Return to normal: the evolution of hiring cycles

Written by Eric Kelley, who leads Addison Group’s Northeast Finance and Accounting Executive Search practice.

To say the job market has been a little tumultuous since the pandemic may be an understatement. It’s interesting to note how much we’re still feeling the reverberations of the economic shutdown being played out, similar to a ripple in a pond. While I believe we still have a way to go before we return to a “normal cycle” of hiring, there are some positive signs on the horizon. Let’s take a look at the ups and downs of the job market since 2020 and explore some potential trends and glimmers of hope for 2025.

Hiring before COVID-19

In a normal hiring cycle, we expect to see certain dips and runs. Many companies pay bonuses in March, prompting job seekers to kick off searches (or resign for new roles) after receiving them. January and February see fewer resignations for this reason.  The searches for new full-time equivalent (FTE) hires that were budgeted in Q4 may launch in Q1/Q2, and, when combined with replacement hires, makes spring traditionally one of the best times to look for new roles.   

The summer slowdown primarily affects the pace of the hiring process rather than the volume of open positions. Response times may be longer than usual due to vacation-related delays in the decision-making chain. This deceleration in decision-making can create the illusion of reduced hiring, especially when coupled with a lower resignation rate during this period. However, the quantity of opportunities available typically remains robust throughout the summer.   

New growth-created roles in Q3/Q4 will still pop up, but for many organizations they will need to budget that FTE for the following year.  With budget season in Sept/Oct, we typically see a lot of strategic decision-making about teams and plans during this timeframe. There will be increased urgency from companies in Q3 to fill a critical hire – this can be a good time for job seekers making a pivot, especially if the hiring organization needs the role filled before the end of year.   

Job seekers are less likely to make changes during the holiday season, especially with bonuses around the corner. Companies typically focus on replacement hiring rather than expansion during this period, resulting in slowdown of both company and candidate activity. There are plenty of exceptions to the cycle, such as companies operating on a non-calendar fiscal year will hire on a different cadence.

What changed in the hiring cycle

Then things got crazy.

When everything went remote in March 2020, hiring stopped. Full stop– do not pass go. For example, Indeed job postings plummeted 45% and 40% in Boston and NYC, respectively from January to May. This sharp decline occurred during a period typically associated with job market growth, underscoring the severity of the economic impact. Then things got even crazier.

It became almost irresponsible to not borrow money with interest rates at generational lows and the growth-spending began. From the low point in May 2020, Indeed posts nearly tripled to a high-water mark in January 2022. There was no holiday dip in 2020 or 2021; hiring just accelerated, and along with hiring, compensation packages. The job market entered uncharted territory during this period, with the much-discussed “war for talent” reaching new heights: Candidates were receiving offers sometimes 50% or more higher than would’ve been expected three years earlier. Six-figure counter-offers, promises of remote in perpetuity were flying high and equity was flowing. It seemed unsustainable and turns out it was!

The aftermath

While company leaders were enacting their hiring plans, the state of the economy was still volatile.  Supply chains were a wreck and consumer behavior changed as the return to normalcy began.  Investors began to shift their focus towards profitability, valuing EBITDA over top-line revenue.  Then in March of 2022, the Federal Reserve began to raise interest rates, doing so 11 times over the next 16 months to battle inflation. Arguably, inflation was driven in a large way by those rising salaries. Venture Capital (VC) Funding dropped 37% from Q2 to Q3 in 2022. bottoming out as we headed into 2023. Over the last two years, VC and Private Equity (PE) capital has for the most part gone undeployed (aka dry powder).

Without additional investment and a switch from top-line to profitability, we’ve seen significant layoffs as companies reduce costs or re-focus their market position to help drive successful exits, which have lagged for the last two years.  However, there is also a psychological force at play. Throughout the fervor 2020-2022, a lot of candidates and companies made bad choices. Bad job changes, bad hires. Now many job seekers and companies find themselves risk averse to pull the trigger on a change if things don’t feel “perfect” – rather maintain the status quo than risk an unnecessary cost. Pair some hesitancy with the rise of remote interviews (meet 5 people over 5 weeks instead of in one afternoon) and the time to hire now extends significantly longer creating a sense of stagnation as the same job posts hang on the internet for months. 

While the pace of investment remains slow, there have been positive signs as VC deal activity begins to return, such as Q2 2024 reaching back to Q2 2022 levels (albeit with a significant amount of investment going to two companies – CoreWeave and xAI). The Federal Reserve began its reduction of interest rates in September to continue efforts towards a soft landing with the surprisingly low October jobs report (only 12k added) and reduced interest rates another quarter point during their November meeting.

These actions should spur growth, but it won’t happen immediately. Remember our normal budget cycle? Many organizations are now building their growth hiring into 2025 budgets. As more investment occurs and more growth hiring occurs, it will pull people out of existing organizations creating additional opportunities for people.    

Looking toward the future

There’s a lot of noise out there about the job seeker experience and there’s a lot of validity to it. Job opportunities are limited right now, and many employees are feeling stuck in their jobs yet remain due to a lack of alternatives. Some companies are certainly taking advantage of the market conditions to offer lower salaries, and more in-office work because they can. Job seekers did the same when they held the upper hand in 2021 and 2022.    

We’re all a little out of balance these days since we haven’t had a “normal” cycle since the pandemic. A lot of the heavy lifting from cost-cutting companies has been done. You can no longer just call yourself a “tech company” and get a 10x valuation (now you have to call yourself an AI company!) but that means we should have some predictable, navigable waters ahead of us. My prediction is we will see some significant growth hiring in Q2 2025. My hope is that it is not hair-on-fire growth hiring like we saw in ’21-’22 that inevitably fueled the recent downturn but rather purposeful and sustainable growth. Profitability will still be important in 2025, but as the market for investor exits continues to improve, there will be more capital deployed and that should be the jumpstart to breaking free.

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