Three phases of job market disruption

Amid all the uncertainty in the job market right now, it’s hard to find patterns or predict when and how things might change. If you look closely, though, there are threads to follow. There’s no doubt that disruption will continue and perhaps even accelerate over the coming months and years. Understanding the shape of how this disruption may occur will help everyone to position themselves for the changes ahead.

There will be three phases of job market disruption, and we’re well into the first one. This phase is characterised by mass layoffs, with large organisations saying goodbye to double-digit percentages of their workforce and smaller groups making tactical decisions in specific functions, regions and disciplines. The big news on this topic over the last couple of weeks has been the announcement of a 40% reduction in headcount at Block. On the surface, this is attributed to AI-enabled efficiencies, but there’s more going on. The truth is that right now, companies are able to get away with making layoffs in a manner they normally can’t. In a healthy market, cutting staff signals that the business is in trouble and spooks both investors and the wider market. In challenging times, it’s a sign of prudent management. 

We’ve been in phase one for a while now, and it seems we’re in the latter half of it, but there’s likely more to come. We’re also seeing the start of phase two.

In normal downturns, waves of redundancies are followed by a gradual uplift in hiring as the market improves. However, phase two of this job market disruption is marked by delayed recruitment, diluting this effect. Companies and leaders are recognising that technology means they can do more with less people and as a result, they’re waiting longer to start hiring. Where a business needed a customer support person for every 20 customers, for example, automation and AI mean they now need one for every 40 or 50. Businesses can continue to grow their results for longer without growing their headcount.

This, of course, means less jobs, and in particular less entry-level jobs - the ones more prone to outsourcing or automation. Recent statistics in the UK show 16.1% unemployment in young people aged 16-24, the highest level in over a decade. Short-term thinking is prevailing. Automating entry-level jobs is good for the bottom line today, but will lead to a major talent shortage in 3-5 years - we’re not training tomorrow’s leaders, so when we need them, they won’t exist.

Because of these phase two impacts, the next few years may continue to be challenging for those in the job market. Competition will continue to increase as more people graduate and enter the potential workforce, and with supply of jobs trickling through at a fraction of the normal rate, widespread unemployment (or under-employment) is a real possibility.

Phase three is more optimistic, and driven by two factors. Firstly, companies will begin to identify which tasks are more trouble to automate than they’re worth, and hire more people to do jobs made up of those tasks. This could be because of difficulty in verifying the accuracy of outputs, legal risk of sub-standard results or the importance of human relationships (for example, Gartner predicted recently that 50% of companies that have reduced headcount due to AI will rehire staff under different job titles by 2027). 

Secondly, enabled in part by the technology we have available to us, more people will become entrepreneurs and start businesses. Ultimately, this is likely to be the most powerful factor in the return of employment. We’ll have smaller companies, but more of them. This will create a more dynamic market as businesses start up, pivot and fail more quickly, meaning shorter average tenure and more companies on the average CV, but the demand for talent will be there.

It’s difficult to say how long each of these phases will last, and they’ll affect different industries and geographies differently. One thing that’s certain, though, is that when we get to a phase three job market the roles, skills and organisations populating it will look very different than they do today. 

These are my predictions based on the patterns I’m seeing, and I’d love to hear what you think. Let me know in the comments below.

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