6 Ways Human Resource Departments Can Prepare for a Recession

Updated Jun 13, 20224 min
6 Ways Human Resource Departments Can Prepare for a Recession

6 Ways Human Resource Departments Can Prepare for a Recession

Caroline BantonUpdated Jun 13, 20224 min
6 Ways Human Resource Departments Can Prepare for a Recession

Recessions are an inevitable part of the business cycle. According to Kiplinger, since 1857, a recession has occurred, on average, about every three-and-a-quarter years. Recessions affect everyone. They bring down home prices, lower stock prices, and exacerbate unemployment. The last recession, the Pandemic Recession, lasted only four months, from February to April 2020, but the damage has been lasting.

Read on to learn exactly what a recession is exactly, what the early signs of a recession are, and how and why human resource managements and companies need to prepare for these inevitable downturns in economic growth.

What Defines a Recession?

Economic recession causes inflation, higher interest rates, unemployment, and plummeting stock prices. During the pandemic recession, the last recession to hit the United States, nearly 9 million Americans lost their full-time jobs along with their healthcare, and the unemployment rate peaked at 10 percent. More than 170,000 small businesses closed.

The last recession was short, lasting for just four months from February to April 2020, but its impact was huge. Companies might think that it is too soon for another economic downturn, but, according to Kiplinger, recessions occur, on average, every three and a quarter years. That means companies should be preparing for another recession now.

How HR Management Can Prepare for a Recession

Some economists suggest that rising unemployment, lower quit rates, and falling payroll are warning signs of a downturn, but they often are seen after a downturn, not before. But even with warning signs, it is difficult to know what changes are necessary because different sectors suffer in different ways. For example, the hospitality sector suffered during the Pandemic Recession while e-commerce thrived. 

Recessions occur more frequently than we would like to think, but with preparation and data, it's possible to weather them. Companies that monitor the market and constantly base their next step on what trends and indicators reveal will win out. 

A company's HR strategy should monitor internal indicators because a recession could create the need for cutbacks or downsizing. Any moves in that direction must be carefully managed to minimize the damage to morale and remaining workers.

Here are five ways companies can be prepared for the next recession.

1. Use Analytics to Make Targeted Decisions

HR departments should collect data and metrics on productivity, compensation, recruitment and retention, training, career development, and leadership programs. Only with data can decisions be made about where to cut costs. 

Data analytics support difficult strategic decisions. For example, if robotics are making an assembly line more productive, but the company is still losing money, the company might have to lay off assembly line workers.

Laying off workers is not always the most cost-effective approach to a recession. Some of a company's most prized workers may leave along with redundant workers for fear that they may be next on the chopping block, which compounds an already costly situation. Also, when the economy improves, the company will likely face skyrocketing recruitment costs as they ramp up production and need workers once again.

Data analytics can help a company determine whether layoffs are necessary or whether staff can be retrained and reallocated in different areas.

For more on downsizing, read “Layoffs Are Never Ideal, But You Can Make Them Less Painful

2. Appreciate the Extra Efforts of Employees

Cuts may have to be made in salaries and bonuses leading up to a recession. Data and analytics can show where cuts would be less harmful. For example, a company with a poor track record for workplace accidents should invest in safety training, not cut its funding. Perhaps cuts in HR recruitment would make more sense if little hiring is anticipated over the next few months.

Employees who remain in an organization after layoffs are expected to take up the slack and even learn new skillsets. Showing appreciation for their efforts by offering gift cards or other rewards can go a long way in improving morale. 

Promotions and salary increases may be out of the question during an economic downturn, but staff could be given new titles or development opportunities to reflect the additional responsibilities they have assumed.

3. Be Flexible

Flexibility in an environment of change is crucial. Flexibility allows HR professionals to reallocate staff in various parts of an organization so that minimal layoffs are necessary. Integrating new technology and automation in organizations can create opportunities that improve employees' lives even leading up to a recession. Perhaps alternative staffing initiatives might help to relieve resource shortages. For example, 30-hour workweeks reduce costs while preserving continuity.

4. Consider Outsourcing

Outsourcing can make an organization more nimble when there is a slowdown in activity. Relieving HR of some of its HR functions, like onboading, payroll, or accounting, can allow an organization to focus on its core competencies during tough times while experts take care of essential administrative tasks.

5. Be Transparent With Clear Messaging

Everyone is affected by a recession and its accompanying bad news. However, if leaders communicate the reasons for tough decisions like downsizing it can mitigate the damage done to a workforce’s morale and productivity.

Transparency is crucial. Workers should be told the reasons for executive decisions and not be kept in the dark. If leaders withhold information from their employees, it breeds distrust and fear, and nobody functions well in an environment of fear.

To that end, employees should be allowed to ask questions about HR policies and given an opportunity to voice their opinion. Recessions are a difficult time when people often need to talk through their experiences, and support from executives, HR leaders, and peers helps. Giving staff room to talk about their experiences can prevent a backlash on social media that can damage a company’s reputation and affect its ability to attract talent in the future.

Some companies choose to include employees in cost-cutting decision-making processes. They may ask them to suggest ways to reduce costs and improve efficiencies and invite them to voluntarily reduce their work hours or take unpaid leave.

Related: "Ways to Motivate Employees After Downsizing"

Be Ready to Hire

When it comes to cutbacks and preparing for a recession, a company should ask itself ``what can we eliminate, what can we automate, what can we outsource?” But this question should be asked on a regular basis and not just when a recession is looming.

There is no easy way to navigate a recession and layoffs, but avoiding piecemeal layoffs can mitigate the fallout. Damage to morale and employee engagement will be much greater over time if redundancy is announced little and often rather than in one fell swoop.

On the bright side, as counterintuitive as it may seem in the midst of a recession and potential layoffs, there will be a need to hire once again when the economy improves. Companies should use data to watch for upticks and trends in the labor market and have a strategy for recruitment ready to go when the time comes.

Caroline Banton
Expert on career acceleration and business topics with vast experience writing for globally-recognized publications

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