Talent management leaders have weathered unprecedented chaos over the last 2 years. First they had to content with COVID-19, next the Great Resignation leading to a growing skills gap. And now, we are marching towards an economic downturn and the threat of a global recession.
Previous recessions bear witness that the labor market is ordinarily the first thing to be affected. But what about now? What trends are we expecting to see?
Are we in a recession?
The US economy has shrunk. According to the Bureau of Economic Analysis, Q1 saw a drop of 1.6% and Q2 saw a 0.9% drop. These two successive quarters of decreased GDP are a strong indicator of a recession. Also, high inflation, aggressive rate hikes, and $9tn bloated balance sheets are depressing signposts of an economy going in the wrong direction.
The US isn’t alone. What we are seeing is a global economic trend. Many other economies are also struggling. China and Russia are witnessing higher than expected inflation. Developing countries like Sri Lanka are experiencing a typical debt crisis and marching towards a currency collapse. Countries across the globe are experiencing economic turmoil due to either high debt or currency weakness.
The labor market has yet to show a significant sign of weakness. With a healthy pace, the US is still producing jobs on an average of 380,000 a month since April 2022. Secondly, unemployment rates are historically low at 3.6 percent.
No, the US is not in recession, but we are seeing an economic contraction.
In the second quarter of 2022, nearly 68452 layoffs were made by technology start-ups
How will it impact the workforce?
Lay-offs are in the wings. Already, a recent report from layoffs.fyi, reveals that in the second quarter of 2022 nearly 68452 layoffs were made by technology start-ups. News also came from Shopify, where CEO Tobi announced the reduction in the workforce by about 10%.
Several other companies like Bolt, Carvana, Cameo, and Tesla have also reduced their workforce.
These layoffs are not confined to those who enjoyed unexpected growth during the pandemic. Rather, companies from all sectors are vulnerable to growth slowdowns and retracting revenues. This means that businesses must inject greater agility in their talent strategy.
It would be a generalization to say that an entire economy will suffer from a recession, as not all industries and jobs will be impacted in the same way. For example, the real estate and construction industries will certainly undergo hard times, due to the decrease in construction spending and low home price growth.
History shows that, during a recession, unemployment rates jump up and it takes longer for people to find work. Also, the recovery of cross-industry employment may take several years. Therefore, employers must adapt their workforce strategy according to the changing expectations of the economy and job market.
What workforce trends can we expect?
These are the top 3 trends we can anticipate. For organizations to:
1. Encourage a work from home culture
2. Look to find more savings
3. Retain flexibility in their talent strategy
1. Encourage a work from home culture
According to research performed by Stanford economist Nicholas Bloom, nearly 80% of employees want to work from home, even if it is for just 1 day a week. However, in a recession, management may regain the upper hand where the power has rested with workers in recent years. It could be argued that remote work is a cultural trend, and not just macroeconomic development, therefore, like any other trend, it can disappear.
Nearly 80% of employees want to work from home, even if it is for just 1 day a week
2. Look to find more savings
The share of workers employed part-time increases substantially during economic downturns. This is because for companies, it is a cost-cutting mechanism. This was seen during the great
recession when the involuntary part-time share remained above the pre-crisis level. To save money, companies will rely on independent contractors. Therefore, we can anticipate a marked increase in demand for contingent and gig workers, as companies choose to maximize their flexibility.
Furthermore, VMS platforms that have been updated post-pandemic have made it easier for employers to develop directly sourced internal talent pools. This will mean that those who are hired during a recession can maintain a long-term relationship with organizations.
3. Retain flexibility in their talent strategy
During such times, contracting contingent workers on a short-term project is a relatively risk-free way to evaluate cultural fit and talent. This can help keep an organization agile in or out of a recession. We can expect companies to show their competence in thinking differently about how to organize human activities to maximize their purpose, i.e. lean thinking and agility to move and respond quickly.
Final Thoughts
A recession is part of the economic cycle, and eventually, economies bounce back. Oddly, it’s common for firms to show greater innovation and ingenuity when recessions strike, with more firms formed in leaner times than when business is booming.
All employers can do is be prepared, maintain a high level of flexibility in their talent strategy, and one way to do this is to double down on leveraging an external workforce—to adapt to a new reality. The last recession showed us that contingent or gig workers can bridge the skills gap temporarily, when employing full-time employees makes no sense.
The external workforce will help organizations survive a recession and the talent shortage, by offering flexibility and reducing costs. Finding the right external workforce partner will be key; one that has expertise in finding top talent and managing the external workforce management life cycle.
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