The tension between shrinking headcounts and ongoing talent shortages has created a “labor market paradox,” according to Bhushan Sethi, joint global leader, people and organization at PricewaterhouseCoopers. 

“Firms are just looking at different levers that they can have in their control around redesigning process, around automation, because of the [talent] imbalances,” he said at a roundtable with reporters last week. “It’s at the high end around specialized talent.”

Amid economic uncertainty, executives across industries are preoccupied with finding and keeping talent, according to a survey of more than 700 executives by PwC conducted this month.

Among key business risks, 81% of respondents said talent acquisition and retention presented either moderate or serious risks to companies. However, 50% said they are reducing overall headcounts, 46% are dropping or reducing signing bonuses and 44% are rescinding offers.

The staffing imbalances arise from cases where organizations may have overhired in areas where they’re experiencing less demand. They may need to adjust headcounts through automation and process redesign in some areas, while continuing to fill other roles that require specialized skills, Sethi said. 

Nearly two-thirds of businesses polled said they have changed or are planning to change processes to address labor shortages, up from 56% in January 2022. Overall, talent acquisition came in second as a risk behind cyber, for which 40% of respondents identified it as a serious risk.

Investing in automation

After a rush of hiring in a tight labor market over the past two years, companies are making distinctions between having staff versus having team members with the right mix of skills, according to survey findings. 

At the same time, there are indications the Great Resignation is slowing down, with the proportion of U.S. workers leaving their employer dropping to 4.1% in July, down from 5.9% a year ago, per the July 2022 SCE Labor Market Survey from the Federal Reserve Bank of New York.

“Firms are basically saying we've got to pivot into other areas – we need different types of specialized talent,” said Sethi. “If we can automate certain [things] and redesign certain processes and be less capacity constrained and need less labor there, let's reinvest.”

Perhaps as a way to retain and acquire in-need specialized workers, 70% of firms said they would expand permanent remote work options “for roles that allow.”

Despite the need to rethink team structure and overall numbers, companies may be cautious about announcing layoffs, according to PwC.

“Hiring freezes [are] one lever that you can actually play to say ‘How do we slow down the hiring’ as opposed to mass layoffs,” Sethi said.

What may be driving a shortage of specialized skills is a focus on growth. Among executives polled, 83% said they were focusing business strategies on growth and around half said they were investing in digital transformation, IT, cybersecurity and privacy.

Among the less-frequently-cited risks were geopolitical factors, including a prolonged conflict in Ukraine and a recession, with 30% saying it was a serious risk.