The labour market is undergoing significant changes. On the one hand, we’re seeing an ageing population— people are living longer and enjoying a higher quality of life but having fewer children. On the other hand, rapid technological advancements are pushing boundaries and the younger generation is joining the labour market with a new set of hopes and expectations. This makes it more important than ever for businesses to have smart workforce management strategies in place, especially in places and sectors where finding good workers is already a challenge.
Tight labour markets can affect employers in various ways. They might need to enhance job packages and adjust wages to attract and retain talent. Additionally, these conditions can prompt businesses to invest in technology and automation to boost productivity. However, these shortages can also lead to reduced production quality, hinder innovation and slow the adoption of new technologies, particularly if companies lack highskilled workers.
According to the OECD Employment Outlook 2024, while the labour market remains resilient, it is notably ‘tight’ across many countries. Although labour market tightness—measured as the number of vacancies per unemployed person—has eased somewhat recently, it still remains above pre-COVID-19 levels in numerous regions.
The demand for workers continues to outstrip supply, creating a highly competitive hiring environment. This situation is particularly pronounced in Australia, where the index peaked at 279 post-2019 before decreasing to 206 in the third quarter of 2023 (in the index, note that the fourth quarter of 2019 rates as 100). Other countries where levels remain above pre-COVID-19 levels include the Netherlands, Norway, Spain, Slovenia, Ireland, France, Lithuania, Belgium, Canada, USA, UK and Austria (levels in descending order). The average OECD index in the third quarter of 2023 was 121. Historically, low-pay industries were often the main drivers of such imbalances, but this is no longer the case. High vacancy rates are now seen across a range of industries, not just those with lower pay. The health sector, in particular, continues to face significant pressures.
In recent years, and against the above backdrop, employers around the globe have experienced changes in dealing with employees’ needs and priorities. Employers are therefore now even more focused on critical issues such as the development of a positive corporate culture and working environment, gender equality and diversity, and employee engagement.
Nevertheless, the latest human resources surveys report that higher salaries are still a primary motivation in driving employees to seek a new job (so-called ‘job hopping’), and inflation has highlighted the importance of increased compensation. Research indicates that salary sometimes even eclipses the opportunity for professional growth or a more advanced role in line with their education as the top worker priority. In fact, the majority of employees say that they would change employer if they could earn more.
However, the younger generation of workers in particular do not base their employment decisions and careers solely on pay. This is evident from the ‘Great Resignation’ phenomenon, which refers to a widespread trend for people to quit their jobs in large numbers, starting around 2021, mainly because they were seeking better work-life balance, more satisfying jobs, or improved opportunities.
Younger employees have an increasingly keen awareness of and interest in social and environmental issues. Political decisionmakers are taking note of these issues to a degree that they have not in the past. Partly as a result of this, employers are gradually moving to place greater emphasis on ESG (Environmental, Social and Governance) and sustainability standards, including in their HR policies, in order to retain their talent.
In terms of compensation and benefits, ESG may be involved not only in setting performance targets and key performance indicators, but also in providing sustainable benefits to employees. Employers who take an ESG-oriented approach will certainly have a competitive advantage when it comes to attracting and retaining the next generation.
When it comes to pension schemes and investments in retirement plans, candidates for jobs look for socially conscious and environmentally friendly investments aligned with their values and priorities when they assess job offers. Employers should take the opportunity to re-design their benefits packages to take into account the increasing importance of sustainability. Among the ESG goals that employees care particularly about is the imperative to reduce carbon emissions. It is worth noting the EU’s Corporate Sustainability Due Diligence Directive (‘CS3D’) in this regard. This Directive, which will impact both EU and non-EU companies, gradually introduces due diligence and disclosure obligations on businesses to identify and assess the actual and potential negative effects of their activities (and their supply chain) on human rights and the environment. Businesses are further required to enforce long-term climate change mitigation transition plans that ensure a corporate strategy compatible with the transition to a sustainable economy as well as with the containment of global warming.
Moreover, for employers who fall within the scope of the EU Non-Financial Reporting Directive, linking bonus plans to ESG factors may be included in the non-financial statements they are required to produce. These statements must contain information regarding the development, performance and impact of the employer’s activities relating to environmental, social and employee matters, respect for human rights, anti-corruption and bribery.
Beyond the specific mandatory requirements, employers can respond to employees’ sensitivity to the ‘E’ of ESG by providing individually tailored benefit packages for employees who choose public transport, carpooling, cycling, or walking to work. Another example is the replacement of traditional meal vouchers with locally-sourced food discounts or more environmentally-sustainable meal vouchers. There are many ways to promote ESG through employee benefits, and all of them can play an important role in attracting and retaining young talent. They also provide a chance to improve both the financial performance and the public reputation of the organisation.
Based on the latest surveys conducted by major consulting firms, the priorities of the new generation of employees are not limited to sustainability and variable pay. In fact, for the majority of the employees interviewed, work-life balance is a key issue when selecting an employer. In particular, it has been demonstrated that work-life balance and flexible work, together with a healthy working environment, are highly important concerns, especially for women employees.
Flexible working and work-from-home schemes can be an important tool in promoting work-life balance. However, the social distance between employees and the physical distance between employers and their employees may affect the type and intensity of psychological exchanges between them. This has the potential to impact employee engagement levels and engender increases in staff turnover. Employees who have less face-to-face interaction with the employer may have a lower attachment to the business and feel less obligated to repay the employer’s efforts and commitment to their wellbeing with loyalty and engagement.
Recent European legislation has focused on salary transparency, including the mandatory disclosure of salary in job advertisements. Disclosing a fixed salary range is a key to attracting talent, allowing employers to immediately attract the candidates most in line with their open vacancies and to ensure an effective selection process.
It is worth noting, however, that the EU pay transparency obligations for employers don’t stop at the pre-hiring phase. Employers must make the objective and gender-neutral criteria used to determine individual pay, pay levels and pay progression easily accessible to employees. Employees must also be given the right to request and receive written information about their individual pay level and average pay levels, broken down by sex, for categories of workers performing the same work or work of equal value.
In addition, the EU is imposing reporting obligations on employers in order to diminish the persistent gender pay gap. This ‘gender pay gap reporting’ obligation may, under certain circumstances, involve a detailed ‘joint pay assessment’ that needs to be produced with union involvement. Legal compliance of various kinds is becoming increasingly complex for businesses, but if the end result is fairer, more equitable and sustainable operations, the younger generations in your workforce will hopefully appreciate your efforts.
The benefits listed below are some of those most typically provided by employers across the world. This, and more information, is accessible in the Ius Laboris Global HR Law Guide, a comprehensive country-by-country guide to employment law across the world, providing a clear, comparative overview of the law in over 50 countries.
To continue to attract and retain talent in a changing global labour market, Employers must ensure that they understand and service the evolving needs and priorities of the workforce. This is likely to include consideration of the following:
