Background

If you read the headlines you would swear that the U.S. economy has fallen off a cliff, everyone is going to lose their jobs, all companies are going to go out of business and we’ll all be working for minimum wage for a Chinese company.   No companies will be hiring, HR might as well close their doors, recruiters like me should find a new profession and employees should hunker down and hang on to their jobs for dear life hoping that they are low enough to be under the pink slip radar.

For the press it's not enough to say that the economy is slowing.  The papers need to get sold and the TV ratings need to go up so it's got to be a “panic” to grab attention.  The Dow is front page news (except when it goes up) and every layoff is a headline. 

 

They've successfully scared the heck out of consumers creating a self-fulfilling prophecy but they overreached and now president-elect Obama has switched from election rhetoric…  “this is the worst economy since the depression” to his 60 Minutes interview “things aren’t too bad, unemployment was 30% in the depression and we are only at 6%”.  But the new Congress still needs the “high anxiety” induced by the bailout and the press as an excuse to “do something to fix things” which will translate into expansive new government programs.  The new Chief of Staff, Rahm Emanuel, bluntly stated his desire to make political hay with the ongoing problems in the economy: "You never want a serious crisis to go to waste. And what I mean by that is an opportunity to do things you think you could not do before."  But they have to be careful not to kill the golden goose in the process. 

 

Hopefully the media will take Obama’s hint and lighten up on the bad news so we can start to restore confidence.  

 

Whether you are an active job seeker or just concerned about your current position you’re probably wondering what it’s like to be a job seeker in a recession.  What’s reality?  What’s myth?  Will anyone actually be hiring at all? What’s the point of even looking?  Are my skills and talents still useful to my company and in the market?

 

This is not the first recession I've experienced.  Since my first year as a recruiter fresh out of IBM in 1982 I’ve been through 4 recessions and I’ve noticed that they happen about every 7 years with the last one being in 2001 after the dot-com bust and 9/11.  So this one is right on schedule.  As a recruiter my business is tied to the need for companies to hire IT talent so I’ve had a front-row seat to watch each recession’s impact on hiring activity.   The fall of 2008 is similar to 2001 in that literally overnight the economy feels like it shifted from cruise control to reverse.

 

 

First reaction

There are a few things that will happen that always happen as we enter these periods.

CEO’s will panic as their sales decrease.  This will result in immediate layoffs, hiring freezes and a “cut expenses to the bone” mentality as these corporate leaders succumb to the fear and overreact.  

 

The headlines will loudly trumpet every layoff and corporate bankruptcy while filling the pages/airwaves with heart wrenching stories of Paul and Paula pitiful who can’t pay their mortgage (but who have 3 TVs, cell phones and a couple of SUVs).  

 

Employees will start working longer and harder to get off the “let go” list, especially if they know they are marginal employees. 

 

Job postings will plummet and fair weather recruiters will look for another line of work.

 

And everyone will dust off their resumes and log on to the job boards just in case the pink slip comes.

 

Turnover drives hiring

Department of Labor stats show that the average tenure for a professional is 3 years which means that 30% of people change jobs every year.  In a company with 1000 employees that means they need to hire 300 people each year just to keep the lights on.  These people “turnover” for a wide variety of reasons and one of the reasons that is growing rapidly in its’ contribution to the total “churn” is retirement. 

Ten thousand people per day become eligible for social security.. that’s right 10,000 a day.. do the math… 76 million baby boomers divided by the 20 year span over which they were born divided by 365 days in a year.  Hard to believe.  And we are just at the beginning of that exodus of older workers out of the workforce. 

Of course there are many other reasons people leave aside from retirement... to raise a family, go back to school, spouse took position in a new city… people leave for all kinds of reasons and those reasons persist regardless of the state of the economy.  

But, what effect does a recession have on that turnover rate?  The logical assumption is that turnover will drop as people will hang on for dear life to their existing job and will not even consider making a change because they fear the LIFO rule.. last in, first out… if their new employer runs into trouble.  This is true, especially for the “B” and “C” players however for “A” players the reality is that just as companies take the opportunity to “top-grade” their staff by letting their least productive people go so do top performers “top-grade”  their employment situation.  Stars don’t want to be on losing teams and as stars there are lots of other teams who want them.  So the stars leave because they can and now their old company has to replace them.  

 

And for the “B” and “C” players the reasons to leave don’t disappear they are just put on hold creating a pent up “desire to change” which is released at the at the first upswing in the economy further increasing churn.   On Wednesday the AP even ran a report that the lousy economy has estranged couples staying together rather than get divorced.  Now that will create a serious pent up "desire to change" situation.  

 

What about all those hiring freezes CEO’s impose?  Hiring freezes hold headcount at a specific level but they don’t stop replacements.   How else can you explain that after 9/11 unemployment spiked but so did job listings?  

 

A remarkable amount of hiring happens during a recession because recessions cause an increase in unwanted turnover.  The number of people companies need to hire will INCREASE as the fear of being laid off causes more churn as people jump from sinking ships.  Just today I received 2 calls from top performers.  They both have solid mid-management jobs in stable industries that will have no trouble surviving the downturn BUT both feel that their companies are shifting priorities away from what is in their own best long-term career interests.  Each could happily wait out this recession but in both cases they decided not to put their careers on hold but to be proactive.   They know that it is during times like this that companies take the opportunity to top-grade... cutting the weaker staff they were forced to hire during the up part of the cycle because they couldn’t find the people they really wanted to hire and replacing them with better performers who are now open to change.

 

When company executives panic over declining sales and announce layoffs and freezes they scare the heck of their top players who then make calls to me to let me know that they are “open” to considering new opportunities.  And when the company loses a key player they will of course replace that person because not doing so is more harmful to the bottom line than the cost of that salary.  The CEO makes the bad assumption that since we aren’t hiring neither is anyone else so we have no risk of losing our best people because they have nowhere to go.  Wrong.  There is always a job waiting for a top 10%er.

 

Bottom line is that the work still needs to get done and if your Internet Security guru or your SOX Compliance Manager quits what are you going to?  Get the janitor to fill in for them?   Despite the CEO and CFOs best efforts the hiring managers whose bonuses depend on delivering projects/sales/results will find a way to get the people they need to get the job done.  This is why you can expect contracting to explode in 2009.

 

Another phenomenon I’ve observed is that as the layoffs take hold in a company all kinds of things start to fall through the cracks and people begin to burn out as they burn the midnight oil to keep it all afloat.  At some point they break and then they bolt at the first opportunity. 

 

And keep in mind that IT is much better off than most functional disciplines.  After all much of the current economic change is related to our conversion from an industrial economy to an information economy.  We've had a huge shortage of information workers for years which is why we have hundreds of thousands of H1Bs in the country without whom IT shops would come to a standstill.

 

 

Economy keeps chugging along

 

The economy doesn’t stop in a recession.  By definition it decreases its’ growth but it certainly doesn’t stop.   The country will produce 97-99% of the goods and services that it produced last year.  And 97-99% of the goods and services that were consumed last year will be consumed this year.  Companies are still making and selling products they are just selling slightly less of them. 

 

Interstates continue to be clogged during morning and evening rush hours as 94% of people go to work every day.  Kids will be dropped off at school, bald tires will be replaced, women will get their hair done, lawns will be mowed… everyday life will continue.  The vast majority of people will collect their salaries and paychecks and turn around and spend those dollars on daily living.  

 

The economy is facing a huge crisis in confidence and a great amount of uncertainty with our titans of industry, our business leaders disgraced, hands caught in the cookie jar and our political leaders lurching strategy-less from one quick fix to another. 

 

 

What’s next?

 

·         In the short term the media will continue to report on every layoff and foreclosure until we’ve heard it so often that the story becomes stale and they shift to what’s “new”.  My guess is that right around the inauguration the future will suddenly look bright and sunny according to the press and we will see a big reduction in negative stories about the economy.

 

·         In the meantime CEOs will be cutting and freezing, then the unplanned turnover rates will skyrocket and hiring will resume again.  Yes, it may be true that there are 40,000 autoworkers available but none of them is going to get your SAP ERP fixed after a crash. 

 

·         Hiring budgets will be reduced under the assumption that “there are all kinds of unemployed people out there laying around on the street all we need to do is go pick them up.”   HR departments will attempt to recruit by the cheapest method possible running ads or posting on job boards which will absolutely swamp them with resumes.  Getting through all that clutter will be a challenge for both HR and for job seekers.  And HR won’t escape their own layoffs so fewer HR people will have to read far more resumes as they try to fill even more vacancies than they had before due to the surge in churn.

 

·         Hiring managers will be tempted to “low-ball” unemployed candidates who may accept but who will be the first to leave when the economy gets humming again.  They will also "harden" their job specs and hold out for the "perfect fit" assuming that all kinds of people are available and they don't have to compromise on their requirements.  

 

·         Consulting/contracting will replace permanent hiring at the individual contributor level as the way to fill key roles necessary to “get the job done” while adhering to the official “hiring freeze”.

 

·         The best people will move to companies/industries that are growing despite the recession and offer “safe havens”.  Fortune 500 companies, the health care industry, and government are examples of employers who can benefit from this migration.  Start-ups, small to mid-sized companies, sunset industries will be the first to lose their stars and will have the toughest time replacing them.  A good example is a client of ours in the cancer diagnostics business who will double their revenue next year.

 

·         In the executive suite expect Boards of Directors to undertake entire “regime changes” of management teams thinking that a fresh approach will turn the company around. 

 

·         Executive search companies and contingency recruiters that will thrive in this economic climate will be the ones that are the most experienced, value conscious and persuasive. Amateur hour is over; it’s time for the professionals to take center stage.

 

·         For companies, the recruiter who can convince the newly open-to-change “A” player that your company is the best option among all those who want him/her or convince the LIFO-fearing “A” player that your company is solid and it’s safe to make the leap will shine as they help companies top-grade and profit in the inevitable up-turn. 

 

·         For candidates, recruiters who have long-term client relationships with the hiring managers who “make it happen” will be the key to you bypassing the hordes of resumes coming into HR and getting resume in front of the person with the problem.     

 

 

Our approach

At Berkshire, we're helping our clients and candidates get through these times in a number of ways.  

·         For hiring clients we've created a solution that allows them to tap into the growing pool of disgruntled “A” players while minimizing their cost per hire and avoiding being deluged with resumes from unqualified, unemployed “B” and “C” players.

 

·         For passive job seekers, those with positions but who are now open to considering a new opportunity we are conducting one-on-one career planning sessions to analyze key goals, objectives and criteria for the move and how best to position and leverage your skills in this market.  Especially, rising managers need to position themselves to take advantage of the coming exodus of retirees from the executive suite and be prepared to fill the vacuum.  

 

·         For active job seekers, those who have been laid off/outsourced/right-sized, we are packaging the tools and techniques that we have perfected over the past 25 years in the areas of resume writing, targeted search, interviewing, offer generation and negotiation and new position start-up including our take on the entrepreneurial option.  This will provide job seekers with their own personal outplacement program.