Recent data indicate that unemployment insurance claims are up, while job openings and hiring rates are beginning to falter. It would seem the red-hot labor market is cooling. People have used up pandemic relief checks, the post-lockdown catharsis of consumer spending has settled in the face of inflation, and the Great Resignation has begun to recede. The unprecedented negotiating power of job seekers in a shrunken labor pool with an abundance of employment opportunities could diminish toward the end of 2022, followed by something approximating a return to pre-pandemic normalcy. Simultaneously, interest rates are rising which dampens the ability of many companies to borrow and invest.
In these transitional periods, employers often assume they need to get ahead of the shift by quickly changing HR practices. In the face of a shrinking labor pool, for example, fears of being understaffed led many employers to “hoard” workers who otherwise may not have been a good fit within an organization. Hiring practices became less focused, with less attention given to ensuring an aligned culture fit. As this situation reverses, we will likely see an increase in layoffs, costing organizations far more than if they had invested intentionally from the outset. Exaggerated fears produce ill-timed reactivity. This can be likened to reactivity in the stock market: By the time you panic, the opportunity is already lost, and you risk losing more money appeasing fears rather than solving the problem.
Fortunately, strategies exist that work during both feast and famine. I would never advise that an organization abandon the goal of culture fit during a labor shortage, for example. Finding the right people remains an essential endeavor, even when it is more difficult to fill positions. Those employers who “hoarded” incompatible workers risk greater waste through underperformance and the immense costs to morale and productivity of layoffs, rehiring, and retraining. It would have been wiser to keep positions unoccupied and identify ways to streamline workflow around that absence, even if doing so seemed costly in the short run.
Similarly, under the looming threat of recession and the dynamic shifts back to an employer’s market, I would caution against rushing to let go of genuinely good employees. The assumption that doing so will save money is short-sighted. If a team member is aligned with your mission and generating value for the company, then parting ways should be an absolute last resort.
I believe that strong foundational HR practices are essentially timeless. Our approaches must work in all seasons of the labor market. Sticking to the vision of your organization as you make personnel decisions is essential, regardless of the macroeconomic forces at play. You’ll always have an easier time attracting and retaining the best talent when you define a clear mission and employer brand, regardless of the scarcity or abundance of jobs in the broader market.
The goal is not to maximize the number of applicants or minimize payroll. Rather, we must strive to maximize the number of great, revenue-driving fits on your team who align with your culture and goals. Non-negotiable core values serve as the foundation for your actions, carrying you through hard times and ensuring you come out the other side with organizational integrity and morale intact.
No one expected this overheated economy to continue permanently. Reactive measures often overlook the fact that strong hiring and management practices are versatile in changing conditions. Good culture fits—those sterling needles in the haystack—exist when the stack is large and when it’s small. Change is challenging, but it offers an opportunity to respond with intention rather than reacting in fear. You can’t control the economy, so focus on what is in your locus of control: finding, training, and retaining your people.
Photo Credit: Andrii Yalanskyi