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Over the past quarter, the National Council of Compensation Insurance (NCCI) Quarterly Economics Briefing report for the third quarter of 2023 reports that the labor market has continued to evolve in a positive direction for the workers compensation system relative to the tight post-COVID market of a few years ago.

The industry has seen job growth, turnover, and participation moving from the extremes of 2021 to more balanced levels and closer to pre-pandemic (2015-2019) averages. However, the key outstanding question for the industry remains: is the labor market moving softly into balance or are we seeing early signs of deterioration toward recessionary conditions?

Net employment growth over the past three months averaged 266,000, up from 201,000 over the previous three months. The October jobs report showed strong gains for the month of September and included meaningful upward revisions to net employment gains in July and August.

While employment growth has slowed from the heights of the Great Reshuffle, it remains healthy overall and continues to support economic expansion. Overall job growth also continues to support growth in the workers compensation premium base.

Calculated private payroll growth has slowed some in recent months while public (government) job growth has contributed meaningfully to overall employment; however, payroll growth remains elevated relative to pre-pandemic levels due to persistent elevated wage increases.

While wage growth has softened some from the peak, NCCI expects it to remain elevated above the pre-pandemic trend for some time as the economy continues to expand and workers push for higher wage gains to offset their inflation experience from the past few years, even as the labor market broadly comes more into balance.

These trends have two primary implications for workers compensation: higher premium growth (including audit premium), partially offset by higher indemnity severity.

The labor market continues to evolve in a positive direction for workers compensation relative to the post-COVID extremes. Elevated wage growth combined with still-healthy employment growth is leading to continued strong total payroll growth overall. Turnover continues to slow, which reduces low-tenured workers as a percentage of the overall labor force over time.

Current data does not contain warning signs of an imminent recession. Instead, it signifies that relative normalcy is returning as employment growth slows relative to Great Reshuffle levels. The household spending and savings imbalance has been offset by record levels of credit card debt; however, debt service remains quite healthy and no abrupt stop to consumer spending appears to be on the horizon.

With real wage growth once again positive, consumer activity will likely be able to continue to drive economic growth. That means businesses are unlikely to begin broad layoffs that disrupt the labor market and the workers compensation system.