Q1 workforce activity started off hotter than expected and cooled down as the quarter progressed.
Table of Contents
- Key Findings
- Data Sources & Methodology
- Top Trends in Q1 ‘23
- Decline in Shift Work
- Shrinking Labor Participation Rate in the Overall Economy
- Public Sector Weakness
- Strengthening Healthcare Sector
- Slowdown in the Northeast
- Smaller Companies Saw Moderate Improvements
- Unsteady Shift Recovery in Retail
- Strong Rebound in Shift Recovery for Larger Organizations
- What to Expect for the Rest of 2023
The year’s workforce activity started off strong and better than expected following an uneven Q4, but levels declined throughout the quarter.
Much of the slowdown in workforce activity that was seen in March is aligned with what experts had anticipated throughout the start of the year, especially amid a rise in recessionary fears that are resounding throughout the country. We saw a gradual decline of workforce activity throughout the quarter, despite a strong labor market with demand for workers and labor shortages in certain industries.
Following the heights of the pandemic, this normalization of the market is welcomed in part, though looming talks of a recession will be a factor to consider as the year continues.
- Q1 2023 workforce activity down from Q1 2022
- The monthly change in shifts worked in March ‘23 is the biggest decline since Aug ‘21
- The number of shifts worked declined -0.7% over Q1
- Retail workforce activity dips over the quarter
- Larger organizations see a strong rebound in shift work growth in March after falling throughout the earlier parts of Q1
Data Sources & Methodology
To complete our analysis on the state of workforce activity in Q1 2023, we compiled data gathered by UKG, a leading HCM cloud provider.
We assessed their monthly workforce activity reports from January through March of 2023 to uncover ongoing trends in workforce activity in Q1 that HR and finance executives should be aware of:
- UKG Workforce Activity Report – January 2023
- UKG Workforce Activity Report – February 2023
- UKG Workforce Activity Report – March 2023
Throughout this report, all metrics reported are derived directly from these above reports.
In these reports and as we present our own findings, you should be aware of a few key terms to better understand the data:
- Workforce Activity: a comprehensive term describing the current state of labor and employment outlook in the United States, based on factors like the number of shifts worked by employees and pay statements
- UKG Workforce Recovery Index: a rolling 12-month scale created by UKG that measures the level of workforce activity relative to the same month one year ago
-The index tracks workforce activity levels of 4.2 million employees across more than 35,000 businesses across the United States
-The index offers directional insight about the anticipated changes in the labor participation rate (e.g. if the index is <100% then the labor participation rate is shrinking compared to last year levels, it if is >100% it is growing)
- Shifts Worked: a total that is derived from aggregated employee time and attendance data, this metric reflects the number of times that employees “clock in” and “clock out” via a time tracking system at the beginning and end of each shift
- Shift Recovery: reflects month-over-month shift growth for a company or industry, as measured by time punches
Top Workforce Trends in Q1 ‘23
Workforce activity for many companies, sectors, and regions in the U.S. have slowed down quite a bit over the first quarter of 2023, but not at an alarming rate.
There were some outliers that we will discuss in more detail below, such as healthcare seeing improvements throughout the quarter and larger organizations rebounding in March.
Let’s take a look at some of the prominent trends in workforce activity in the U.S. that we noticed throughout Q1.
1. Decline in Shifts Worked
An overarching theme that occurred in the U.S. economy throughout the first quarter of 2023 was that there was a decline in shift work compared to the previous period.
Following uneven patterns at the end of 2022 and a holiday season that was lackluster compared to expectations, shift work levels in 2023 started off flat, with no change reported in January from December levels (0% change).
This was a stronger-than-expected start to the year; however, each month that progressed throughout the quarter saw incremental declines, including:
- January: 0.0%
- February: -0.5%
- March: -1.6%
March’s decline, in particular, was the largest monthly decline in shift work in over a year, since August ‘21 to be specific.
When taken together, shift work declined by about -0.7% over Q1. All in all, this data shows that there continued to be fewer shifts worked across the economy throughout the quarter.
A dip in shifts worked in Q1, particularly early in the quarter, is not uncommon after seasonal highs that typically occur in Q4 from the holiday season. However, the continued decline throughout the quarter indicates that labor activities may become more in line with the recessionary fears that are rippling throughout the macroeconomic environment.
2. Shrinking Labor Participation Rate in the Overall Economy
Another major trend seen in Q1 ‘23 was evidence of a declining labor participation rate compared to Q1 ‘22 levels.
The labor participation rate is a commonly referred to term in the industry which reflects the portion of the population that’s over 15 years of age that is actively working or looking for work. This includes unemployed individuals who are still searching for jobs.
The change in the UKG Workforce Recovery Index between this year and last year is what indicates this trend, as the index is a directional indicator of the changes in labor participation in the country:
- Q1 ‘22: 100.3%
- Q1 ‘23: 93.3%
This index has gradually declined each month over the past year, so the current levels aren’t out of the ordinary. However, the index has slipped significantly between Q1 of 2022 and Q1 of 2023.
This decline gives us a clue that the rate of labor participation is on the decline, meaning that more people have left the labor force altogether, or have given up looking for work compared to last year.
3. Public Sector Weakness
Data from the past quarter alludes to weakness in the public sector, with a significant drop in workforce activity in this segment over Q1 ‘23.
The public sector refers to public government roles as well as employment in public K-12 education and public higher education.
Referring to the UKG Workforce Recovery Index, the index for the public sector saw a big downward swing throughout the quarter, worse than any other industry at this time:
- January: 114.8%
- February: 99.0%
- March: 85.2%
What’s driving this decline isn’t entirely evident at this time. However, a few factors at play may include an aging workforce that is retiring at a more rapid pace as well as some lingering impact from the COVID-19 pandemic that pushed more people out of the labor market.
4. Strengthening Healthcare Sector
On the flip side, we saw the Healthcare sector pick up strength in workforce activity as the quarter progressed.
We draw this conclusion from the fact that the UKG Workforce Recovery Index for the industry saw steady improvements throughout Q1:
- January: 83.2%
- February: 90.7%
- March: 91.3%
This shows positive momentum for the Healthcare industry in comparison to other struggling areas of the economy like the public sector. However, the fact that the index for each month was below 100% tells us that current work levels are down from the previous year.
From this data, we can conclude that workforce activity in the sector has improved so far throughout 2023, albeit still below last year’s levels at this time.
5. Slowdown in the Northeast
Particular regions of the country have also shown weakness to start off 2023 aside from just specific sectors in the economy.
Namely, the Northeast region of the United States saw larger declines in workforce activity than any other region in the country–many of which actually improved over the quarter.
Here is what the UKG Workforce Recovery Index looked like in the Northeast throughout the first quarter of 2023.
- January: 107.3%
- February: 95.1%
- March: 96.8%
The year started off with better workforce activity levels than January 2022, though this quickly shifted as February and March showed lower levels than the previous year.
As you may be able to gather, the decline in this index throughout Q1 indicates that the labor participation rate is likely down in the Northeast.
Again, there are many factors that could be leading to this shift; though the decline is meaningful enough to point to a trend that is likely ongoing in the region.
6. Smaller Companies Saw Moderate Improvements
Companies with less than 100 employees and companies with 101-500 employees saw better workforce activity throughout the first quarter of 2023.
This is in comparison to businesses of all other sizes that saw declines in workforce activity over the start of the year.
Let’s take a look at the UKG Workforce Recovery Index for companies with less than 100 employees:
- January: 86.5%
- February: 89.9%
- March: 89.8%
Here is the data for companies with 101-500 employees over Q1:
- January: 91.4%
- February: 92.2%
- March: 92.6%
While workforce activity moderately picked up for these smaller companies over the quarter, it’s still important to note that activity is much lower than it was a year ago, owing to a slowdown in the overall economy year-over-year.
7. Unsteady Shift Recovery in Retail
Back on the industry-specific level, we saw uneven levels of shift growth across the retail sector throughout the first quarter.
Shift recovery, or the month-over-month shift growth as measured by time punches, yo-yo’ed throughout the period, ending down slightly for the quarter compared to the last.
Here is the monthly breakdown of shift recovery in the retail sector for Q1 ‘23:
- January: -2.9%
- February: +1.0%
- March: -2.2%
Especially following the holiday season when retail is generally strong, this is not too concerning to start off the year. However, it is worth watching going forward to see how retail responds to the looming threats of a recession.
8. Strong Rebound in Shift Recovery for Larger Organizations
Lastly, shift growth for large organizations saw a sizable rebound over the period, while shift recovery for smaller companies got worse over Q1.
Companies with over 5,000 employees had the following shift growth in each month of the quarter:
- January: -3.0%
- February: +0.2%
- March: +2.4%
As a reminder, workforce activity declined overall for these companies throughout the period, though their shift growth improved month-to-month. As you can see, the quarter started off with negative growth which then turned positive towards the middle of the quarter.
What to Expect for the Rest of 2023
Q1 started off strong, with activity rates mostly easing throughout the economy as the quarter progressed. There were some outliers to this trend, though the overall direction tends to be a slowdown in workforce activity alongside other economic indicators amid a period of economic challenges.
For the rest of the year, HR and finance executives can keep an eye on the following trends to make informed hiring and workforce decisions in their organizations:
- Shift recovery by region to normalize: the COVID-19 pandemic created widespread disruptions to shift growth that were felt nationwide; however, as the impacts of the pandemic largely remain in the past at this point, disruptions to shift work and growth will return to more localized and regional factors like extreme weather events
- Workforce activity continues to tighten: the labor market remains tight with labor shortages still prevalent in many sectors and continued positive job growth each month. But as economic conditions shrink across the country and the globe, workforce activity will tighten as companies look for cost savings and ways to cut back on spending with fewer and shorter shifts worked
- White-collar layoffs: at this time, layoffs will continue to be more widespread across white-collar workers as we have seen so far this year, and not as much for frontline workers