When a company is labor hoarding, it means they’re doing whatever they can to hang on to current employees even if circumstances are such that they’d normally downsize. It’s been a popular practice as of late. According to a recent Skynova survey, over 90% of small businesses say they were currently hoarding labor in 2022, with most of them planning to continue to do so in 2023.
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Why is labor hoarding happening?
Explanations for the trend vary, but it could be a response to economic uncertainty and a tight labor market. Technically Media CEO Chris Wink attributes it to an aversion to repeating the hiring crunch created during the pandemic. Others, like Julia Pollak, chief economist at ZipRecruiter attribute the trend to a substantial increase in the cost of laying off, firing, and hiring new employees. Meanwhile, workers are still quitting at historically high rates, with many employees getting raises for doing so. These conditions, combined with looming fears of a possible recession, seem to be convincing many employers that it’s in their best economic interest to try to hang on to the workers they already have instead of performing layoffs or replacing them.
How does labor hoarding affect job seekers?
To understand how labor hoarding might affect those in a job search, let’s take a look at the methods businesses use to do it. According to the aforementioned Skynova study, the most common strategies small businesses followed to avoid performing layoffs were:
These conditions could be good news or bad news for individual job seekers depending on their priorities. Together they paint a picture of companies who may be hiring less (or trying to), while paying employees more, providing fewer benefits, and negotiating more on workplace conditions.
LinkedIn’s talent blog suggests that job hoarding could make recruiting candidates even more difficult. The logic here is that retention efforts and uncertain economics could make the talent pool uncomfortably small for recruiters. If that’s the case, it could mean that companies will still be motivated to hire, and those who remain in the labor market might receive increased interest from companies who still need to fill positions. The desire to reduce recruiting costs could also lead companies to consider internal candidates for promotions more frequently.
The trend could also signal tough times ahead. While it may not be responsible for it directly, Reuters suggests that labor hoarding could be an indication of the first stage of a cyclical market slowdown. Consider keeping an eye on quit rates, which are still at historic highs and may be a better indicator of the confidence of workers’ ability to find work than the number of job openings.
If workers continue to leave one job for another, they’ll continue to create vacancies. Companies may be able to absorb this without replacing them if their job-hoarding strategy allows them to sufficiently increase their buffer for attrition. Whether companies will be able or willing to maintain that strategy will likely depend on whether quit rates slow and how well the economy is doing in their sector.
How does labor hoarding affect businesses?
If successful, the benefits of the labor-hoarding strategy are powerful motivators. It could decrease hiring costs, provide for redundancy that could reduce employee burnout and turnover, and ease the frustrating instability caused by a rotating employee cast. Providing job security can bring about a wide variety of benefits for businesses and employees alike, such as increased morale, work quality, and loyalty. And while layoffs can be potent cost-savers, they’re not without consequences, carrying the potential to damage employee engagement and loyalty.
Still, labor hoarding has other effects which can be seen as a mixed bag. Redundancy in the workforce creates at least some measure of inefficiency in the short run. And while a reduced will to fire or replace employees could improve the sense of security and productivity for employees, it could also exacerbate existing culture problems if it makes poor performance or unacceptable behavior seem less consequential.
Equifax writes in its Workforce Solutions Blog that it could have other unintended effects. They argue that retaining non-critical employees can stretch budgets, underutilizing workers may harm their career development, and that large-scale labor hoarding might tighten the labor market leading to an increase in wages.
Labor Hoarding in Summary
Labor hoarding is a response to the economic climate. Employers want to keep hiring costs and instability down if the economy takes a downturn, and they aren’t afraid to keep more employees than they need in the hopes of making this possible. The strategy could provide increased security for workers at businesses who use it, and may or may not slow high quit rates and cool the job market. Be aware of the trend if you’re considering negotiating a raise in pay at your current job or jumping to a new one.
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