Are you labour hoarding or managing talent?

Your workforce is a flexible entity. There are times when it needs to expand in number, but there are also times when it needs to be more streamlined. Being aligned with the market means making changes in response to the wider context and your goals.

What happens when firms buck that trend? When they look at the long-term and ignore short-term changes?

Labour hoarding is something we’re increasingly seeing in both Europe and the US.

What is labour hoarding?

Simply put, labour hoarding is when you’ve got more employees than are strictly necessary with no plans to reduce that number.

Firms with higher than necessary staffing levels, keeping hold of all their employees and waiting for the market to turn.

Labour hoarding can be a powerful tool to position your firm for growth opportunities but it can also be an expensive, and sometimes high risk, strategy.

Recruitment is cyclical, there are periods of demand and then times when less is more. Often firms respond to these cycles, increasing and reducing their workforce as needed.

What we’re currently seeing more of are firms holding onto people and resisting the urge to downsize. They’re riding the wave high, looking at the long-term rather than the short, which would see them firing only to rehire in the not-too-distant future.

Don’t be fooled into thinking that this only benefits employers. Some candidates and employees are reaping the benefits too. With increased job security and inflated wages post-pandemic, there are many employees that are coasting along waiting for the market to turn in their favour again.

Other employees are bearing the brunt with limited promotions and pay rises, but with low unemployment rates and low employee turnover there aren’t many opportunities for them to move to.

A post-pandemic legacy?

When Covid hit, the employment market went into turmoil. With the ‘Great Resignation’ as it was coined, employees were leaving in droves looking for employers that genuinely cared about them as humans, not as just a number.

The result was employers, desperate to secure candidates in a highly competitive market, offered inflated salaries to secure candidates that didn't have the level of knowledge or skill required to perform to a high level.

The knock-on effect is that people are in roles they aren’t qualified to do or at least struggle to perform at the necessary level.

Fast forward to now and employers have learned from their mistakes.

The market has transitioned and employers are looking to upskill their people and are often happy to wait for the right candidate.

The market is now about quality hires, not quick fixes, resulting in a slower moving market, where the job requirements are more stringent, searches might take longer, offers are more cautious and for many candidates it feels like there are fewer opportunities.

A perfect market storm

These new market conditions have created a perfect storm. On the one hand you’ve got candidates who might have benefitted from the bountiful job market a few years ago, then you’ve got firms who are wiser and more particular.

The employees on good salaries are happy to sit and wait out the market conditions, knowing that if they were to search for a new role the chances are the terms wouldn’t be as favourable as what they have right now.

Firms have people in roles so they’re happy to take their time to find the right person, not just any person.

The result? Labour hoarding.

Firms have enough employees, the slower market conditions mean their retention rates are high without the pressure to offer promotions or pay rises.

Even if someone does leave, their high staffing levels mean they’ve got enough capacity to cover that position while they decide whether to replace that person or not. There’s no pressure, everyone is content to wait.

What does this mean for employers?

Labour hoarding might be an intentional strategy or it might be a result of previous circumstances. However a firm has ended up in that position, there are pros and cons to maintaining higher staffing levels.

Advantages of labour hoarding

Retaining employees

Employee retention has been a big challenge for firms in recent times. Hoarding can help businesses to manage and retain talent internally, avoiding recruitment costs and disruption of onboarding new employees.

For employees that means job security, and possibly improved training and development opportunities.

Continuity

When employees leave and are hired there’s a disruption in business operations from both a capacity and a knowledge perspective.

A larger workforce allows businesses to respond to changing market conditions, maintain business essential operations and cover changes in staffing levels without interruption.

Reduced hiring costs

There’s a price tag that comes with hiring new employees, keeping intentionally high staffing levels allows businesses to reduce their recruitment costs. Increased retention rates and more employees means there isn’t the pressure to immediately replace on a like for like basis should someone leave.

Disadvantages of labour hoarding

Increased payroll

More people means a higher wage bill. This might be offset in part by a reduction in hiring costs, or because you’re able to use your talent to scale and generate more income.

There’s no hiding the fact that your profit margins will be reduced to account for an increased payroll every month.

Lower morale and productivity

The most engaged employees are the ones who know their role, they understand their contribution and they feel fulfilled in their jobs.

Typically, firms that labour hoard will have underutilised talent in their midst and that can create a decline in productivity, happiness, morale and job satisfaction.

Economic implications

Looking beyond the company level, labour hoarding can have much broader implications for the economy. It can contribute to inflation levels and artificially high wage levels.

Final thoughts

When it comes to labour hoarding it’s a risky strategy. It’s expensive, it can damage morale and make the firm less agile, there’s also the potential to be carrying a number of employees who simply don’t have the skills to perform at the necessary level.

However, it also brings opportunities to reduce costs in other areas, to ensure a baseline level of operations, to retain those key people who can drive the business forward and to allow you to pounce when the time is right.

Typically, labour hoarding is a symptom of long-term strategy and in today’s world that’s not a bad plan of action.

Economically and politically the world is changeable, if a firm were to respond to every market fluctuation it would be exhausting and expensive.

Taking a step back and planning for the long-term could be the strategy that sets your firm apart from the rest.​