CEO of Beeline. Our trusted platform connects businesses to the remarkable talent within the global extended workforce.
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There is much talk and speculation about an impending recession. Will there be a recession? Of course there will be. There will always be a recession, just as there will always be a boom; we just don’t know when. Lately, when asked if I think there will be a recession soon, my answer is, “Yes, if we want one.” The more we fret over it and prematurely enact measures to weather one, the more it becomes a self-fulfilling prophecy.
Clearly, the market has suffered a beating and inflation is concerning. Simultaneously, unemployment is low and GDP surged more than expected in the fourth quarter after a massive 2021. Regardless, most of the pundits say a recession is coming.
Especially in the technology sector, many companies have already begun layoffs or announced hiring freezes, including Netflix, Twitter, Meta and Uber. The more other CEOs read about it, the more they wonder if they had better do the same, lest they get caught a little too late. Thus, the recession playbook that has only had two years to accumulate dust is getting dusted off and displayed on the CEO’s desk.
The Typical Recession Playbook
As companies find themselves on the precipice of a recession, cost control dominates the discussions and planning in the C-suite. The playbook, once again, is front and center. This playbook is familiar to many of us who lived through 2001, 2008 and 2020. First, travel and entertainment are defenestrated. Next, the mauling goes to training, promotions and other peripheral expenditures. Ultimately, the company is forced to address headcount.
When cutting positions, there is a standard approach as well. Traditionally, firms looked first to their external workforce—those who are not employed full-time by the company. This talent basket is larger than many might assume. It includes consultants, freelancers and contractors doing everything from packing boxes to writing code. But not all of this talent can go.
While cutting full-time employees is typically the last resort, this next recession may, for the first time, change that dynamic forever.
The Shift From Nice-To-Have To Mission-Critical
Many fail to appreciate both the magnitude and criticality of external workers. Much has changed from twenty years ago, when these workers were referred to as “temps.” Today, the extended workforce is no longer seen as simply additive or supplemental. In fact, it is recognized as crucial and cost-effective. As a result, the size of the external workforce has grown precipitously.
Why is this the case? What has changed? The gravitas of the extended workforce changed.
Today, the extended workforce comprises almost half of the workforce. Many professionals prefer a working lifestyle that allows for experience from multiple companies, which accelerates their learning, development and compensation.
Of course, the pandemic introduced the pervasiveness of “work from home” and thus, even more workers left their full-time jobs for “gig” work. More and more knowledge workers have entered the extended workforce, thus changing the composition of this talent pool. So, while there are both more workers overall as well as more types of skills in this pool, that alone hasn’t created the prominence the external workforce now enjoys.
Surges in demand for talent forced companies to pay more attention to this labor source. McKinsey warned us of the “War for Talent” in 2001. The labor shortage across just about all industries reinforces McKinsey’s position. Hospitality, manufacturing and healthcare are among the sectors struggling most to hire talent. As a result, many have realized that leveraging the external workforce is a great solution.
The Financial Impact Of The Extended Workforce
While this has happened, our CFOs have taken notice and come to appreciate the financial implications to their P&L. Tapping into external labor has proven to be a sound and flexible model, one that can easily scale up or down. Companies don’t have to pay benefits or work through complicated and messy severance scenarios when it’s time to part ways.
The benefits of this very model, coupled with its newfound level of popularity, may indeed change the way companies look at labor cost-cutting measures during the next recession. External workers may not be first to go.
The shadow workforce is no longer in the shadow. The Great Resignation and wage inflation vexes companies as they witness both labor costs and attrition numbers increase. Instead of hiring a data science department, for example, a company may engage with an AI consulting company and pay simply for a deliverable. The business unit receives what it needs and HR and finance aren’t constantly struggling to meet the demands of resignations and demands for higher pay.
The flexibility and efficacy of the model is such that it is highly likely that on the precipice of this next recession—whenever it comes—we will see a change in the playbook. We will see, in some cases, a swapping of pages, and full-time employees may be let go before those in the extended workforce. Working leaner is always a goal. Some will view this recession as an opportunity to change the model altogether, both in the recession and in the boom.
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