7 minute read
Economic uncertainty what HR should be thinking about
HRNZ sat down with Sarah Baddeley, Executive Director and labour-market specialist at management consultancy MartinJenkins. While she works on helping organisations with workforce challenges, Sarah is also a self-confessed recovering economist, so we asked her what the economic conditions might mean for HR leaders.
HRNZ: What will the performance of the economy mean for HR leaders this year?
Sarah: Last year, I was saying things were uncertain and fragile, and this year I hate to say that I’m saying the same, but maybe even more uncertain and fragile with an election in the mix. At the end of 2022, everyone was using the “R” word (recession) about 2023, but towards the tail end of the year, economists started to be a tiny bit more optimistic. The thing to watch is the regular Reserve Bank Monetary Policy Statement and anything that has a consensus forecast, because that tends to capture a broader view of market expectations.
One thing is clear: the labour market continues to be tight. However, there are very, very early signs of things that will help it ease. You
see government decisions around loosening immigration settings and increasing the number of recognised seasonal employer (RSE) workers, which will help some employers. But the economy continues to fight against inflationary pressures and this is being made harder by the aftereffects of Cyclone Gabrielle. High wage expectations and increases in average hourly earnings that are outpacing inflation make the problem even worse for employers. The cost of living is, of course, really hitting our employees’ back pockets. So I would say tighten your belts for a busy year, one where you’re going to have to be nimble to adjust to rapid changes in conditions.
The Reserve Bank was pretty direct in its recent Monetary Policy Statement saying that inflation remains too high, and the labour market remains very stretched. They have specifically called out higher wages as contributing to inflation. However, most people are keeping a keen eye on what is happening with job vacancy numbers. The macroeconomic data is starting to look like job vacancy rates may be reducing.
HRNZ: What is happening around the world?
Sarah: 2022 was not kind to global labour markets. We saw an uneven recovery from the pandemic and further supply shocks, including those associated with the war in Ukraine. The International Labour Organization is using a global unemployment rate of 5.8 per cent – or 268 million people – and the worst picture is painted for women and young people. The World Employment and Social Outlook for this coming year makes for grim reading.
When you look at countries we tend to compare ourselves to –like Australia, which is in a similar position to us – they came out of COVID-19 okay, but they are now grappling with wage pressures, higher inflation, labour shortages and uncertain economic conditions, mainly driven by the uneven economic performance in China.
The World Economic Forum Global Risks Report has identified five main risks for the next two years:
• the global cost of living crisis
• economic downturn
• economic warfare
• a hiatus in climate change action
• societal polarisation.
All of these will require attention from business leaders and HR professionals.
HRNZ: This is sounding bleak. What should HR leaders be prepared for?
Sarah: So things aren’t great, but New Zealand has a lot going for it compared with others. Employment levels are high, participation rates are good, and government debt is relatively low by international standards. This last point is particularly important as the government looks at the financial cost of the tragic impact of Cyclone Gabrielle.
We could all do more to get more young people into jobs, because they are the ones who are really finding it hard. It will be particularly rough for those who didn’t finish their education because of COVID-19 and instead went into low-wage work.
They may now find themselves out of a job, carrying student debt and with half-complete qualifications.
Risk-wise, I would be keeping on top of the way economic conditions are affecting your organisation. At MartinJenkins, we are working with organisations that will need to move quickly to cut costs (some have already begun). It will be essential to understand your current workforce composition and where you might be able to make efficiencies, and know how to run a change process that’s fair and legally watertight. Everyone thinking about whether they might need to right-size their workforce should familiarise themselves with the Employment Court’s recent decision ordering AUT to start its mass redundancy process again from scratch
Some businesses will be more resilient in the face of economic conditions and may continue to hunt for talent – and talent may get easier to find. Wage expectations continue to be high, and there may be a bit of a lag between worker expectations and affordability in light of all the economic uncertainty that employers have to factor in. So you need to have bargaining strategies in place, particularly considering the new Fair Pay bargaining arrangements.
HRNZ: What does this mean for retaining talent?
Sarah: Holding on to talent is always important to your organisation’s performance story. The key is to understand what talent you need to achieve your strategy, and whether the people you have are talented and performing in the way you need them to. This is true regardless of economic conditions. But with the current uncertainty and the potential for restructuring in sectors exposed to uncertainty, you may need to consider ways you can reconfigure your workforce to address these risks. As an example, this might include reducing hours rather than turning to redundancies.
Outsourcing often looks more attractive when the labour market is uncertain. But pay attention to last year’s Employment Court decision on Uber’s contracting arrangements Make sure the arrangements you put in place are appropriate and defendable and that you’re not just shifting risks to those who can’t manage them. And make sure any decisions about outsourcing or reducing hours are going to help – not hinder – your organisation’s ability to achieve its strategy. Finally, keep an eye on those you work with to ensure they are meeting minimum employment standards as their margins face pressure.
HRNZ: What about attracting talent?
Sarah: It is going to be another year of keeping your offer current and your pencil sharp. The changes to immigration settings also mean you may be able to access talent from offshore. It will be particularly vital to give these employees a positive experience of work, given the government’s focus on taking regulatory action against migrant exploitation.
A focus on professional development and upskilling may also come back to the fore. Some organisations we work with have blown their budget on recruitment costs and have sometimes funded it by cutting training. With labour shortages, we have also heard of people cutting back on training to cover core service delivery. You may find you have the time and the budget for training now – investing in your people is never a bad idea.
HRNZ: Any final words of advice for HR professionals?
Sarah: Your own resilience. This could be another year where HR leaders need to make sure they put on their own oxygen masks before they help others. Take time to look after yourself, and stay focused on strategic priorities that will really help drive your organisation’s performance. And good luck.
Sarah Baddeley is an Executive Director of management consultancy MartinJenkins. She advises government, boards and executive teams on issues relating to employment, the labour market and organisational strategy.
