What Is Labor Hoarding — and How Can It Help Your Business?

In today’s topsy-turvy labor market, a trend is emerging — labor hoarding. Although the news is rife with companies laying off staff or reducing seasonal hiring, others are quietly holding on to workers to stave off labor shortages in the future.

Labor hoarding is a new phenomenon businesses are considering for their own workforce, and it’s having a ripple effect on others who are struggling to find talent.

Labor hoarding occurs when businesses hold on to staff members even if it’s not in their immediate economic best interests. Inc. reports companies weigh the short-term financial gains of reducing head count against the cost of rehiring staff.

Talent shortages; ever-increasing recruitment costs; the time it takes to hire; and the difficulty in doing so have led many businesses to absorb the losses of retaining staff as the smarter decision for their organization.

Layoffs are a risky option for organizations

No company relishes the prospect of laying off staff members. It’s typically a last-resort measure to cut costs in the near-term.

When layoffs happen, they can be for short periods of time — and often outline to employees when they can expect to return to work.

For some companies, the length of the layoff is unclear: economic conditions outside the company’s control may dictate when, if ever, employees can expect to return to work.

For some workers, the uncertainty of being called back to work and their own economic needs means finding another job right away.

If and when the layoff ends, they may no longer be available. This means companies will have to recruit, hire, and train new staff to replace them.

Depending on market conditions and the skill level required to perform the work, the layoff itself may be more costly than retaining staff.

The ripple effect of labor hoarding in the community

When companies choose not to lay staff off, there’s a ripple effect throughout the community. As these organizations absorb the losses associated with retention versus the savings of layoffs, the labor market shrinks.

With already challenging talent shortages, labor hoarding adds to the problem. Applicants that would normally be available are not — leaving other businesses with few options. They either work with reduced staff, refuse business they cannot fulfill, or spend more to hire less-skilled workers.

Hoarding companies experience a financial hit while they retain — other companies in the area are taking the hit in their ability to recruit.

The U.S. Department of Labor reported for September there were about 2 open jobs for every applicant. Layoffs have steadily declined, and hover at historic low rates. With these talent conditions, it’s not surprising business leaders are taking a longer view when it comes to retention versus layoffs.

That’s good news for workers, but puts more pressure on industry as they try to hire in an ever-shrinking talent market.

Is labor hoarding right for your business?

Labor hoarding might be a consideration for some businesses, even if it means short-term financial challenges. There are many factors that help you determine whether retention is the better choice than layoffs.

Time-to-hire

Balancing the need to balance the books against the prospect of a lengthy time-to-hire may be a numbers game worth reviewing.

How much time does it take to hire a qualified candidate? If time-to-hire is excessive, the cost goes beyond repeated recruitment expenditures.

A long time-to-hire costs in productivity for the vacancy, and overtaxes those staff members filling the void. This can lead to employee burnout and churn.

Calculate how much the recruitment process itself is costing, then add in the potential of losing existing employees. Hanging on to talent, even if it’s costing you in the short term, might be a solution.

Candidate quality

Are there qualified candidates in your area? If your hiring process is finding fewer and fewer applicants that meet the demands of the position, retaining existing talent may be a wiser choice.

The more highly skilled the worker is, the more difficult they may be to replace. If you have them on the payroll, it might not be a good idea to let them go, no matter what the short-term fallout.

For jobs in which multiple staff members perform the same duty, layoffs might be an option. Having some level of coverage may maintain productivity.

For roles where there are only 1 or 2 employees, however, a layoff may be a mistake. In the absence of the laid-off person, you’ll need to consider who will be performing the function; how well will they be able to do so; and how their other work will suffer.

If you believe replacement candidates will be available when finances improve, move forward. If not, retention may be the better option.

New hire training

If training is required for the position — either short or lengthy, you’ll want to calculate those costs. Balance the amount of training and its actual costs against retaining existing talent.

Most businesses assume the cost of hiring ends when the employee reports for their 1st day on the job: that’s a mistake. Even the most qualified new hire has a learning curve.

Most businesses assume the cost of hiring ends when the employee reports for their 1st day on the job: that’s a mistake. Even the most qualified new hire has a learning curve.

Another staff member may be involved in training them, adding to the cost to hire. The time it takes for workers to become fully productive in a new role with or in the company can be lengthy.

Estimate how long, after Day 1, the new hire will be independent and working at full performance. Then calculate how much that ‘training’ cost you in their salary and the wages of others involved in their training.

You may find retention is the cheaper option overall.

Layoff aftershock

Layoffs have repercussions. For the employees directly affected, it means looking for another job. In this labor market, that might not be too difficult.

For the employees left behind there are effects, as well. Letting staff go, even when challenging economic times are obvious, can erode employee trust.

Those who are retained worry if the company is solvent, or if they should start looking elsewhere. Again, with talent shortages, their path out the door may be easier than it has been in the past.

For those who choose to stay, there may be a burden of extra or excessive work. Attempts to minimize over-stressing staff members who are retained may be futile.

Working harder with less is challenging in the best of times: when employees worry about the future of their own job or the company, productivity may be reduced.

If you’ve experienced layoffs in the distant past, consider how that affected the organization overall.

Determine if the cost/benefit ratio tipped in your favor prior to these difficult times for acquiring talent. If layoffs didn’t make a substantial difference when the hiring market was good, they might have a negative effect in these challenging times.

Hoarding may be right for SMBs and give them an edge

As you watch the news and see tech giants and other corporations announce tens of thousands of layoffs you may think labor hoarding isn’t a good choice.

But the comparison may be unfair. While these mega-businesses have existing staff to spare, often a glut of talent, for SMBs, staff-on-hand may be critical. Letting people go, even those with only marginal skills, may not be worthwhile in the short and long term.

As the giants restructure, your organization may even find new staff. Hiring tech workers in the past has been difficult: competition with large corporations has squeezed smaller businesses out of the market.

The fallout of their layoffs may mean an easier time for SMBs to acquire skilled workers to manage infrastructure and even expand. Labor hoarding may be a new phenomenon, but it might be an emerging one that gives smaller businesses an edge over the competition.

If you’ve never heard of or considered labor hoarding in the past, it might be a trend worth considering. The economy is uncertain, with threats of recession and downturns looming. If you can weather the storm with labor hoarding, it might a short-term fix that keeps you on track for long-term goals.