Why labour hoarding might save your job

Employers will be hesitant to let you go

Written by Professor Gary Martin FAIM
2 minute read

There are growing fears of a looming economic slowdown that could put thousands of jobs at risk.
Yet despite the predicted tough times, some experts believe there is a reason employers could be more hesitant than ever to lay off staff.

Our labour market experience during the pandemic has changed the way some employers think about redundancy programs.

When the pandemic hit, throwing the economy into chaos, the focus of most businesses was one of survival. Even long-serving, loyal and talented employees were made redundant to keep businesses afloat.

It sparked what some described as “The Great Layoff”.

Since then, business conditions have improved to leave many employers with persistent labour shortages as they try to rebuild or scale up their operations.

In some cases labour shortages are so dire that businesses have been forced to restrict trading hours or operations.

The prospect of a looming period of challenging economic conditions leaves employers facing difficult decisions around what to do should it be necessary to reduce costs to remain profitable.

The “go to” response will be to cut costs by reducing employee numbers. Once the economy improves and business ramps up, new staff will be recruited, inducted and trained.

But prevailing tight labour market conditions are causing some employers to rethink the conventional way of adjusting to the ups and downs of the economy.

In today’s market, finding suitable employees is arguably the biggest challenge facing business.

Letting go of staff in the lead-up to an economic slowdown could therefore place some businesses in an even more challenging situation when demand for products and services increases down the track and new staff are needed.

It is why the concept of “labour hoarding” is front of mind for some business owners as they consider how to address any forthcoming slowdown.

Labour hoarding describes a trend in which employers strategically decide to retain staff during a slowdown in order to avoid the costs associated with recruiting new hires when the economy rebounds.

Hoarding employees does offer some advantages despite the need to incur higher payroll costs during tough times.

Employees retain their jobs; future recruitment, induction and training costs are minimised; and businesses will be less likely to experience labour shortages when the economy improves.

Yet labour hoarding is not suitable for all employers.

Businesses that experienced significant challenges restoring or expanding their employee base post-pandemic are likely to make a greater effort to retain their staff should economic conditions deteriorate.

And some businesses will be more inclined towards choosing labour hoarding over layoffs if they think any economic downturn will be short-lived.

Labour hoarding could save thousands of jobs if the economic going gets tough.

But before you think your job is 100 per cent safe, take a realistic view of what might be around the corner.

What employers say they will do in the lead-up to any economic slowdown can end up being very different to what actually happens when businesses start to experience financial pain.