The Goldilocks Effect – Staffing that is ‘Just Right’ – Part 1

A year ago, U.S. labor markets were crying about such a shortage of labor that it was pushing up wages.  Businesses could not find enough qualified people or hire fast enough.  Demand for products and services was going gangbusters thanks to a robust post-pandemic recovery.  There was more demand than supply.  Companies just couldn’t hire enough people to meet production demands.   In turn, that was spurring inflation.  In fact, the economy was so hot that the Federal Reserve hit the brakes and started raising interest rates to bring inflation under control. 

As soon as cheap capital disappeared, tech companies – especially startups – were the first to hit the brakes on hiring.  Then, they started shedding employees.  Then other major employers laid off workers amidst warnings that the economy might tip into Recession.  In 2022, companies laid off over 150,000 employees.  And in January 2023, another 65,000 workers were let go.  According to Mondo, a global staffing company, mass layoffs – defined as at least 50+ employees are laid off within 30 days or less equaling more than 1/3 of the company’s workforce OR when a company lays off 500+ employees within 30-days regardless of the size of the company’s workforce – seem to be a continuing trend. 

2022 – % of Workforce Laid Off

• Cisco: 5% (December 2022)
• DoorDash: 6% (November 2022)
• Candy Digital: 33% (November 2022)
• Redfin: 13% (November 2022)
• Amazon: 1% beginning (November 2022)
• Meta: 13% (November 2022)
• Twitter: 50% (November 2022)
• Zillow: 5% (October 2022)
• Peloton: 12% (October 2022)
• DocuSign: 9% (September 2022)
• Taboola: 6% (September 2022)
• Snapchat: 20% (September 2022)
• Outbrain: 3% (July 2022)
• Lyft: 2% (July 2022)
• The Mom Project: 15% (July 2022)
• Opensea: 20% (July 2022)
• Substack: 14% (June 2022)
• Ninantic: 8% (June 2022)
• MasterClass: 20% (June 2022)
• Bird: 23% (June 2022)
• Superhuman: 22% (June 2022)
• Cameo: 25% (May 2022)
• Robinhood: 9% (April 2022)
• Virgin Hyperloop: 50% (February 2022)
• Peloton: 20% (February 2022)
• Beachbody: 10% (January 2022)

2023 – % of Workforce Laid Off in January 2023

• IBM: 1.5%
• Gemini: 10%
• Yankee Candle: 13% of office workers
• 3M: <1%
• Spotify: 6%
• Google (Alphabet): 6%
• Microsoft: 4-5%
• Amazon: 1-2%
• Carta: 10%
• Coinbase: 20%
• DirecTV: 5-6%
• Salesforce: 10%
• Vimeo: 11%
• Goldman Sachs: 8%
• Stitch Fix: 20%

Labor Shortage Still Exceeding Layoffs

One might think that seeing a list like that is enough to scare business leaders into cutting back on their own hiring and retention.  But, actually, that string of mass layoffs did not drive up the unemployment rate at all.  In fact, the US unemployment rate was 4% in January 2022 and 3.5% in January 2023.  Unemployment dropped!

How does unemployment go down in the face of that many layoffs?  Overall, the economy is still going strong.  On top of that, the US labor force is shrinking.  The labor force participation rate fell to 62.1% in January 2023.  That is a far cry from the pre-pandemic labor participation rate of 63.4%.  In a population of 335 million, that amounts to nearly 4 ½ Million fewer workers in the labor force.  That’s because the labor force participation rate of women, which peaked in 1999, has been declining for the last 20+ years.  And while Zellennials are entering the labor force, millions more Baby Boomers – a huge generation — are retiring and exiting the workforce.  

Add to that the fact that the US population is growing at an anemic rate.  According to the US Census Bureau, US resident population grew by 0.4% (less than ½ of 1%) in 2022.  This is a historically low level of growth.   The decline in US population growth is due to various factors including low levels of immigration (despite what the media or political parties might say), an aging population, and declining fertility rates.  With fewer people and fewer people in the workforce, the result is an ongoing labor shortage in the US. 

Recruit, Retain, Retrain or Layoff:  That is the Question

While mega companies are inclined to lay off hundreds or thousands of employees in advance of an economic downturn, it’s much harder for small and mid-sized businesses to know what is the right thing.  There is, after all, a definite cost – financial, organizational, and social cost — to laying off workers.  Besides the unemployment benefits that must be paid to those laid-off, companies must then contend with being efficient and effective with fewer employees.  And they must do this while also dealing with an elevated job turnover rate that has not subsided post-Covid.  Indeed, nearly 4.2 million people voluntarily left their jobs in November.  That was the 18th straight month of record-breaking quits in the US. And, while increased layoffs does make some workers hunker down and stay put in the short term, it also makes them nervous and less committed to the company long-term.

That may explain why recent surveys indicate that even more Americans are planning to switch jobs in 2023, with younger employees leading the wave.  LinkedIn and CensusWide surveyed more than 20,000 U.S. workers in December 2022 about their professional plans for 2023.  They found that 61% of workers are considering leaving their jobs in 2023.  Of the respondents, 72% of Zellennials (ages 18-25) and 66% of Millennials (ages 26-41) said they are contemplating a job change in the next 12 months compared with just 55% of Gen Xers (ages 42-57) and 30% of Baby Boomers (ages 58-76).  This is a continuation of the ‘Great Resignation’ or ‘Big Quit’ that began in 2021.  

But not all industries will be impacted equally.  According to the Deloitte Global 2022 Gen Z and Millennial Survey which polled 14,000 Zellennials and Millennials, some industries will lose these younger workers faster than others.  They are “particularly eager” to leave some public-facing industries, including health care, retail and education.  And they will quit even if they don’t have a new job.  Recession fears won’t stop the youngest generations of the workforce from job-hopping.  They are more likely to pivot to a new role with reduced hours through temp, gig or part-time work or even start their own business.  In fact, 76% of Gen Z and Millennials report starting their own business as a goal, according to a study conducted by Microsoft in September 2022.

In the face of all that, what should small and mid-sized organizations do now?  Keep hiring?  Stop hiring and just focus on retention?  Retrain surplus employees to work in departments that need help?   Cut back staff in case of Recession?  Companies are struggling with the answer.  Unfortunately, there is no simple one-size-fits-all answer.

That’s because the number of employees any company or organization needs at any given time fluctuates.  It is impacted by so many variables that it is hard for an employer to know when to hire, retain, retrain, promote, or layoff employees.  The pendulum can swing wildly and is impacted by so many variables:  economic factors like inflation, interest rates and unemployment; market conditions such as a shrinking pool of skilled applicants, soaring wage increases, product obsolescence, and consumer demand; and internal variables such as business model, financial stability of the company, change of ownership, redundancies, etc.  How does a business, division or department decide if it should be growing or retaining its current team, retraining staff who are redundant for other positions, or just laying off wherever possible? 

Steps to Decide on Staffing

Staffing is all about the numbers.  If the company is understaffed, it pushes to hire in order to be able to produce products or deliver services in a timely way and ensure there is solid growth ahead.  If a company is overstaffed and forecasts a decline in sales and revenue, it will need to cut costs.  Layoffs is often one of the first ways companies cut costs. But since layoffs can cost severance packages, impact productivity and hurt morale, it always makes sense to consider if there are less painful alternatives to layoffs.  Some examples include:

• Freeze hiring.
• Pause raises and bonuses. 
• Don’t fill positions that open due to turnover or fill with surplus staff. 
• Ask departments to make suggestions on ways they can cut expenses or generate more revenue. 
• Reduce employee hours or temporarily cut management pay so other employees aren’t laid off. 
• Eliminate overtime work.
• Cross-train extra employees in one department to work in another area.
• Offer incentives to employees willing to resign in exchange for benefits.

If those cuts don’t solve the numbers problem, then layoffs might be unavoidable.  Next week, we’ll look at how companies that have too many or too few employees can work to get to the “just right” amount of staffing.  Stay tuned.

Quote of the Week

“Employers who recognize the importance of their workforce have a more productive workforce, a more efficient workforce, a more loyal workforce, less turnover, and, in the private sector, are more profitable.” Valerie Jarrett

© 2023, Keren Peters-Atkinson. All rights reserved.

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