The post-pandemic world has been marked by the release of pent-up demand, resulting in substantial growth for companies and a labor market strongly favoring employees. It seems as if now, the tables are turning. With one million fewer job openings reported in August compared to July, and steadily increasing interest rates designed to slow the economy and combat inflation, most indicators point to a recession.
Despite these predictors, many industries are still experiencing a tight labor market, posing an unprecedented challenge for employers. How can leaders navigate the unique circumstances of managing the recession in a tight labor market to remain competitive and healthy?
1. Be Strategic in Allocating a Budget for Talent
Most companies’ biggest expense is their people — and for good reason. Investing in talent is essential to growth. With employees boasting more power over their working conditions, it can be tempting to overpay when it comes to attracting and retaining talent. Investing intelligently in people could look like this: incentivize people based on performance and meeting stated business objectives rather than allocating raises at random to entice workers into staying.
In fact, you may be doing more harm than good for your company with the second method. State Street Global Advisors recently reported that unit labor costs rose 10.2% in the second quarter, despite productivity decreasing at a 6% annual rate.
In other words, you may end up paying your employees more to do less. While being downright stingy in a tight labor market could drive talent to competitors, a recession necessitates taking a closer look at your company’s employee incentive programs and budgeting accordingly.
2. Stay Competitive With Benefits
Relying solely on a high salary to attract talent is no longer sufficient as many employees desire additional support from their employers. One thing the pandemic highlighted was employees' needs and desires for high-quality healthcare along with a robust benefits package. Offering a high salary with subpar benefits eventually leaves leaders vulnerable to financial strain, as they struggle to implement sought-after benefits on top of the promised salary to catch up with their competitors.
3. Anticipate and Plan for Slow or Low Growth in 2023
From 2012 to 2020, GDP growth was relatively consistent, averaging 2.3% annually. The pandemic was a shock to everything, including GDP, which fell by 2.8%. Last year was the big comeback. There was an incredible amount of government stimulus injected into the economy and a lot of consumption was pulled forward into 2021. This phenomenon was directly responsible for the two consecutive negative GDP quarters in 2022.
Decreased demand stemming from higher interest rates means growth may continue to stagnate for many companies in the new year. Although economic scales will eventually rebalance, understanding where we are today will help leaders create an accurate projection of their company’s 2023 trajectory and prevent rash decision-making if the company fails to achieve its stated growth objectives.
4. Don’t Overreact Unless You Have a Firm Grip On Your 2023 Trajectory
It may be a challenging year but making drastic changes to your company based on speculation about the distant future is unwise. Instead, make decisions based on where your company stands in the existing environment and immediate future. For example, don’t make structural changes in salary or benefits to attract talent if you know you’ll need to cut them in a few years. Any credit you may receive for the adjustments now will be outshined by future financial strain and employee discontent if you eventually have to cut back.
Although 2023 will be a challenging year for many businesses, being strategic with finances, competitive with benefits, and realistic about growth will help your company emerge safely on the other side.