Exploring Skills-Based Hiring and Wage Inflation Trends

Businesses globally continue to grapple with scarcity of highly skilled talent and strong competition in the labor market. With the post-pandemic recovery complete in many regions around the globe, hiring leaders continue to struggle with a labor market that has yet to feel like it has returned to business as usual. Lightcast, with data gathered by the United Nations, found that the growth of the working age population will slow across 80% of countries by 2040 and will begin to shrink by 30%. While it feels in many ways things have returned to normal for most of the labor market, Lightcast points out one key COVID-era trend that will remain true, “The unspoken assumption that there is always more talent to be found, somewhere, may no longer apply.”

As a result, many companies are shifting towards a skills-based hiring strategy to gain access to broader talent pools and drive efficiency in recruitment processes. The approach focuses on practical skills and knowledge in place of education and degrees. This way, employers can attract the highest quality talent, expand their talent pools and focus on driving development in the existing workforce. The World Economic Forum highlighted in a recent article that skills-based hiring was five times more predictive of job performance than relying on education and twice as predictive as work experience. LinkedIn found that talent pipelines around the globe expanded on average 10 times larger when employers used a skills-based approach to hiring. That number ballooned by 19 times for talent pipelines in the US, where degree requirements lock most of the workforce out of consideration for many high-skilled roles. 

Due to the ongoing and rapid evolution of the way work is getting done, employers must now think about skill sets dynamically. These changing needs are shifting talent supply as well, with candidate availability looking very different across skill sets even within the same sector.

Each year, AGS’ Market Analytics team updates the internal benchmark rates across ~100 unique skill sets in countries around the globe. By compiling data from more than a million hires across the Allegis Group network of companies through AGS’ Acumen® Intelligent Workforce Platform and data from our third-party external partners, our benchmark rates are determined by the culmination of millions of unique data points. These benchmarks become the backbone of the rate reviews our clients receive each year and guide the ad hoc advisement we provide every day.

In this article, we highlight the roles that endured the largest wage increases and skill set changes across each of our customers' major verticals in the US, the UK and India. These roles were significantly impacted by 2023's tight labor market conditions and, as a result, our benchmark rates endured significant wage growth. We also analyzed Lightcast wage trends from the last three years as well as the top skills and sourcing locations from LinkedIn Talent Insights. As the talent market becomes increasingly more complex to navigate due to ever-changing skill requirements, organizations must be aware of these trends in order to stay ahead of the ongoing global labor shortage. 

Skills and Wage Trends in the US

In 2023, the US labor market finally began to cool off from its post-pandemic boom. Job postings, quits and job growth all declined from record highs. The labor market remained tight overall with unemployment rates lingering stubbornly close to historic lows. While the IT sector began to release the excess talent that was hired during the e-commerce boom, most sectors chose to hold on to employees, keeping the overall number of layoffs low. 

Wage pressures remained high with an average increase of 4% over 2023. Lingering pressure from inflation kept wage growth strong last year and was a major factor in the changes to AGS’ benchmark rates. While not as high as the increases seen in 2022, our clients still saw larger than normal increases to the costs they faced hiring in the US last year.

Accountants were a standout role last year, being amongst the most difficult roles to hire for in the US. According to SHRM, more than 300,000 accountants and auditors left their role in 2021 and 2022 in the wake of the pandemic. This exodus of talent reduced total employment by 17% from 2019 levels.

Pandemic-era retirements also impacted this skill set greatly, driving up posted wages by 20% over the last three years. The long working hours associated with the accounting profession have also made it a less attractive career for the younger population, which has led to a steady decline in the number of accounting graduates. However, hiring demand for accountants continues to increase. All of these factors were cited as warning signs that tightness across accountant skill sets will likely continue. 

Specialized skill sets are also impacting the rising pay of accounting professionals. Becoming a generalist CPA is less popular than it used to be as more technical skill sets like forensic accounting are demanding higher wages and driving professionals into that specific function. Technical skills are also a growing need for employers, with Deloitte reporting that AI and machine learning will be the top skills amongst 20% of employers looking for accounting professional talent in the next year. These trends were echoed in the AGS benchmark rates with accounting positions receiving one of the largest increases across skill sets.

Skills and Wage Trends in the UK

In the UK, strong demand, drained talent pools and high inflation defined 2023 as a highly competitive hiring year across sectors. As a result, the need to stand out amongst competitors to attract and retain talent has been critical. 

The key driver for rising wages has been historically high inflation, which peaked at 11.1% in October 2022. While the rate of inflation has slowed, it remained historically high throughout 2023. Currently, inflation sits at 4%, which is double the Bank of England’s target rate. Average pay growth rose above inflation this year for the first time since October 2021, with annual wage increases averaging 7.3%. This marked a significant turning point following a long period of inflation outpacing wages. 

In the UK, there has been an imbalance between the supply and demand of IT professionals in recent years, with the shortage of talent being a key driver of inflated rates. With the country currently experiencing a shortage of skilled labor, the UK has instituted a list of roles with reduced immigration restrictions to help attract new migrants in those fields. While this has helped those with highly paid skill sets immigrate, the UK has also instituted a heightened threshold for minimum earning potential among visa applicants. With demand for foreign tech talent surging by 32%, Intergo Accounting warned in a recent blog post, "There has been a dramatic increase in visas issued for web developers and technical support specialists. Many foreign nationals could be excluded by the raised salary threshold, particularly for roles outside London." This trend was also seen in the AGS benchmark rate refresh last year as well, with help desk technicians seeing some of the largest increases in 2023.

Skills and Wage Trends in India

India's labor market demonstrated considerable strength in 2023, despite strong economic headwinds globally. Many companies have continued to diversify their supply chains through a "China plus one" approach, with India being the preferred new addition for many. Foreign investment in India spiked to an all-time high in 2020 but has since returned to pre-COVID levels for many sectors. Many businesses chose to pull back from new investments last year due to increasing global interest rates. Despite slowing outside investment, unemployment in India returned to pre-COVID levels for the first time in 2023, indicating that the market for talent in the region remains tight. 

WTW found that workers in India saw an average 10% increase in overall salaries in 2023 with surveyed business leaders expecting a similar increase in 2024. High inflation last year due to rising food costs, along with India's high quit rate were cited as the main factors driving up wages this year. 

Technology firms were among the most impacted by these wage hikes as the sector contended with an industrywide talent shortage this year. Eight in 10 firms surveyed in a recent  study EY said they were experiencing a shortage of "power users" with strong tech skills – 28% of those respondents also said they would need to reskill at least one-third of their India-based talent to remain competitive by 2025. These shortages were echoed in our AGS benchmark rate refresh last year, with four of the top five wage increases going to IT roles. Desktop technicians saw the largest increase in our IT benchmarks, doubly benefiting from the IT shortage and lower-paid roles being subject to higher cost-of-living increases generally. 

4 Strategies for Skills-Based Hiring

After the worldwide talent shortages following the pandemic, 2023 in many ways felt like the global labor market was returning to normal. However, wage growth and talent demand remain strong in many markets across skill sets and sectors. The drought of skilled talent is a global event that is just beginning to take shape. 

Understanding the underlying trends behind what skills are in demand – and why – along with where deep talent pools can still be found will be critical for hiring leaders moving forward. Here are some strategies to consider:

• Begin an inventory of the skills your workers have, the skills you need today and the ones you may need more of in the future.
• Separate the skills you need from what may just be nice to have on job descriptions.
• Focus less on education or experience and more on the skills an applicant can demonstrate.
• Identify which roles must be tied to specific locations and which could be moved to a “work from anywhere” model. Then pick hiring locations strategically – based on where key skill sets are easiest to find – for as many roles as possible. 

Using these strategies – in tandem with an integrated workforce data platform like Acumen – will not only provide unmatched visibility into your entire workforce but will also help you source the right combination of talent to ultimately make more informed hiring decisions.