by Azmia Ricchuito
Economists, banks, and other industry experts warn that the United States is teetering on the brink of yet another recession. A slowing economy and rising inflation are indicators that the U.S. is headed for an economic downturn, with many experts predicting a recession within the next year. Do you have a plan?
The idea of a recession sounds scary, but recessions are, unfortunately, part of the business cycle. The United States has experienced 19 noteworthy recessions throughout its storied history, with some lasting a few months and others lasting for years. The “Great Depression” is one of the most well-known – and lengthiest – having lasted nearly nine years.
Since 1945, there have been 13 recessions. The most recent was 2020’s COVID-19 pandemic-driven recession. Before that, 2008 ushered in the “Great Recession.” The Great Recession rivaled the Great Depression in the breadth of people it impacted. However, once the recession of 2020 happened, it became the worst since the Great Depression despite being the shortest on record. It only lasted for two months, experts say.
A recent June 2022 survey by Insight Global captured the American attitudes about an impending recession, dubbing the time period during a looming recession as “The Great Apprehension.” A November 2022 survey sustained that worry, as 70% of employees felt worried about their job security in a recession.
Americans are understandably anxious right now: nearly four out of five are worried about job security during the next recession. Millennials were the most fearful generational group, with over 60% admitting to apprehension about job security. More than half of respondents didn’t think their jobs would survive a recession and/or were willing to take a pay cut in order to stay employed. Another sizeable chunk of respondents indicated they aren’t financially prepared for or don’t know how to get ready for a recession.
On top of these fears, about half of employees say they don’t trust their company to communicate its plans to get through a recession. That’s a problem. People are your most vital asset during a recession, as they are the ones who will keep your company afloat during tougher times.
Even if you’ve lived and worked through a recession in the past – most baby boomers and Gen Xers have — hearing all the talk of a recession can invoke anxieties. More important to note is that these fears and anxieties are valid.
What You Should Know About Recessions
Before we get into how to develop a recession plan for your company, let’s first talk about some general information you need to know about recessions.
What Will Happen During a Recession?
During a recession, there’s a decline in economic output or — in more economic terms — a decline in employment, wages, production, and retail spending coupled with higher borrowing costs and a chaotic stock market. However, it’s important to remember that the stock market is not the economy. In fact, the stock market yielded positive returns in seven out of 13 recessions that occurred since 1945.
During a recession, the Federal Reserve raises interest rates to try and combat inflation, so you’re likely to see a higher interest rate if you try to purchase assets. It may be harder to get credit or make large purchases because banks are slower to lend since they’re worried about higher chances of defaults. Recessions are declared by the National Bureau of Economic Research, and as of August 30, 2022 (date of publishing), they have not declared a recession yet. Sometimes, recession are declared once they are over.
There’s a Difference Between a Depression and a Recession
Many people compare recessions to the Great Depression, but there’s a difference between a depression and a recession.
According to Merriam-Webster, a recession is a “downward trend in the business cycle, one that is characterized by a decline in production and employment. This trend lowers household income and spending, which consequently causes many businesses and households to delay making large investments or purchases.”
A depression is not a downward trend. It is a major downswing, characterized by widespread unemployment, huge reductions in international trade, and marked declines in industrial production and construction growth. Recessions may be geographically limited, occurring only in one country, while depressions impact multiple nations.
It Won’t Last Forever
We can look at America’s history of recessions to give us an idea of what to expect.
Recessions happen, on average, every six years. Recessions are measured in months, and on average, most recessions last less than a year. The last recession we experienced in 2020 lasted only two months. However, when your job is at risk, this may seem like an empty platitude. It’s important to prepare for a recession, even if you think your job or business is recession proof.
What Happens to the Job Market?
The job market is currently fairly stable with unemployment levels hovering around pre-COVID-19 pandemic levels. Job openings are up year-over-year and at all-time highs. Any stability, however, is likely to be temporary as many companies have already started announcing hiring freezes or mass layoffs. Currently, just under half of chief financial officers (CFOs) believe the U.S. will be in a recession by the end of 2022, citing “persistent inflation” as the primary reason why. (This could indicate that more companies could implement a recession plan by the time the year ends.)
Since recessions are a natural part of the business cycle, the bounce back is imminent. At Insight Global, our top priority is our people. CEO Bert Bean says “you’ll need your people more than ever” during a recession, and it’s true, because good employees are priceless. The average costs for poor hiring decisions can range from $17,000 to $240,000 per employee. It’s better to just keep good people employed than risk these kinds of costly mistakes.
What Should I Do to Plan for a Recession?
Now let’s get into the nitty gritty of how to prepare for a recession. There should be decision makers within your company whose job it is to forecast what business might look like next month, six months from now, a year out, three years out, and so on. Whether that’s you (the reader) or someone else, it’s vital that you listen to the warning signs of economists and experts who predict a recession may happen.
Think about how your company might prepare for an evacuation of a building. If you prepare ahead of time, have a plan in place, everyone is aware of the plan, and they know how to execute that plan, an evacuation would run much smoother than if you had no plan at all. And if you don’t need to evacuate (think: a recession doesn’t happen), that’s good, too.
Let’s get into eight tips for how your company can plan for a recession.
1. Assess the Company’s Financials and Staffing Needs
It’s important to know where the company currently stands financially before you develop a recession plan, and you need to forecast the possibilities of where your company will be. This means looking at your organization’s financial stability, including liabilities and assets. Here are some questions you can ask yourself (and company leaders) when thinking about where your company stands:
- How might a decline in 5 percent of business affect your liabilities, assets, and overall business? Ten percent? Fifteen percent?
- What about your present staffing needs? Are there positions that are currently open that can be eliminated from the job search? Are there positions that may become vacant if a recession hits?
- What positions are absolutely vital to getting the company through a downturn?
- What are the pros and cons of hiring temporary employees versus permanent hires to meet staffing needs?
- Do you need to hire employees to help get you through a recession?
- What are the most financially feasible options for your organization?
- Are there any areas you can automate or outsource to increase efficiency or profitability?
- Where are the opportunities for growth and scalability?
These are just some questions you can ask to assess where you are currently at.
2. Survey Your Workforce
It’s important to keep a pulse on the morale and mindset of your employees. Employee satisfaction and commitment increases customer satisfaction – and thus drives increased profitability.
Are there people who are unhappy with their jobs and the organization? What can be improved? Are there people who are ready for advancement or to leave their position? Are there people who are likely to leave because there aren’t enough opportunities for advancement or because they aren’t being utilized to their full potential?
Surveying your team allows you to get a handle on where everyone is at in their career, and you can solicit suggestions from employees on how the company can improve. Employees may have innovative ideas for ways to cut costs or improve efficiency. They may also have ideas to increase retention rates, which can help save the company money due to the high costs of recruiting, hiring, and training.
Ensuring your employees are happy is one of the best things you can do for your organization.
3. Spend Time On Long-Term Planning
Spending more time on long-term planning can reduce the need for layoffs. Layoffs are not only costly financially, but also productivity-wise. Employees who are worried about job security are likely to be dedicating significant time and energy to looking for new opportunities and less time to their current responsibilities.
Studies have shown that layoffs don’t improve profitability. When companies react to recessions with layoffs, many don’t consider the full extent of the direct and indirect costs. These include things like:
- Paying out vacation and sick time
- Severance pay
- Increased unemployment insurance taxes
- Decreased morale and productivity among remaining employees
- A loss of employees well-versed in company culture and policies
- Recruiting and hiring expenses when business is booming again
- Potential legal issues
Really think about what your company will look like beyond a recession. This will help you get through one with the people you need.
4. Create a Retention Plan For Key Positions
Many companies panic and mistakenly layoff more people than they need to, leaving critical staffing shortages. This occurred during with 2020 recession with airlines. With demand for airline travel reduced for less time than expected, many airlines struggled when demand increased again in 2021 into the summer of 2022. When airlines didn’t have enough employees to staff planes and airport operations, it resulted in flight delays and cancellations anywhere from three to 10 times normal rates.
What positions are crucial to your operations? Create a retention plan for these positions. It will be far more cost-effective in the long run, and it will help prevent remaining staff from being overworked and burned out. Retention plans can be a collaborative effort. Talk to your talent and see what they need to feel fulfilled and stay in their role. They may offer valuable insight that you can implement.
5. Determine Your Team’s Transferable Skills and Reskilling Options
Hiring and training a team takes a lot of time and money. If you’re considering layoffs, remember that recessions are temporary and part of the business cycle. Things will pick back up again eventually, and you’ll find yourself needing to re-staff when they do. It may be more cost-effective to keep your current employees. Finding good people is priceless.
Rather than resort to layoffs, which should be an absolute last resort, as CEO Bert Bean says, find out what kinds of transferrable skills your employees have that you can utilize. This may help you cut down on outsourcing and vendor costs. Reskilling your current staff can help you fill in gaps and avoid layoffs, and it helps you build an increasingly skilled and resilient team.
6. Get Creative With Your Organizational Design
After assessing your team’s transferable skills and providing training to help current employees fill any gaps, consider revamping your company’s organizational design.
How can you maximize the various talents of your team? It may mean moving people around or even creating new positions that better suit their skillsets. It will also allow them to reach their full potential within your walls. Your employees are an investment, and when you treat them as such, it helps cultivate long-term loyalty – especially if you’re able to save their job during a recession.
7. Include Diversity, Equity, and Inclusion (DE&I) Planning
DE&I initiatives bring a multitude of benefits. Ensuring diversity across your company isn’t just a matter of representation. Diversity brings with it diversity of experiences, thoughts, and skills that encourage innovation and creative solutions. DE&I efforts have been proven to increase revenue and profitability. These factors are assets to any business and increase the likelihood of a company being able to withstand and persevere despite the potential challenges a recession may bring.
Diversity matters for your organization’s bottom line. Studies have shown that companies who invest in DE&I efforts outperform those that don’t, both in times of recession and for years after. DE&I programs boost morale, keep employees engaged, and boost retention rates. Remember: you’ll need your people, both during and after a recession.
8. Be Prepared to Discuss Recession Plans With Current and Potential Employees
It’s highly recommended that you develop talking points around potential recession plans to share with employees and new recruits. You may be asked about recession plans by current or potential employees who are likely – and prudently — assessing their options. Communication is key.
Some companies may actually have growth plans despite a looming recession. Tell your employees what that looks like. Other companies may opt that they’re keen to enact layoffs, although this is ill-advised.
The right thing to do is to be honest and transparent with current or future employees so that both the company and the employee can make informed decisions to protect their respective interests. This helps ensure that employers are maintaining ties with people who align with the company’s current and future goals, while allowing those who are not longer a good fit to find something more suitable.
At Insight Global, we take pride through empowering people through opportunity – and helping them to increase their economic opportunities – because to us, everyone matters. Looking for employees? We can help. Looking for employment? We can help. If you want to recession-proof your career or your company, let’s talk about what we can do for you.
by Erin Ellison 
