One of the most popular topics of discussion these days is “recession.” It is very popular in the news media and even more evident in search engine trends. For example, check out the dramatic rise in popularity of the term “recession 2022” on Google.
Source: Google Trends
The spike in search volume is reminiscent of Google Trends during the 2008-2009 recession. For example, look at the chart below tracking searches on “recession” during that period.
Source: Recession Alert
Searches on “recession” are one of several related searches that tends to set off alarm bells. Other search trends that raise eyebrows are an increase in Google searches on foreclouses, bankruptcies, refinancing, housing market, debt relief and bear markets. And when this happens, companies brace for the worst-case-scenarios and commence the self-torture of worrying about the possibilities of how they will be affected in the short and long-term. Most notably, the first concern will be the negative impact on revenue and costs. In the short-term, cutting your staff and keeping open positions vacant can save payroll dollars. However, there are several unintended consequences.
- Understaffed departments and frozen budgets mean that the remaining employees will have to do more work with less resources. This could result in a reduction of work quality which sends a message to your customers that your firm is less than reliable, thus damaging your brand. And if your brand is sufficiently damaged, how long before sales to new customers are affected?
- Microsoft, General Motors, HP, Burger King, Hyatt Hotels, Trader Joes, CNN, Electronic Arts, Mailchimp, Uber, AirBnB, Square, Groupon and Venmo were all started during past recessions. When companies freeze hiring “across the board,” they are likely hampering divisions that are still thriving. Such an overall freeze threatens a company’s competitive position long-term.
In addition to the impact on revenue and costs, another recession 2022 concern is retention. When workers are expected to do more with less and under the condition of limited opportunities for growth, the allure of greener pastures becomes a siren song. This is why companies that announce major layoffs and/or hiring freezes can expect competitors to increase their efforts to recruit away their people. It also has the effect of discouraging managers from cutting employees who are low performers. Why? They still need someone to do the work and they cannot hire a replacement. So, they grin and bear it until conditions change on the ground. Another overlooked consequence of recessions is the increased aversion of risk. Employees are less likely to be creative and take chances in an atmosphere where they feel their job might be in jeopardy. Staying under the radar and weathering the storm would likely be the mentality of those workers remaining. As a result, a reduction in innovation is probable as well.
The time it takes for your recruiting organization to recover is significant as well. More often than not, hiring freezes signal its annihilation. A successful recruitment organization cannot be built overnight, despite the wrongthink of many managers. It takes time to refill the talent pipeline after a long drought which means the after effects of a hiring freeze will last longer than the freeze itself. And then, there is the effect on wages.
During the recession of 2009, it was an employer’s market and as a result, employers were using the recession as an excuse to rollback employee benefits, force unpaid time off or fire workers. Here is a quote from NBC News who reported on the economic conditions of that day.
In the last six months, 15 percent of employers implemented salary reductions, without a requisite reduction in hours, according to a recent poll by the Society for Human Resource Management. The survey also found that 24 percent were likely to do the same in the next half of the year.
That’s on top of other cuts already made in the last six months. The study found:
- 78 percent of surveyed employers reduced employee health care coverage and 22 percent froze employee health care coverage.
- 72 percent reduced, 24 percent froze and 3 percent completely eliminated health care coverage for spouses/dependents.
- 47 percent reduced, 32 percent froze and 21 percent completely eliminated an employer match in a defined contribution retirement savings plan.
- 44 percent reduced paid time off.
The fear of losing a job is making many workers more accepting of a host of cost-cutting measures in the workplace.
As interesting as that is, its doubtful that a repeat of that will happen with the 2022 recession because of the “Great Resignation” phenomenon. The US Bureau of Labor Statistics reported that 4.4 million people had quit their jobs in April 2022 during a time of 11.4 million job openings. To increase the chance of recruitment success, companies have had to increase compensation in the face of mounting inflation. So, are the wage increases as significant as they could be? To quote CNN…
The white-hot labor market has driven up wages faster than at any time since the mid-1980s, as employers struggle to attract -- and retain -- workers.
But Americans aren't rolling in dough. Inflation has also surged, with the Consumer Price Index rising by 8.3% in the 12 months ending in April. This means the cost of essentials is eating away at workers' fatter paychecks.
A lot of the pain is coming at the gas pump and supermarket checkout. Buying a house has become a lot more expensive too, with mortgage rates above 5%.
Now, some Americans are cutting back their discretionary spending and dipping into their savings, said Scott Hoyt, senior director at Moody's Analytics.
"Clearly, the fact that costs are rising so much -- and for many folks, more than their wages -- is having an impact," Hoyt said.
And herein lies a paradoxical argument, higher salaries are needed to attract top talent in the 2022 recession but, there is an overwhelming urge from leadership to slow down during a recession. Be that as it is, here are a few compelling reasons why recruiting should continue.
- During a recession, there is more top talent available than usual. Why? They are nervous that their position may be in jeopardy, so they quietly begin exploring new opportunities in case company layoffs affect them personally.
- During a recession, top talent can be hired (sometimes) for a lower salary. If the choice is a lower salary verses no salary, odds are that the lower salary option will win out. This may be one of a few chances to hire true A players who normally might not give your company a thought prior to.
- When the recession is over, the war for talent will commence with new fervor. Your talent rivals will start seeking out the best workers and maybe your "A" players will leave you. However, if that happens, there is a chance your company will be in a better competitive position because of their input.
Am I suggesting that companies should never have layoffs? No, in the course of business and fluctuating economies, I think they are inevitable and out of our control. However, as these facts of life occur in business, there are some aspects you can manage; most notably, efforts to retain your workers. But how? Here are a few ideas.
- Set clear goals after layoffs and reset expectations. Staff reductions and budget cuts increase stress levels by overburdening remaining workers. Organizations need to outline what exactly they expect from employees and what should they do to meet these expectations. Prioritization is key and leadership should be careful not to assign new projects that employees cannot adequately handle with reduced resources.
- Remove Unnecessary Sources of Stress – Audit your rules, policies and processes and remove obstacles that make it difficult for workers to do their job. Although some of those procedures might not be able to be eliminated, the effort will go a long way towards boosting the morale of your employees.
- Maintain employee benefits - The stress of surviving a layoff is compounded exponentially when valuable benefits like health insurance, vacation pay, and sick leave are cut back. Carefully measure the savings from reducing benefits against the potentially higher costs of lower productivity and employee burnout.
- Strengthen relationships between management and labor - In other words, show that you care about your people. According to a recent Gallup survey, employees who feel their employer cares about their wellbeing are 69% less likely to actively search for a job. This is a critical finding in today’s market as employee perception of companies caring about their wellbeing is rapidly decreasing.
Additional findings from Gallup concluded that employees who strongly agree that their employer cares about their overall wellbeing, in comparison to others, are:
- 71% less likely to report experiencing a lot of burnout
- five times more likely to strongly advocate for their company as a place to work and to strongly agree they trust the leadership of their organization
- three times more likely to be engaged at work
Attracting, hiring and retaining talent are a critical concern to companies in the best of times and so much more during a recession. Should you need assistance in navigating these waters during these interesting times, click here to schedule a conversation today. Operators are standing by.