despite experts’ best efforts, it’s impossible to accurately predict the trajectory the economy will follow over the next couple years.

To prepare for the future, business leaders need to invest in emerging technologies, cut out all unnecessary expenditures, and ensure maximum efficiency within their organization.

An article by McKinsey & Company calls this the “three-sided productivity opportunity”. The three sides can be summed up as such:

• Reallocate resources for growth. Audit your current projects to see which are making the most progress and drawing in the most revenue. Use this data to allocate capital towards your most productive ventures, assets, and technology.
• Customer delight. Work to delight your customers with innovative experiences using the latest technologies.
• Operational excellence and innovation. Ensure your talent and resources are worth the investment by cutting out all inefficiencies and upskilling your workers, such that revenue gained from your production offsets the cost.

The three sides come together to increase a company’s resilience, even in trying times. By investing in strong markets, offering popular and profitable services, providing memorable digital experiences for customers, and increasing operational efficiency, you eliminate wasted capital and maximize ROI.

How have companies been modernizing their offerings in recent years? Starbucks integrated artificial intelligence into its app, so recommendations are more personalized. Adobe changed up their business model from boxed software to cloud-based SaaS and redefined their service packages and pricing.

Digital transformation goes beyond digitization - it takes into account a company’s target market and processes, and fits its tech stack around it. 

How to survive inflation in 2024

As a business owner, how do you get by during periods of inflation without raising prices so much you deter customers, laying off valued employees, or cutting corners in terms of products/services? The answer lies partially in digital transformation, but mitigating economic impact from inflation requires a multifaceted approach.

For an in-depth guide on how to survive inflation in 2024, download our free eBook!