‘Labor hoarding’: A key to the talent troubles of a recession?

The true depth of the economic damage that an impending recession could bring is being discussed and dissected nationwide. But many pundits agree on one thing: A recession will happen.

While the September CNBC Fed Survey put the chances of a recession in the next 12 months at 52%, some economic experts say that number is much too low. For instance, Steve Hanke, a professor of applied economics at Johns Hopkins University, told CNBC that the chances are more like 80%, if not even higher.

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With that as context, employers are strategizing for what such economic conditions could mean for their businesses in the coming year. While layoffs may immediately spring to mind, others could turn to a different avenue: “labor hoarding.” The name for this theory is little-used but it was coined back in the mid-1940s and refers to maintaining current workforces to keep companies on the right track talent-wise during and after a recession.

According to Kathryn Anne Edwards, an economist at the Rand Corp., there are two primary ways that labor hoarding can be demonstrated. The first involves hiring.

“If firms are having a hard time retaining staff, they may ‘hoard labor:’ hire aggressively and then give hired workers fewer hours than they were expecting,” she says. “The firm has workers it is underutilizing because it is anticipating quits in the future.”

The second, Edwards says, involves firing. If organizations are experiencing a drop in revenue or demand, they may hoard labor by actually delaying layoffs—because it may have been hard to hire those workers, they are valued or any number of reasons.

Jacky Turnbull, chief people officer at Topia, an HR tech company specializing in global talent mobility, says despite the economic volatility experienced this year, the number of layoffs is decreasing. That is due, she says, to enough employers embracing the labor hoarding concept.

Turnbull says the concept can allow employers to avoid short-term layoffs and ultimately reduce the long-term expenses of hiring, onboarding and training new hires in the future.

“Again, this is reflected by the current number of layoffs, the lowest year-to-date total since 2001,” she says, according to the U.S. Bureau of Labor Statistics.

For a labor hoarding strategy to be successful, HR leaders need to focus on talent retention strategies while still being budget conscious as the nation moves into a period of economic uncertainty.

It’s a balance that many have been working towards already, given the events of recent years.

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“Over the past few years, we’ve experienced companies doing mass layoffs as a result of the pandemic,” Turnbull says, adding that a record number of employees subsequently leaving the workplace as part of the Great Resignation and an overly competitive talent market like employers have never seen before represent a double-edged sword. This experience has validated for HR leaders how difficult, time-consuming and expensive it can be to recruit top talent.

“Now that we’re entering a potential recession and these challenges are top of mind for HR professionals, they may be taking a new approach, by choosing labor hoarding,” she says.

Turnbull says one cost-effective way for HR leaders to improve talent retention is by embracing employee demands for workplace flexibility. According to Topia’s recent survey, 64% of employees say a full-time return to office makes them more likely to look for a new job. Further, 94% of employees agree they should be able to work from any location as long as they get their work done, and this flexibility is one of the top drivers of an exceptional employee experience.

Especially given employers’ evolving focus on retention, Edwards notes that “labor hoarding” is a loaded term. “It suggests that there is something aberrant about having more workers than demand [may] suggest is needed.”

She notes that the benefits of experienced workers and lower hiring and training costs may outweigh the drawbacks of having a larger-than-necessary staff during a downturn.

“We wouldn’t necessarily think of that as hoarding, but more a cost-effective staffing strategy that minimizes turnover costs,” she says.

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Tom Starner
Tom Starner is a freelance writer based in Philadelphia who has been covering the human resource space and all of its component processes for over two decades. He can be reached at [email protected]