March 2001

March, 2001

Bad Economy: Good News for Employers??

Is There a Silver Lining inside the clouds of certain economic slowdown and possible recession hanging over the U.S. and other countries? Is a less overheated economy secretly good news for employers desperately seeking employees? As layoffs increase the pool of unemployed workers, will companies have an easier time of hiring – now and in the future? Is it therefore time to slow down from overnight job offers and scale back those astronomical hiring bonuses?

The best advice: Don’t assume anything yet.

In the U.S., for example, some economists forecast that unemployment may rise by as much as one percent during 2001, from last year’s historic low of four percent. However, unemployment will vary from industry to industry, from region to region and from one occupational discipline to another. Moreover, in many cases it will be short-lived.

And while it is true that layoffs more than tripled in January from last year’s monthly average of about 45,000, the U.S. Labor Department also reports that new job creation during the same month exceeded a quarter-million jobs – a net gain of over 100,000 jobs.

The main reason that there will be any increase in unemployment figures at all is that many laid-off workers will lack the skills to fill the new positions and/or will live in the wrong place to take advantage of them. Thus some jobs will go begging, for lack of people to fill them.

Of course, employers tend to get nervous when economic trends aren’t clear. For example, home sales are strong, while retail sales are weak. The Fed lowers interest rates, but consumer confidence drops. When the Dow goes up, NASDAQ goes down – and vice versa. One survey says that the average worker wants to stay put in 2001, while another says that record numbers will change jobs. Congress may or may not enact the Bush tax cut, which may or may not (a) stimulate the economy, (b) stimulate the economy in time to do much good, (c) stimulate the economy at the expense of debt reduction, or (d) all or none of the above.

Given those and other variables, many find it tough to make hiring decisions with great gobs of enthusiasm – even when vital position openings need to be filled. As president Tom Silveri of the outplacement firm Drake Beam Morin told The Wall Street Journal, employers today “have one foot on the pedal and one foot on the brake.”

Getting the Corporation's Foot Off the Brake

Here’s the bottom line: There are not legions of highly qualified, increasingly inexpensive job candidates out there who are out of work and anxious to join your organization.

Virtually all Sanford Rose Associates offices continue to report high demand and fierce competition for highly qualified candidates. Their observations are echoed by a new report from Hunt-Scanlon Advisors, which predicts that last year’s 20-percent growth in executive-search assignments will occur again this year.

Demand remains strong in such diverse functions as marketing, engineering, knowledge management and general management. It can be argued that, in times of corporate belt-tightening, it is more important than ever to attract the very best talent for those critical positions that can make or break a company’s performance. Since leaders and visionaries are always in short supply, don’t look for them in the unemployment line; they are jealously guarded by their current employers and will need to be wooed away by skilled search consultants bearing exceptional offers from clients they represent. In a few super-hot industries, hiring bonuses equal to first-year salary have become the currency of the realm.

One trend that economics can’t change is the relentless march of Baby Boomers past the Age 50 milestone. By the year 2005, your pool of workers to replace them will have shrunk eleven percent from the supply in 1995. Unless new job creation grinds to a halt, there will be more open positions chasing fewer job candidates – and that’s happening right now.

Smart employers will re-think their attitudes toward older, part-time and/or virtual employees and will actively recruit alumni, instead of banning them for life. Companies also will need to address employee retention issues in much more creative ways; what is the sense of the average manager changing employers every 2.3 years? And when companies look outside for people, they must come to terms with the fact that it’s still a seller’s market for candidates – meaning that prompt offers with competitive compensation packages are still required.

The Blessing and Curse of Instant Knowledge

During the last recession of 1989-1992, layoffs were a lagging economic indicator – with employers continuing to lay off workers up to a year after the economy had reversed its course. Today, the increased ability of all but the most dull-witted organizations to process and interpret scads of data has led to almost instantaneous employment decisions.

Thus, if the Australian subsidiary has a poor February, this is known at corporate headquarters by the second or third of March and analyzed by sophisticated computer programs (was it the economy, unexpected weather, expected seasonality, interest rates, currency translation, sales gains by competitors or what?). Headquarters then has the option to take immediate corrective action – including reducing head count in Australia.<

Layoffs hence have become a leading indicator in just one short decade. The term “layoff” still means what it says in factory circles; you can lay off a worker and then bring him or her back when orders improve. Managers and professionals, however, are rarely idled. They are terminated. Out of work, they find other work. They aren’t waiting to be recalled.

So here’s the rub: Fast on its feet, our hypothetical company terminates 53 salaried employees at the Australian subsidiary. Two months later, the Australian business takes a dramatic turn for the better. It’s time to get back to full strength, or at least fighting weight (maybe 30 new hires instead of 53). It will take longer to find the replacements (not to mention train them) than it did to fire their predecessors.

No One Size Fits All

The morbid public fascination with job loss in the early months of 2001 is partly a reflection of its suddenness and partly a reflection of the well-known corporate names involved – including AOL Time Warner, Daimler-Chrysler, J. C. Penney and Xerox. Yet there is a different story for each, not all of which are related to the economy. For example, the elimination of redundant jobs caused by the merger of AOL and Time Warner would have occurred regardless of the economy.

In general, the best maxim is “the more drastic the illness, the more drastic the remedy.” Fortunately, the average company today is not in financial peril; consequently, most do not need to engage in widespread layoffs or cancel hiring decisions – especially for critical position openings. Unless sales have shriveled or the strategic plan has proved to be a bust, it’s unlikely that normal employment patterns need to be changed; they are difficult and time-consuming to put back together.

Aggressive hiring of the best and brightest during periods of economic uncertainty may even pay two special dividends. One is the opportunity to build market share at a time when weaker-willed competitors are losing theirs. The other is the security of knowing you are way ahead of the curve when the economy rebounds and demand for people heats up.

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