RSM US MMBI Special Report: Workforce 2024

Sixty-six percent of middle market companies expect to increase hiring levels over the next six months, according to figures released 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 reskilling and upskilling , 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.