By Kevin Flemming, CSP Kevin Flemming is president of Integrity Personnel, Inc., a Lehigh Valley-based staffing and recruiting firm. He writes about staffing issues for small and medium-sized employers. His column, "Talent Search," appears in the Eastern Pennsylvania Business Journal every third week of the month.

For most businesses, the fall season marks the beginning of the budget process for the coming year. Here at our firm, we begin our annual planning by examining changes that are occurring in the labor market. We look for shifts in key benchmarks such as wages, employment numbers and open positions. In addition to the quantitative information, our staffing professionals share their observations of changing behavior among the employers and candidates that they work with. This helps us spot trends that could affect our clients’ ability to attract and retain skilled workers.

This article will give you an insider’s view of the conversations that take place in our staff meetings. Hopefully, you can use some of this intelligence to prepare your organization for changes that are right around the corner. But before getting to the juicy stuff, I want to share some key numbers with you. The state of the labor market has been steadily improving over the past year. National employment has grown at a rate of 1.9% since September, 2004 and the jobs that were lost between 2001 and 2003 have been replaced.

Employment & wage data indicates change

Looking at Pennsylvania, the unemployment rate continues to drop with September’s number at 4.8%. That beat the national unemployment rate of 5.1%. More significant is the direction of wages in Pennsylvania. Statistics provided by the Department of Labor reflect a steady increase in average annual earnings for Pennsylvanians working in the private sector. Average annual pay grew by 3.4% in 2003 and over 4% in 2004. Similar increases were seen in the Lehigh Valley region with the mean annual salary at $35,590 as of November, 2004 (when the most recent wage data was distributed).

Not surprisingly, the job growth in September was driven by the service sector. Everyone who reads a newspaper knows that manufacturing jobs continue to decline across the country. However, it is interesting to note that the greatest number of jobs was created in two high-paying sectors: professional & business services, and education & health services.

The effect that these numbers will have on the 2006 labor market is easy to see. Primarily, salaries will increase with new job offers. Experienced hiring managers are already looking at their organization’s pay scales with a magnifying glass. Over the past six months, more of our corporate clients have been asking us if their starting pay rates are competitive.

Employers who want to add to their labor force next year will have to review their budgeted wage figures to ensure that the numbers are realistic. Thanks to the information culture, people are better informed about the level of wages and available benefits than ever before. Even though the best candidates will be on the look-out for new opportunities next year, they will accept only those job offers that provide the most attractive compensation package.

Oh, and we can be confident that those candidates will receive other offers. If the unemployment rate remains below 5%, we will see an increase in offers and subsequent job changes among the employed. This creates real challenges for companies that need to keep their existing employees on the job.

Trends point to specific areas of change

Although keeping track of current workforce statistics is important in our business – anecdotal evidence of what is occurring in the job market provides an even better picture. Some of the experiences that our recruiters and candidates have had this year reveal the type of environment that employers will face in the coming months.

First on the list is the reappearance of counteroffers. We have seen more candidates being offered salary increases by their current employers in response to resignations. This has induced some people to reject offers made by new employers after initially accepting them. Companies need to prepare for the possibility that their first offer to a candidate may not close the deal.

We have also observed that the underemployed are restarting their job searches. For the past few years, many members of the workforce were satisfied to stay in positions that were beneath their skill level or their experience. This was, of course, in response to a soft job market. Now, higher-paying job opportunities are re-igniting their desire to search for new employment. If your organization has enjoyed relatively good retention these past few years, it will be wise to review how your workforce is deployed and find opportunities to promote your stronger talent.

The last significant change we have encountered is that hiring decisions are being made faster. After harping on this topic for nearly four years, I am finally seeing evidence of a shorter hiring cycle. In service sector businesses, the amount of time between the first interview and a formal job offer is shrinking. To compete for the best talent, it is critical for hiring managers to make decisions quickly. Companies will need to have clearly communicated recruiting processes in place so that they can make offers as soon as they identify the right candidates.

In presenting these observations, I cannot claim that our conclusions provide an accurate prediction of the next labor cycle. Interested readers must view this information objectively and in combination with other research. But with careful analysis of the present and appreciation for the past, we can better prepare our organizations for the future.