As talk of economic recovery intensifies, one of the areas being monitored most closely is the job market. With unemployment near 10% and expected to surpass 10% later this year, many Americans are still in need of work. The unemployment rate worsened rapidly over the past 18 months but a recovery in the job market is likely to be a much slower process. Employment numbers are a lagging indicator of the health of the economy, so we expect the job market to strengthen after the rest of the economy, but there are 4 reasons why the recovery could take longer than many are anticipating:
- Consumers Are Still Scared: The Consumer Confidence Index that measures the mood and outlook of American consumers fell unexpectedly in July. While this number doesn’t tell the whole story, it’s clear that consumers remain nervous and economic recovery will be slow without consumers feeling good and spending money again. Sales are down significantly in most industries and most companies have used layoffs as a tool to cut costs to offset lagging sales. Until the consumer returns, businesses won’t be able to afford additional workers.
- Employers Will Help Existing Employees First: Most companies have been forced to take measures that have hurt their employees in some way during this recession. Workers used to working 40 hours a week suddenly found their hours cut in half. Benefit packages were reduced as employees experienced pay freezes and lost health benefits, 401K matches, and other key benefits of employment. Before employers open additional positions and start hiring new workers, many will want to take care of their current employees first. Hours, benefits, and compensation packages, will be restored in many companies before there is room for more headcount. A recent survey showed that 33% of employers plan to unfreeze salaries in the next six months and 79% plan to do so in the coming year.
- Some Industries Are Still Cutting Jobs: The recession has affected every industry differently. Some that experienced major difficulty early on made changes near the beginning of the recession and are now in a position to rebuild. Other industries hung in there month after month as the economy worsened and have started cost cutting measures more recently. While layoffs are down significantly, they’re not over and the jobs added to the economy in the coming months will likely be offset by jobs being lost in different lines of business.
- Employers Remain Cautious: Most businesses have been affected by recessions and downturns in the economy before, but this was no ordinary recession. As far as recessions go, it was violent and many of us were shocked by its severity. Even as there are signs of recovery being reported in economic numbers, employers that are still shell-shocked will not be looking to rebuild aggressively and are likely to approach their businesses more conservatively in the coming months.
David Wise, a business consultant with Hay Group, probably summed up the attitude of hiring managers best when he said, “Most companies want to go into fiscal 2010 with the layoffs and salary freezes behind them. The worst thing a company can do after tough times is loosen the reins before the horse is ready to run.”
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