Are you ready for the next recession?
From Europe to Asia and the Americas—and all the continents and regions in between—the word on everyone’s lips is “recession.” You can see the concern about the next great global downturn reflected in political and fiscal policy in just about every jurisdiction.
In the United States, the Federal Reserve was so concerned about an impending end to the longest uninterrupted period of economic growth that it cut interest rates as a preemptive measure. Meanwhile, President Donald Trump’s administration is exploring a possible payroll tax cut to stimulate the economy.
In Europe, the focus is on Germany, which is on the brink of a recession after experiencing a contraction of its economy in the second quarter of 2019. A recession in Germany, long thought to be the economic engine that drives the European Union, along with Brexit uncertainty in the United Kingdom, could spell economic doom.
China is also drifting into uncertain economic waters. Recently, the country allowed its currency to depreciate to historic lows in a bid to spur exports. Traders and economists worry, however, that China’s monetary policy could kick off a global currency war that, on its own, could lead to a recession.
Now, it must be said that recessions are very difficult to predict. Nate Silver, one of the world’s most accomplished statisticians, noted in his 2012 book The Signal and the Noise that no one has ever accurately predicted a recession before it arrived. In fact, economists often fail to see the evidence of a recession even after it has begun. That explains, in part, why so many informed sources are offering such dire predictions: no one is absolutely sure a recession is coming, but they don’t want to get caught by surprise this time.
For employers of all sizes, the recent flood of recession chatter highlights two separate but connected concerns.
First, employers need to understand that they must have a plan in place before an economic downturn hits. If you wait until the world is firmly in the grips of a recession, you’re already too late to protect your organization and its employees.
And second, when preparing that plan, it’s essential to realize that the next recession is going to be fundamentally different than the last one. It’s going to require employers to take radically different approaches to managing their workforces.
You can’t just reduce headcount and expect to rebuild your workforce after the recession is over.
When the so-called Great Recession took hold, employers did what they normally do—they started laying off staff to reduce costs. In the United States alone in 2008, 2.6 million people lost their jobs. By 2010, that number had risen to 8.7 million.
In past recessions, employers reduced headcount when times were bad and then hired people back when the economy turned around. This time, however, things were different.
Layoffs left many organizations flat-footed when the recovery came. They were suddenly short of skilled labor and unable to ramp back up to pre-recession levels. Of greater concern, many of these organizations suffered untold damage to their employer brand for moving quickly to lay off staff, a strategy that made it difficult to attract top talent in the post-recession market.
Employers will need to keep all these long-term trends in mind when making workforce decisions as they face the next recession.
Employers will have to be more strategic and patient with downsizing.
In the last recession, organizations that moved quickly to lay off employees were lauded as agile and responsive. However, the labor markets have changed so much since then, moving too quickly to eliminate jobs may do far more harm than good.
In the next recession, the “winners” will be those organizations that can make thoughtful and strategic decisions on headcount. These organizations will have conducted detailed assessments of their employees so that they know what skills their workers possess, what roles they are filling now and how they might contribute in the future. These organizations will use redeployment and learning wherever possible to avoid having to lay off genuine talent.
That last recession helped make disengagement among employees a chronic condition.
Many of those who didn’t lose their jobs a decade ago found that being asked to do so much more for the same pay, or less, was a very stressful, unsatisfying experience. The result is that, despite huge investments in all aspects of the employee experience, far too many people are chronically disengaged at work. In fact, according to sources like Gallup, nearly two-thirds of U.S. workers remain disengaged from their jobs. Those numbers have not changed since Gallup started surveying engagement levels among American employees two decades ago.
Recession or no recession, employers should ensure employees feel valued and provide opportunities for them to develop and achieve professional, personal and organizational goals. In a labor market where skilled workers are at such a premium, this will be especially important.
Re-/upskilling will become much more important during the next recession.
The skilled labor shortage has a lot of people talking about re-/upskilling as a key to finding the people with the skills necessary to transform and compete. However, all available data we have about re-/upskilling shows that, while acknowledging its importance, employers are simply not doing enough in this area.
It’s important to remember that in the next recession, it is no longer enough to try and protect as many jobs as possible. Employers have to create a workforce that is agile, adaptable and able to learn new skills in new roles.
One of the most important things we can do for our organizations and our employees is to learn from past experience. The 2008 recession was, for many of us, one of the most challenging events we had ever encountered. The next recession will likely prove to be just as challenging.
Are you up for that challenge? Did you learn from the last recession, and are you ready to employ new workforce strategies?
If you can’t answer yes to all of those questions, you simply won’t be ready when the next downturn comes.