2013 Employment Forecast: A Fiscal Cliffhanger

How well the job market recovers in the next 12 months could depend on what Congress decides in the next few weeks.

As the door closes on 2012, U.S. unemployment is at its lowest point in four years, the result of increasing payrolls during the past few months but also a stream of people dropping out of the workforce because they can’t find a job that’s held steady throughout this year.

Whether this mixed scenario continues into the new year could depend on what happens in Washington, D.C., over the next few weeks to resolve the fiscal cliff. If Congress and the White House can’t agree on a plan to avert the potent combo of expiring tax cuts and government spending cuts that automatically kick in on Dec. 31, commonly referred to as the “fiscal cliff,” economists believe it could reduce the federal deficit but at the expense of the country’s still-shaky economy.

“The employment situation could go both ways,” says Reto Gallati, president of Chicago private equity firm Raetia Investments. “It really depends on what the deal looks like. If they only cut budgets and improve more taxes, companies will continue to withhold hiring and be more efficient.”

If Congress and the White House can agree on a compromise deal to reduce the deficit, economists believe 2013 could see companies doing more hiring. As it stands, companies anticipate maintaining current hiring levels at least through the beginning of 2013, according to the Manpower Employment Outlook Survey for the first quarter of 2013.

Here are some other hiring trends economists and workforce experts predict for 2013:

Compensation will increase slightly: Paychecks will rise about 3 percent in 2013, according to several compensation surveys. In years past, executives got higher bumps than exempt and nonexempt workers, but in 2013 increases will be more uniform, according to Sibson Consulting’s Annual Compensation Planning Analysis survey.

Demand for contingent workers will continue: U.S. businesses will continue to rely on more staffing agency temps, independent contractors and other types of contingent workers in 2013.

Tech and other high-skill jobs will go unfilled: While overall hiring is expected to be flat, Internet companies won’t be able to find enough workers to fill job openings.

Tax reformers will eye retirement savings plans: Experts expect lawmakers to look at the amount employees can tuck away in 401(k) retirement savings as part of a broad range of options for tax reform. Reducing maximum pretax contributions would increase taxable income, and therefore, the amount of taxes employees pay. “Retirement plans definitely are on lawmakers’ radar,” Alan Glickstein, a senior retirement consultant with Towers Watson & Co., says in a report by Workforce sister publication Business Insurance.

Michelle V. Rafter is a Workforce contributing editor. Comment below or email editors@workforce.com.