Help Wanted sign. (Photo by Steve Pfost/Newsday RM via Getty Images)
The coming economic downturn—which will probably become a recession—will change how human resources policy should be made by small businesses as well as large corporations. A brief window of easy labor availability will allow a return to basics of good human resources policy, after which we’ll revert to a long-term tight labor market.
The next economic slump will be different from typical patterns in two ways. First, we will begin with a huge number of unfilled positions, nearly two for every unemployed person. Some of the cutbacks will be cutting hiring plans rather than actual jobs. Second, consumers have huge savings accumulated in the pandemic, when stimulus and wages were high and spending was low. That will make some consumers less sensitive to higher interest rates and less worried about job loss.
There will be layoffs, though, because the effects of the Federal Reserve’s monetary tightening will not be spread evenly across industries. Some will be downsizing vigorously while other sectors remain under-staffed. The most affected part of the economy will be interest-sensitive sectors, including construction, business capital goods and big-ticket consumer products.
The slump will bring a short-lived respite from the abnormally tight labor market which encouraged poor management practices. Poor performing workers have been tolerated because it would be so difficult—or impossible—to replace them. That included not only those who produced little, but those who were disruptive to others trying to work hard. The tight labor market has also led to bad hires out of desparation.
The recession or economic slowdown will give managers the opportunity to clean house. So as an initial step, first-level managers must identify those people who pull down the productivity of others. Most departments can survive with one low-productivity employee—but not if that person infects other workers with bad attitudes, poor attendance, sloppy quality standards or poor customer service.
As hiring new employees becomes easier, getting rid of bad employees is an opportunity that cannot be missed. Although the point of terminating employees is not to intimidate others, sending the signal that disruptive employees won’t be tolerated will help those uncertain about how hard they need to work to keep their jobs. Managers should right now meet with workers who are under-performing and clarify expectations. Such meetings probably seemed fruitless in an environment where the company would not want to fire the worker because a replacement could not be hired. But setting expectations and stating explicitly what employees need to change to meet them needs to happen now, so that those who do not get their performance up can be terminated when replacements become available.
Keeping the keepers will be the next step. As the slump nears, first-level managers should anticipate the need to cut staff levels. Higher level executives should coach those first-level managers on the decisions they will have to make. The top priority will be identifying the keepers—the employees who are motivated to do good work and set great examples for their fellow workers. It may seem counterintuitive to begin layoffs by thinking about the people who should not be laid off, but sometimes workforce reductions are so large in particular departments that keepers cannot be kept on in their current departments or roles. The company must encourage front-line managers to find other places within the company for keepers who cannot be retained in their current roles.
When good workers start applying for jobs, the old wisdom must be used: hire the best, and terminate those who don’t meet expectations. Of course it will take time for new hires to come up to speed, but in most cases managers can identify in 30 or 90 days who isn’t going to work out.
After the recession or slowdown, the labor market will tighten up again. This decade will have the lowest growth of the working-age population since the Civil War, as shown in the scariest chart ever. After 2030 it will ease up only a little, so companies need to make tight-labor human resources management part of their standard practice. The three keys will be improving labor productivity (such as through better training, better tools and better management), improving labor retention and improving labor recruiting. The order is important: productivity is most important, followed by retention. And if retention is good, recruiting becomes much easier.
An economic slowdown is coming, whether or not it meets the formal criteria for being a recession. It will present opportunity for businesses to improve their workforces. The company that fails to take the opportunity will probably be competing against a company that has higher productivity of its workforce—a company very hard to compete against.
