Q2 workforce activity shows labor market resiliency, with most sectors, company sizes, and regions showing y/y and q/q improvements.
Table of Contents
- Key Findings
- Data Sources & Methodology
- Top Trends in Q1 ‘23
- Increase in Shifts Worked
- Slower Decline in Labor Participation Rate in the Overall Economy
- Rebound in Healthcare Sector
- Rebound in Public Sector
- Rebound in the Northeast
- Workforce Activity for Small Companies Still Below ‘22 Levels
- Shift Recovery Strength for Nearly All Companies
- Manufacturing and Services & Distribution Sectors See Better Shift Growth
The year for workforce activity had a strong start in Q1 though levels eased as the period progressed. However, in Q2, there was widespread strength across the economy, represented by the metrics we will discuss below.
While cooling workforce activity levels at the end of Q1 appeared to signal continued trends throughout Q2, the actual results have shown surprising resiliency and better workforce activity than expected. Thus, the weakness seen at the end of Q1 did not persist throughout the second quarter.
Overall, it has been a better-than-expected start to 2023, especially as strong recessionary fears dominated the narrative for the first half of the year. The strength shown in Q2 was not only better than Q1 levels but better than Q2 ‘22 levels in many areas as well.
- Strongest start to Q2 shift work since pre-pandemic (2019)
- Improving Workforce Recovery Index y/y signifies a growing labor participation rate in Q2
- Strength for companies of nearly all sizes, except small companies with <100 employees
- All sectors end Q2 with positive shift growth
Data Sources & Methodology
To complete our analysis of the state of workforce activity in Q2 2023, we compiled data gathered by UKG, a leading HCM cloud provider.
We assessed their monthly workforce activity reports from April through June of 2023 to uncover ongoing trends in workforce activity in Q2 that HR and finance executives should be aware of:
- UKG Workforce Activity Report – April 2023
- UKG Workforce Activity Report – May 2023
- UKG Workforce Activity Report – June 2023
Throughout this report, all metrics reported are derived directly from the 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 into 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’s 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 Q2 ‘23
Workforce activity and shift recovery improved throughout Q2 for nearly all sectors, regions, and company sizes.
As you will see below as we break down these trends in further detail, larger companies lead much of the improvements seen over the quarter, with small-mid-sized companies still lagging in certain areas.
Continue reading below as we dive deeper into the top trends we observed in workforce activity in the US throughout Q2.
1. Increase in Shifts Worked
April 2023 recorded the strongest second quarter start for shift work since pre-pandemic levels in April 2019. Q2 shift work growth also showed an improvement from the first quarter of the year, which started strong yet tapered off as the quarter progressed.
Following a negative Q1 shift work growth of -0.7%, April already showed improvements, with shift work growth turning positive in May. This momentum continued into June, leaving the shift work growth positive overall for the quarter, as seen in the data below:
- April: -0.2%
- May: +1.0%
- June: +0.4%
May 2023 represented the first month with positive shift work growth since November 2022, which was supported by seasonal holiday strength.
Overall, shift work growth over Q2 was +0.4%. Thus, we can gather that there were more shifts worked across the economy throughout the quarter.
With Q1 shift work growth seeing larger declines over the course of the quarter and recessionary fears becoming heightened simultaneously, this Q2 shift work data is seen as a welcomed sign of strength in the labor market to finish off the first half of the year.
2. Slower Decline in Labor Participation Rate in the Overall Economy
Another major trend we observed was signs of a slower decline of the labor participation rate in Q2 ‘23 compared to the previous year’s levels in Q2 ‘22.
Industry experts focus on the labor participation rate to measure the portion of the population over the age of 15 that is actively working or looking for work. This metric includes people who are unemployed, but are still seeking out employment. But, it excludes unemployed individuals who have stopped looking for work.
Thus, slower declines in the labor participation rate may not necessarily signal that more people have found jobs. But, it may show that more people who have previously given up looking for work or left the labor market are re-entering and seeking out jobs.
The UKG Workforce Recovery Index is a directional indicator of the changes in labor participation in the United States. The year-over-year improvement shown in Q2 is what indicates a slower decline in the labor participation rate than a year ago, as seen below.
- Q2 ‘22: 95.8%
- Q2 ‘23: 98.3%
Aside from the year-over-year improvement, the index gradually improved over the quarter as well and is nearing an inflection point, seen in the monthly Q2 data:
- April: 96.4%
- May: 99.1%
- June: 99.5%
While there has yet to be a total rebound and growth in the labor participation rate, which would be represented by an index value >100%, this year-over-year improvement indicates positive momentum in the labor market as we head into the second half of the year.
The majority of the economy is made up of small-to-mid-sized businesses, and as we will discuss below, these are the only companies that have yet to see a full rebound in the UKG Workforce Recovery Index. Thus, we can assume that the inflection point will be driven by smaller business recovery catching up with larger companies.
3. Rebound in Healthcare Sector
Declines in workforce activity in the healthcare sector were slowing over Q1. Now, the sector has seen a meaningful rebound in workforce activity mid-quarter, which strengthened over the rest of Q2
We draw this conclusion from the improvements to the UKG Workforce Recovery Index for the sector throughout Q2:
- April: 97.6%
- May: 100.1%
- June: 108.5%
Trends in workforce activity for the healthcare sector already looked promising at the end of Q1. But, the Q2 values >100 signify improved workforce activity levels compared to the previous year.
So not only did workforce activity improve for the sector from the first to the second quarter of 2023, but we can also see that these levels are above Q2 ‘22 as well.
4. Rebound in Public Sector
The public sector was experiencing shrinking workforce activity levels throughout Q1. However, in Q2, those levels have improved and significantly rebounded in mid-quarter like the healthcare sector, showing better levels than in 2022.
As a reminder, the public sector refers to public government roles as well as employment in public K-12 education and public higher education.
Here is the data for the UKG Workforce Recovery Index for the sector throughout the second quarter:
- April: 97.6%
- May: 103.5%
- June: 103.4%
As we discussed with the healthcare sector, values >100 show year-over-year growth in workforce activity. Some of the possible explanations for this rebound include post-COVID recovery in schools and universities, which were largely impacted by the pandemic.
The improvements to the UKG Workforce Recovery Index for the sector throughout Q2 show a nice rebound from the declines seen in Q1, in addition to positive year-over-year improvements as well.
5. Rebound in the Northeast
Aside from the rebounds seen across various sectors in Q2, specific regions also saw strength in workforce activity over the period.
The Northeast had a rough Q1 regarding shrinking workforce activity compared to other regions of the country. Q2 levels not only improved but fully rebounded to above Q2 ‘22 levels.
Here is what the UKG Workforce Recovery Index looked like in the Northeast throughout the second quarter of 2023:
- April: 97.2%
- May: 101.7%
- June: 104.1%
April declines slowed slightly from the end of Q1. However, an inflection in May led to further momentum throughout the rest of Q2 for the region.
Similar to the discussions above, the year-over-year improvement to this index likely signifies a growing labor participation rate in the region compared to Q2 ‘22. Though there may be many factors contributing to this rebound, Q2 growth for the Northeast completely made up for the shrinkage seen in the first quarter of this year.
6. Workforce Activity for Small Companies Still Below ‘22 Levels
One of the few areas showing workforce activity weakness in Q2 was small companies. Q2 data for small companies show slower declines than what this group experienced in Q1. But, they have yet to hit an inflection point during this recovery period.
The UKG Workforce Recovery Index for companies with less than 100 employees was still below 100, indicating lower labor participation rates in Q2 ‘23 compared to Q2 ‘22.
- April: 94.2%
- May: 97.1%
- June: 96.3%
Even though there was a quarter-over-quarter improvement for companies of this size, the data still shows lower levels than Q2 ‘22, indicating a slower recovery than larger companies.
As we will discuss below, nearly all company sizes saw rebounds in shift recovery in Q2 compared to Q1. So, it is possible that these smaller companies will follow suit in the coming months to align with the rest of the economy.
7. Shift Recovery Strength for Nearly All Companies
Shift recovery for large companies was already strengthening over Q1. In Q2, nearly all-sized companies saw better shift recovery over the period, except companies with <100 employees which had negative overall shift growth for the quarter.
Here is some of the supporting shift recovery data for each month in Q2 by company size:
The positive momentum for shift recovery in larger companies may signify similar trends will follow for smaller companies in the near future. Again, smaller companies make up the large majority of the US economy. So, the impending positive shift work growth for smaller companies will likely send positive ripple effects throughout the labor market.
8. Manufacturing and Services & Distribution Sectors See Better Shift Growth
All other sectors started and ended the quarter with positive shift growth but the manufacturing and services & distribution sectors. However, although these sectors had negative growth to start the second quarter, they both saw improvements over the period.
In the end, both sectors ended off Q2 with positive shift growth after seeing a mid-quarter inflection in May.
Here is the Q2 shift recovery data for the manufacturing sector:
- April: -0.4%
- May: +0.1%
- June: +0.4%
And for the services & distribution sector:
- April: -0.5%
- May: +1.2%
- June: +0.1%
The improvements to shift growth for these sectors likely were caused by the same factors lifting all other sectors over the quarter, just with slightly lagged results. The recessionary fears that were felt at the end of Q1 could have kept growth muted at the beginning of Q2 for these sectors. However, the overall results for the quarter show that these sectors have made gradual gains throughout the entire first half of 2023.
What to Expect in the Second Half of 2023
Across the board, Q2 workforce activity levels came out better than Q1–and better than expectations. Lay-offs at the end of Q1 spread nerves across the economy that additional lay-offs were imminent. However, Q2 data showed surprising resilience and continued positive momentum for workforce activity is now at play throughout most sectors and company sizes.
During the second half of 2023, HR and finance executives can watch out for the following trends to inform their hiring and workforce planning within their organizations:
- Continued strong shift recovery across sectors: There may have been a seasonal summer lift to shift recovery data in certain sectors in Q2. But, Q3 and Q4 feature the back-to-school and holiday shopping season respectively, which will likely support shift recovery data in the second half of the year.
- Rebound in workforce activity levels for small companies: Following suit of the larger organizations, smaller companies should see an inflection point for shift recovery and UKG Workforce Recovery Index in the second half of 2023, which will support a broader recovery for the overall economy given the large proportion of small businesses that make up the US economy.
- Growth in labor participation rate: While the UKG Workforce Recovery Index has yet to cross over 100, the past few months of data show that an inflection point is imminent, which could receive the final push from recovery in smaller companies. This would signify a growing labor participation rate, the first since March 2021.