Economists are presenting an idea that encourages companies to keep employees on the payroll and avoid layoffs during an economic downturn: labor hoarding. Arindrajit Dube, economist and professor at the University of Massachusetts Amherst, says labor hoarding is when employers faced with a downturn don't lay off workers but keep them around even though there isn't as much work. While this idea may seem counterintuitive to some, it is a strategy that can help companies avoid recruitment expenses in the long term and help sustain the greater economy.
Hiring and losing employees cost companies. Many studies show that the total cost of losing an employee can range from tens of thousands of dollars to 1.5 to two times the individual's annual salary, notes John Bersin, global industry analyst, in his LinkedIn post "Employee Retention Now a Big Issue: Why the Tide has Turned."
In theory, companies that implement a labor hoarding strategy during an economic downturn will have less hiring to do as the economy rebounds. Accordingly, labor hoarding can help companies stave off some of the costs associated with refilling positions by retaining their existing talent.
On a larger scale, economists say that labor hoarding is a way to reduce the long-term impact of a recession and help the economy recover faster. "It's really important to labor hoard," notes Tim Bartik, Upjohn Employment Research Institute senior economist. "Because if you don't, workers lose a paycheck and cut back spending, creating more demand shortfall."