With a potential economic recession on the horizon, companies are faced with a unique situation. Typically, during a recession, companies will lay off workers. Then once business ramps up again, they will hire to build up their staff.
But current labour market conditions are causing many employers to think twice before they make the decision to lay off workers. Finding good talent is one of the biggest challenges companies face today. If they were to lay off some of their people, they could find themselves in a very challenging position once they are ready to hire once again.
For this reason, many companies are engaging in “labour hoarding.” Below, we’ll define this relevant practice today.
We’ll discuss:
- What is labour hoarding?
- What are the benefits of hoarding?
- Why would a company engage in labour hoarding practices?
- What are the short-term and long-term effects of labour hoarding?
- Why is labour hoarding relevant right now?
- What is the impact of labour hoarding?
What is labour hoarding?
We all know what hoarding is – when people keep an excess number of items they don’t otherwise need.
Labour hoarding follows the same principle; it just applies to a company’s employees. It’s the practice where a company chooses to keep employees during a recession, rather than lay them off. They do this even if it will affect profits and may not make sense financially in the short term. Rather, it’s a long-term strategy used to avoid the costs of having to re-hire people once the economy takes an upswing.
As Johnathon Small from Entrepreneur.com correctly puts it, labour hoarding is strictly an economic decision:
“To be clear—the reason companies are hoarding employees in bad times is not because of the goodness of their hearts. These companies realize it’s more costly to hire and train new workers when the economy improves than just hanging on to the current staff.”
What are the benefits of labour hoarding?
Even though companies will need to carry employees’ salaries, there are benefits to this approach:
- Avoid Future Hiring Costs: Recruiting new employees can be expensive and time-consuming. Companies may prefer to keep current staff rather than go through the cost of advertising jobs, interviewing candidates, onboarding, and training new employees when business picks up again.
- Employees keep their jobs: Some roles require specialized skills and experience that aren’t easy to replace. By keeping these workers during a slowdown, firms preserve valuable knowledge and maintain efficiency when normal operations resume.
- Maintain Employee Morale: Frequent layoffs can damage morale and trust within a company. Labour hoarding helps maintain a stable and motivated workforce, which can improve overall productivity and loyalty in the long run. There are minimal disruptions.
- Eliminate hiring challenges when the economy improves: You don’t have to compete in the hiring frenzy once the economy shows signs of improvement. You’ll be one step ahead of competitors.
Why would a company engage in labour hoarding practices?
Labour hoarding is a strategic move to protect their labour force and operations when economic conditions are set to change. It is often used when companies believe a downturn is temporary and want to bounce back quickly when conditions improve. Companies believe an overreaction, such as layoffs, could hurt their operations, so they want to hold onto talent.
What are the short-term and long-term effects of labour hoarding?
Labour hoarding can have short and long-term effects. In the short term, it can increase costs for the employer. They will be paying wages for underutilized labour. But, in the long term, it helps employers avoid future recruitment and training costs, and retains experienced staff. So when the economy strengthens, the company will be able to expand operations without having to undergo a significant recruitment campaign.
Why is labour hoarding relevant right now?
Labour hoarding is relevant today because the current conditions make it an ideal time for companies to consider this practice. With the current unemployment rate and the ongoing challenges companies are having to find good people to hire, it’s clear some organizations are already making the decision to hold onto their people and try to weather the potential recession in the coming months.
Economic factors such as tariffs, unpredictability in the market, and new governments can all have a big impact on the economy in the short and long term.
What is the impact of labour hoarding?
Labour hoarding impacts employers, employees, and the economy. Here are the main impacts of labour hoarding:
- Employer: The company must still pay wages, benefits, and other employment costs, even if the employees are not working at full capacity. The company keeps a capable workforce, saves time and money in the long run, and stays ready to scale up operations quickly.
- Employees: Workers benefit from stable employment even during downturns. However, some may work fewer hours or take on different duties temporarily.
- Economy: Labour hoarding can help reduce overall unemployment rates during recessions. It may also limit wage flexibility and slow down the reallocation of labour to more productive sectors if overused.
A final word on labour hoarding from our recruiters
Labour hoarding allows companies to preserve institutional knowledge, maintain workforce morale, and avoid the challenges of rehiring once the economy rebounds. While it may increase costs in the short term, the long-term benefits make it an attractive approach.
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