Employers face an economic paradox. On the one hand, employers are struggling with ongoing labor shortages. This sparked a talent war, which employers waged against each other by offering ever more and creative incentives to prospective employees. On the other hand, the chorus of warnings about a coming recession is growing louder and more frequent.[i] These conflicting pressures raise the question: could the same economic incentives that employers offer to attract available workers ultimately prevent employers from retaining those same workers for the duration of a recession?
This really raises two additional questions for employers:
- Should they assess the affordability of hiring incentives based on current or future demand?
- Should employers continue to engage in the war for talent?
Many employers who have rated these questions have responded in the same way. The gist of their response goes something like this: “One problem at a time. The problem today is high demand and low supply of labour. A recession (yet to come) is tomorrow’s problem. I will deal with today’s problem today and tomorrow’s problem tomorrow.
Indeed, many employers argue that if there really is a recession coming, they should do everything they can to meet as much demand now. This will allow them to be as financially liquid as possible and have as little inventory as possible (assuming anyone still has inventory) before the predicted recession hits.
It requires labor, which currently means better compensation incentives and a strong employer brand.
This all makes perfectly rational economic sense – with one caveat. If employees are savvy enough to take advantage of labor shortages to get ever-increasing incentives (which they are), then savvy employees are also savvy enough to have those incentives written into a contract (which they are). they should do). This means that the risk this presents is not a problem that future downsizing can solve.
All the financial liquidity accumulated through this extra work could be exhausted after the demand slows down. So the real concern is that the financial liquidity obtained now minus the economic incentives paid out over a contract term is ultimately significantly negative (for what it’s worth – law firms will likely be among the biggest offenders/ victims of this).
All this means that it is not tomorrow’s problem. This is today’s. As employers enter into these incentive agreements, the risks of labor shortages and recession are simultaneous problems, occurring at different times. With this in mind, some employers will nevertheless stay the course and continue to offer increasing incentives for a variety of reasons unique to them (for exampleshort-term cash requirements).
However, many employers will begin to consider incentives that are not based on current demand, but rather historical, normalized demand and revenue. Some particularly risk-averse employers may only consider incentives based on demand and revenue from the historic recession. Each employer must submit himself to this cost-benefit analysis.
Employers taking a more cautious approach may find themselves leaving the battlefield altogether (either out of strategic choice or because their new incentive calculation won’t yield new hires). These employers will continue to offer the same level of salary and benefits, but will not continue to offer increasing incentives. This will leave these employers waiting to fight another day from a better vantage point.
But just because it may make strategic sense for their particular situation doesn’t mean it will be painless. These employers may be left behind as other employers rush in and pick up their applicants or worse, their current workforce.
The remaining employees will have to work longer hours, which may encourage them to look elsewhere for a more flexible work schedule. Thus, not only will vacant positions remain vacant, but other positions could be created. In the meantime, customer/customer demand will go unmet and revenue unrealized.
Finally, there is another category of employers for whom all the debate is a luxury. No matter what they do and no matter what incentives they offer, they can’t find candidates (let alone employees). This is true for employers looking for physical workers, CDL drivers, and skilled trades, to name a few.
For these employers, it is not by strategic choice but without choice at all that they expect. Depending on the severity and duration, a recession and a corresponding increase in labor supply can feel like a return to near-normalcy for these employers. An opportunity to reset, so to speak.
Employers who find themselves on the fringes of the talent war are beginning to plan for this future opportunity to secure talent, whenever it presents itself. Planning for the future means using new advanced tools to better position yourself for the future.
For example, as employers look to ensure the candidate review process is fast and efficient, there are more tools than ever to help streamline candidate intake, screening and onboarding. A number of these tools use artificial intelligence, AI, in the candidate selection process.
The use of AI in the field of human resources seems attractive. If we can remove bias, unconscious and otherwise, from our recruitment and retention practices using AI, we’ll all be better off, right? A computer reviewing a resume will have no knowledge of the applicants’ gender, race, national origin, disability status, or other protected traits. This is certainly one of the main advantages of using AI in this context.
However, employers need to be certain that any AI tool doesn’t simply perpetuate the same biases that have long been problematic for regular employees. Human intelligence. Candidate screening tools that have a disparate impact, i.e. an unintended discriminatory impact on certain protected groups, will most likely be illegal under Title VII of the Civil Rights Act and anti-discrimination statutes similar states.
These tools should be tested and validated to ensure that there are no disparate impact issues, and HR professionals considering using these tools should be sure to ask the right questions when selection of a supplier.
Other concerns that were recently highlighted by the Federal Equal Employment Opportunity Commission. On May 12, 2022, the EEOC released guidance regarding the Americans with Disabilities Act and the use of software, algorithms, and artificial intelligence to assess applicants and employees.
The EEOC guidelines, groundbreaking in many ways, outline three areas where AI could potentially violate the Americans With Disabilities Act (ADA):
- The employer does not provide reasonable accommodation to allow a candidate to be assessed fairly by AI;
- Employer relies on AI to screen qualified applicants with disabilities, intentionally or unintentionally; Where
- The employer uses an artificial intelligence tool that performs an illegal medical investigation related to the disability.
Note that it is the employer who will be responsible here, not the AI provider. Thus, employers deploying AI in the hiring process should be aware of these risks and should be sure to discuss how they will be treated with vendors offering these products and services.
The EEOC Guide is required reading for anyone considering the use of AI at any stage of the employee lifecycle. There is no doubt that we will continue to see a proliferation of AI tools. AI is being used to solve more and more problems for organizations of all sizes. AI will certainly be helpful in addressing many HR challenges, including candidate tracking, screening, and onboarding processes.
Understanding the legal issues and working to ensure compliance early on is the best approach for employers. This area of law will continue to grow, with additional guidance from state and federal agencies, courts, and most likely state regulation of the use of AI in human resources functions.
From all of this, one thing is clear – employers should not be unwittingly and unknowingly myopic when developing employee recruitment and retention strategies. Instead, employers should think (at least) three steps ahead.
- Is it appropriate to base hiring and employment incentives on today’s unrecognizable demand? For some, the answer will be yes. For many, the answer will be no.
- If not, does a complete exit from the talent war make sense? Whether by strategic choice or by default, employers who choose to temper their incentives based on historical demand will likely find themselves on the outside. It’s not serious. It can be painful in the short term but the best choice in the long term.
- If a battlespace exit is the right choice, is future use of technology (AI) the right tool to use? The fact that the EEOC has published guidelines suggests that it recognizes that AI is here to stay and its application will grow. Employers considering using this tool simply need to understand the risks that come with it and carefully consider the AI they use.
At some point, sooner or later, the world will be recognizable again and we will find ourselves on familiar ground (right?). Until then, the employers with the best ability to see around the bends will be the strongest when we get there.