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In late October 2022, the Bank of Canada announced the worst drop in business outlook since the start of the pandemic. Recent studies have found that most businesses and consumers believe Canada will soon fall into a perilous recession, with inflation continuing to plague our economy for years to come.
The Bank of Canada’s main tool to fight this outcome, namely its ability to raise interest rates, must be recognized for what it is: a Band-Aid on a broken leg. Our economy is facing systemic deficiencies: shortages of energy, commodities and, most importantly, people. In a recent interview with BNN Bloomberg, Mark Wiseman, chair of the Alberta Investment Management Corp. (AIMCo), put it trenchantly when he said rate increases don’t create more human beings ready to contribute to our workforce.
Businesses are facing two existential challenges. The first is the ongoing crisis of inflation and the corresponding threat of a major recession that will continue to drive up the cost of living for workers, increase dissatisfaction and devalue wages.
The second is the severe labour shortage that is expected to intensify rapidly. How should leaders prepare? And, crucially, what can leaders do to fortify their organizations during these challenging times?
It is prudent to examine what not to do.
As storm clouds gather, emerging data suggests many companies, both global and domestic, are contemplating or are already making layoffs to reduce costs and shore up their elasticity in a weakening business environment. Earlier this year, Shopify sent shockwaves across the sector by cutting 10 per cent of its workforce, following in the footsteps of other major technology companies like Netflix and Coinbase, which also announced significant layoffs in 2022. The day Shopify publicized this action in late July, the Canadian company’s shares closed down 14 per cent. That was partly a reflection of CEO Tobi Lutke’s admission, in a memo to staff that was made public, that the company had overestimated the degree to which e-commerce would grow. With a deepening human capital crisis and competition for skilled work escalating, one must wonder whether Shopify will come to regret this decision.
Beyond their individual defects, these examples from the technology sector reveal the cyclical nature of market trends. They make clear that the questions posed and solutions offered today cannot be designed solely to address the obstacles of this quarter or next. Widening the window means not only understanding the pace at which events are unfolding, but also promoting a clear picture of your long-term objectives and holding fast to the investments required to get there. This is particularly true for investments in human capital.
Historically, during economic downturns, businesses cut funding for employee compensation and training. As those same businesses contend with skills deficits, peers that have invested in high-growth areas emerge more competitive and prepared. While certain budget constraints are inevitable, businesses that can articulate long-term priorities are better positioned to secure investor and stakeholder support for workforce expansion. When measuring workforce demands versus budgetary constraints, it’s imperative to remember that turnover has a cost, estimated to be as high as 150 per cent of an employee’s salary. Building strong and committed teams isn’t cheap, but neither is the alternative.
A recession is likely to lead to a decrease in job creation, with some sectors experiencing a hairpin turn: today’s worker shortage will become tomorrow’s job shortage. However, well-resourced businesses should look beyond their immediate needs as they build and scale their workforce. With Canada’s technology sector facing widespread layoffs, banks, financial institutions and other traditional industries are scooping up available talent to build their artificial intelligence capabilities. These businesses can expect to reap the benefits as Canada requires an additional 250,000 technology jobs by 2025.
Not all businesses will be equally fortunate, and many sectors remain handcuffed by our current worker shortage. Corporate Canada cannot solve this issue alone. Urgent government action is needed on immigration, advanced education and infrastructure. But great leaders learn to never let a crisis go to waste. Businesses that respond to the talent war with strategic commitments to employee culture, long-term workforce investments and growth opportunities are best positioned to weather future labour shortages.