2023 Recession & the Impact on HR Activities

With the threat of a recession looming, what impact will an economic downturn have on HR activities in the year ahead?

The obvious impact, you would assume, would have to be on recruitment.  As businesses begin to put recruitment freezes in place the number of vacancies will reduce which is in turn good news for those for employers still needing to hire.  With a huge choice of vacancies this year it has been a struggle to fill positions and attract the numbers and calibre of candidates.  But if the tables turn this should not mean we take our foot off the pedal in favour of poor management practices when candidates are easier to hire.  The investment taken to build our employer brand should continue regardless of the economic climate.

If recruitment activity drops so will our reliance on recruitment agencies as we start to look internally to reallocate work and upskill existing skillsets.  It is important however that if we are expecting staff to take on additional responsibility that we also review our reward strategies.  There is nothing more demotivating for staff than being given additional work with no increase in pay or at least some consideration of this.  People quickly become disillusioned and resentful if they are expected to work harder with no reward while management can view this as a “bad attitude”.  It is important to consider if increased workload in such cases would be better met by investing in additional heads or through more learning and development.

Of course, slower economies lead to lower productivity forcing businesses to look at ways to cut costs, the obvious of which tends to be manpower.  As organisations start to consider redundancies it will be important to consider alternatives such as reduced hours, redeployment or through “natural wastage” (terrible term, I know) through resignations and retirement.  This is the time when things can become tricky for employers.  Whilst resignations offer a more straightforward approach than a redundancy process, employers do not want to be losing their key staff.  But during tough times staff can become nervous and start to look for alternative employment.  Similarly, poor performers who may have been tolerated when labour markets were tight now come into focus as management look at ways of reducing staff numbers.  As such, workforce planning is essential to determine what you have now and what is needed for the future when things improve.  You only need to look at the airline industry who shed thousands of staff during the pandemic only to struggle with severe staff shortages when things started to pick up again.

With all of these difficult decisions having to be made, your workplace culture will be at risk.  Talks of recruitment freezes and redundancies can have a serious negative impact on morale so a culture that is inclusive, transparent and engaging is vital for providing an environment that reduces feelings of uncertainty.  Employee engagement links closely with culture so measuring and understanding engagement levels and agreeing remedial action is crucial.  Also, where poor hiring decisions may have happened when candidates were so difficult to attract, job offers should be carefully made and based on technical capability, behaviours and value alignment.  This will avoid a situation of having to deal with performance issues, short tenure or disengaged new employees and costly recruitment practices.

Other HR activities like employee recognition, flexibility and hybrid working will become increasingly more important as we channel our energy into improving morale, engagement and retention.

All of this may make for gloomy reading especially after the past couple of years, but in reality none of this is new and we just need to keep doing what we’re doing in terms of creating positive workplaces where people are valued, respected and communicated openly with.  In turn, when we look after our people, especially during the rough times, our people will look after our business and so everyone wins.

Happy New Year everyone!