CHICAGO – Sixty-six percent of middle market companies expect to increase hiring levels over the next six months, according to figures released today by RSM US LLP. These figures represent a record high since the inception of RSM’s quarterly Middle Market Business Index (MMBI) survey in 2015. The findings are included in the RSM US MMBI Special Report: Workforce 2024, presented in partnership with the U.S. Chamber of Commerce, which examines how the persistently tight American labor market is requiring firms to invest in productivity-enhancing technology while optimizing other workforce strategies through human capital management.
In the fourth quarter of 2023, 97% of survey respondents said they expect the lack of available qualified workers to be problematic over the next year and 66% said they anticipate some degree of difficulty staffing open positions over the next 12 months. The contrast between hiring intentions and available workers reflects the need for a comprehensive approach that encompasses digital transformation, compensation and benefits, and human capital management that can address staffing challenges head-on and help sustain productivity amid fluctuating market conditions.
“The labor market is cooling but will remain tight by historical standards for the foreseeable future,” said Joe Brusuelas, chief economist with RSM US LLP. “The onus continues to be on middle market companies to navigate persistent staffing challenges in pursuit of profitability. It is essential that firms attempt to get ahead of the curve and identify the proper mix between labor and investment capital to create the conditions under which they can grow, anticipate and meet future demand.”
Firms Leverage Technology Investments to Increase Productivity and Increase Efficiency
Business leaders recognize technology investments are crucial to combatting staffing challenges and supporting workforce productivity, with two-thirds of executives stating they plan to increase capital outlays over the next six months. Additionally, 57% of respondents said they are planning to or are considering investing in automation or IT in the next year, with the majority (85%) of those aiming to increase the efficiency or productivity of employees.
Only 12% said they intend to use automation or IT as a substitute for labor, and the report notes this is likely because much of the work that can be replaced by technology already has. Sixty-two percent of executives indicated they plan to or are considering investing in business process improvements or re-engineering in the next year.
Human Capital Management Key to Employee Recruitment and Retention
The MMBI data shows that human capital management efforts feature a variety of recruitment and retainment tactics, with compensation and benefits topping the list. Upward pressure on wages remains, as roughly 52% of survey respondents reported increasing employee compensation in the third quarter and 68% said they expect to in the next six months. Executives said they anticipate offering an average wage increase of 5.5% in the upcoming year.
While compensation is important, middle market firms also report focusing on other talent initiatives to appeal to employees. Forty-seven percent said they offer flexible scheduling and 41% said they’re helping employees better define career paths.
“A shrinking labor force will define the economy in 2024 and remain a key challenge for businesses for the foreseeable future," said Curtis Dubay, Chief Economist at the U.S. Chamber of Commerce. "To adapt, we see businesses of all sizes and sectors working with a smaller workforce by making investments in new technologies like automation and AI, as well as upskilling and reskilling, embracing flexibility, and filling open roles by hiring previously overlooked talent such as veterans and military spouses, formerly incarcerated individuals, individuals with disabilities, and retirees seeking to re-enter the workforce.”
Remote and Hybrid Work Institutionalized in Middle Market, Physical Spaces Still Have a Place
Middle market businesses have institutionalized remote and hybrid work populations, policies and practices, enabling organizations to package remote and hybrid models as a key component of their talent experience. Although the percentage of companies who report having employees in remote or hybrid arrangements decreased to 27% this year from approximately 36% last year, the current segment reflects a normalization.
Additionally, 60% of respondents said flexible work models have positively affected their organization’s culture, up significantly from 39% a year ago. MMBI survey data also implies firms have been able to successfully mitigate negative effects of remote work, with executives reporting the following changes over the last year:
- Mental health issues of remote workers decreased significantly to 47% from 64%
- Impeded employee training or development decreased significantly to 53% from 69%
- Remote workers feeling isolated decreased to 61% from 73%
- Concerns about reduced collaboration or teamwork (71% this year) and reduced productivity (56%) held steady.
While remote and hybrid work are cemented in the middle market, the percentage of organizations planning to increase their number of physical offices or workspaces for employees over the next two years increased to 46% from 25% last year. This reflects the ongoing evolution of workforce strategies, as executives rationalize the type of spaces they need and assess the value of capital investments in buildings.
Explore Evolving Workforce Dynamics Across Various Industries
The workforce special report also explores evolving workforce dynamics in several industries, including construction, consumer products, financial services, health care, manufacturing, professional services and real estate investment. Industry insights can be found in the full report.
The survey data that informs this index reading was gathered from 403 respondents between Oct. 2 and Oct. 20, 2023.
About the RSM US Middle Market Business Index
RSM US LLP and the U.S. Chamber of Commerce have partnered to present the RSM US Middle Market Business Index (MMBI). It is based on research of middle market firms conducted by Harris Poll, which began in the first quarter of 2015. The survey is conducted four times a year, in the first month of each quarter: January, April, July and October. The survey panel consists of approximately 1,500 middle market executives and is designed to accurately reflect conditions in the middle market.
Built in collaboration with Moody’s Analytics, the MMBI is borne out of the subset of questions in the survey that asks respondents to report the change in a variety of indicators. Respondents are asked a total of 20 questions patterned after those in other qualitative business surveys, such as those from the Institute of Supply Management and National Federation of Independent Businesses.
The 20 questions relate to changes in various measures of their business, such as revenues, profits, capital expenditures, hiring, employee compensation, prices paid, prices received and inventories. There are also questions that pertain to the economy and outlook, as well as to credit availability and borrowing. For 10 of the questions, respondents are asked to report the change from the previous quarter; for the other 10 they are asked to state the likely direction of these same indicators six months ahead.
The responses to each question are reported as diffusion indexes. The MMBI is a composite index computed as an equal weighted sum of the diffusion indexes for 10 survey questions plus 100 to keep the MMBI from becoming negative. A reading above 100 for the MMBI indicates that the middle market is generally expanding; below 100 indicates that it is generally contracting. The distance from 100 is indicative of the strength of the expansion or contraction.
About the U.S. Chamber of Commerce
The U.S. Chamber of Commerce is the world’s largest business organization representing companies of all sizes across every sector of the economy. Members range from the small businesses and local chambers of commerce that line the Main Streets of America to leading industry associations and large corporations.
They all share one thing: They count on the U.S. Chamber to be their voice in Washington, across the country, and around the world. For more than 100 years, we have advocated for pro-business policies that help businesses create jobs and grow our economy.
About RSM US LLP
RSM is the leading provider of professional services to the middle market. The clients we serve are the engine of global commerce and economic growth, and we are focused on developing leading professionals and services to meet their evolving needs in today's ever-changing business landscape. Our purpose is to instill confidence in a world of change, empowering our clients and people to realize their full potential.
RSM US LLP is the U.S. member of RSM International, a global network of independent assurance, tax and consulting firms with 64,000 people in 120 countries. For more information, visit rsmus.com, like us on Facebook, follow us on X and/or connect with us on LinkedIn.