What HR Needs to Consider about 2023 Planning and the Talent Economy
Are we in a recession? Even that answer has fallen victim to the partisan nonsense that is now mass media news reporting. Yes, we are in a recession. Period. End of story. We have had two successive quarters of economic contraction with a side serving of record-setting inflation. Yes, this is all bad news.
There is a lot of confusion about the true circumstances of the economy, so let’s focus on what is incontrovertible. First, inflation has been rising. The only tool left in the arsenal of the Federal Reserve is to raise interest rates. The outcome of this is often referred to as “demand destruction.” Higher costs lead to lowering consumption. Also, bear in mind that markets do not respond immediately. For example, as prices rise, consumers continue to consume but this leads to significant increases in credit card debt. Google “economic elasticity” for more on that one. What does this all mean for business leaders? It means that as consumption falls there will be decreases in revenue for some products and industries.
When revenue falls, companies often begin to cut “general and administrative” expenses–as if HR budgets do not impact the ability of companies to operate and maximize productivity. That is an argument for a different day, but leaders should expect HR budgets to come under pressure. HR program cuts will be a poor decision because the “talent economy” is in a very different place than during prior recessions.
The unemployment rate is very low and the partisans who use terms like “technical recession” point to this as evidence of a healthy economy. That is complete nonsense. Unemployment is low because labor force participation rates have continued to fall.
In fact, here is the labor force participation rate since 2010. It had been dropping before this as illustrated by the below chart.
It has been trending downward. The sharp drop in 2020 was due to COVID-19 lockdowns and the rebound, but we are still far below where the workforce was in 2019. We have estimates that as many as 4.2 million workers have left the workforce. In addition, some changes to how unemployment rates have been reported since 2010 may have made that number artificially low and not the best measure anymore. The bottom line is that there is less supply for workers and incredibly high demand due to both new and vacated jobs since the pandemic. HR expenditures for talent acquisition and employee retention should not be reduced in the coming economic storm. A few less corporate jets for CEOs are probably a better choice than cutting HR budgets (I know that sounds petty but you liked it).
What are HR departments doing to prepare for 2023?
Elliot S. Clark