Whether it’s Elon Musk’s “super bad feeling” about the economy, Mark Zuckerberg’s statement on restructuring priorities for future business goals, or Google’s email professing “Scarcity breeds clarity”, one thing is clear – tech moguls are resorting to hiring freezes to brace for economic uncertainty.
When the pandemic started, firms paused hiring to navigate the economic uncertainties caused by lockdowns and sicknesses. Two years hence, as companies now share similar apprehensions of a bleak economy, hiring reins are pulled back again. Between May and now, many companies in tech, banking and retail have slowed their hiring. Coinbase, Google, and Microsoft have reduced hiring, rescinded job offers, or paused recruitment. In the banking sector, only 1,200 jobs were added in May which is a 350 percent decrease from April, when the sector added 4600 jobs.
What has led to this phenomenon, and what strategies can companies employ to hire and retain key talent in these difficult times?
What Has Brought the Winter Season in Hiring?
For many employers, 2022 began with a hot talent market and a lot of hiring optimism. In Monster’s 2022 Future of Work Report, 93% of employers reported that they planned to hire throughout 2022. Recruitment, particularly in the information technology (IT) sector, had been on a roll for the past two years, with VCs backing startups to hunt and hire talent wherever possible.
Six months later, today, a tech hiring slowdown is wreaking havoc.
Experts attribute this to rising inflation, the Ukraine-Russia war, and the prolonging pandemic. Companies are now witnessing rising operational and human capital costs of producing goods and offering services at scale.
As of February 2022, U.S. inflation has hit a staggering 7.9%, the highest recorded since the recession of 1980. To tackle a 40-year-high inflation, the Fed has also increased interest rates for the second time. This means adjustable mortgages, auto loans, credit card rates and borrowing rates will also increase which will in turn lead to high borrowing costs and stifle businesses.
The rising cost of capital is casting doubts over expansion and growth. Investors are less likely to allocate funds to hire, which will prompt businesses to slow hiring.
In some sectors, the slowdown was paralleled by factors other than cost cutting. Many retailers over hired workers to meet the market demand during the lockdowns. Now, this has led to hiring freezes and layoffs as a correction measure against the inflated hiring over the last two years.
However, some experts feel layoffs and hiring freezes are isolated. Daniel Zhao, a senior economist at company-review website Glassdoor, thinks that employers are pulling back their hiring reins to brace for uncertainty rather than out of necessity.
“Layoffs appear specific to businesses that are in more fragile financial situations, like if they are unprofitable and funding dried up or if they just don’t have the runway to continue to operate without additional funding,” Zhao was quoted as saying in Business Insider.
Even in the high-profile tech hiring freezes at Google, Meta, Snapdeal, and Goldman Sachs, the slowdown was secluded to a few departments, such as marketing and sales. Meta is still hiring for engineering roles and has paused rolling out offers only for a few departments. In cases like Coinbase, the slowdowns seem to be a reaction to the falling stocks and cryptocurrency prices.
To sum it up:
- Companies need cash reserves to navigate through the upcoming months
- Companies either have limited their hiring budgets to fewer areas, or looking to focus more on high-growth activities with existing resources and assets
- Hiring slowdown is isolated to a few departments or a few industries
So, how do you hire and retain talent amid so much belt-tightening? How to respond to a hiring freeze?
How to Balance Costs and Still Meet Talent Demand?
Companies that are on a hiatus from hiring can still thrive, provided they keep the following in mind:
Strategies to manage employee sentiment
Companies that have implemented a hiring slowdown are prone to lower employee engagement and morale levels. A hiring freeze increases employee workload by limiting talent coming in. It also creates uncertainty and instills fear in the organization.
Companies can use the following strategies to counter this:
- Communicate your company’s commitment to employee well-being and cost consciousness
- Disclose all potential threats and disruptions
- Provide opportunities for employees to make cross-functional transitions
- Encourage employees to take on leadership activities
- Commit to prioritizing employee’s mental health
Companies that haven’t paused hiring must clearly communicate to their employees and rule out fears around layoffs, business downturns etc. With many of our workforces remaining remote, employers have the onus of keeping employees aware of business performance and not letting them fall prey to negative news and sentiments.
Encourage internal mobility and transfers
LinkedIn found that employees stay nearly 2x longer at companies that regularly hire internally. The study also revealed that companies with low internal mobility experience a median employee tenure of 2.9 years. In contrast, companies encouraging internal mobility observe a median employee turnover of 5.4 years.
During a hiring freeze, many roles remain unfilled for prolonged periods. You could allow employees to gain new skills and provide internal transfers.
Apart from engaging employees, internal mobility has the following benefits:
- Reduces hiring time
- Reduces onboarding and training time
- Retains high-quality employees within the company
- Boosts morale
Prepare to hire in a job market that’s still candidate-driven
Despite the slowdown, experts still believe that the employment market is tilted towards employees. With organizations not pulling back on digital transformation investments, technological skills such as artificial intelligence, automation, and machine learning are still in high demand. Thus, for the foreseeable future, companies would recruit talent with these skills while freezing hiring in other areas.
David Ferris, a senior client manager at Korn Ferry, says, “People costs are always a major factor, but a talent that can help advance digital strategy is still precious and in great demand.”
It is therefore essential for organizations to keep hiring and retaining employees with critical skills. This puts highly skilled talent at the opportune end of the negotiation process.
Use EOR tech to hire from affordable markets
Employer of record (EOR) solutions have graced the hiring industry for over forty years enabling businesses to hire from low-cost markets. If hiring and payroll costs are high in your talent market, look beyond borders to recruit stalwarts.
As the cost of hiring and working with distributed teams reduces, recruiters can look beyond traditional means of hiring. Moreover, the central theme for hiring slowdowns seems to be cost cutting. For example, staff turnover in the US IT industry ranks at 13.2%, the highest attrition index among all sectors. It’s one of the significant factors that set back the development of the US tech market. What’s more, high turnover is costly—employers are forced to pay 50–250% of the salary for replacement.
Relying on talent markets like India, Indonesia, Philippines, Romania, and Ukraine can help employers tap into highly appealing talent for relatively cheaper costs.
For this purpose, you require solutions like an Employer of Record to offer you the economies of scale to hire and expand at ease.
In summary, the hiring slowdown seems isolated to a few industries. It also goes without saying that companies must be innovative rather than remain paralyzed in fear. Looking at previous recessions and understanding how companies dealt with their incumbent talent is essential.