Meaning of global recession

A recession is a decline in a country’s Gross Domestic Product (GDP) growth for two or more
consecutive quarters of a year. A recession is also preceded by several quarters of slowing
down. An economy, which grows over of period of time, tends to slow down the growth as a part
of the normal economic cycle. An economy typically expands for 6-10 years and tends to go into
a recession for about six months to 2 years. A recession normally takes place when consumers
lose confidence in the growth of the economy and spend less. These leads to a decreased
demand for goods and services, which in turn leads to a decrease in production, lay-offs and a
sharp rise in unemployment. Investors spend less; as they fear stocks values will fall and thus
stock markets fall on negative sentiment. Risk aversion, deleveraging and frozen money
markets and reduced investor interest adversely affect t capital and financial flows, import –
export and overall GDP of an economy. This is what exactly what happened in US and as a
result of contagion effect spread all over the world due to high integration in the global economy.

According to the International Monetary Fund (IMF)’s latest Global Financial

Stability report (GFSR) widening and deepening fallout from the US subprime mortgage
crisis have profound financial system and macro-economic implications.
While the US remains at the ‘epicenter’, the backwash effect of the American
financial institution in other countries ‘reflecting the same overly benign global financial
conditions, an inattention to appropriate risk management systems and lapses in
prudential supervision’.
The global slowdown has its implications on the domestic economy. During the
last three years Indian Economy grew at an average annual rate of 8.6 per cent. For the
first time the economy has shown signs of deceleration and grew at 7.8 per cent in the
first half year of 2008-09 (April-September). The service sector, which contributes more
than 50% share in the GDP and is the prime growth engine, reported to be slowing
down, mainly in the transport, communication, trade, and hotels & restaurants sub-
sectors. The industrial growth has decelerated sharply during April-November, 2008
encompassing all the constituent sectors. In manufacturing sector, the growth has come
down to 4.0 per cent in April- November, 2008 as compared to 9.8 percent in the
corresponding period of last year. The slowdown occurred in the all the use-based
categories, except consumer goods where it has accelerated.
Meaning of HRM

Humans are an organization's greatest assets; without them, everyday business

functions such as managing cash flow, making business transactions, communicating
through all forms of media, and dealing with customers could not be completed.
Humans and the potential they possess drive an organization. Today's organizations
are continuously changing. Organizational change impacts not only the business but
also its employees. In order to maximize organizational effectiveness, human potential
individuals capabilities time, and talents-must be managed. Human resource
management works to ensure that employees are able to meet the organization's goals.

Human resource management is responsible for how people are treated in

organizations. It is responsible for bringing people into the organization, helping them
perform their work, compensating them for their labors, and solving problems that arise.
There are seven management functions of a human resources (HR) department that will
be specifically addressed: staffing, performance appraisals, compensation and benefits,
training and development, employee and labor relations, safety and health, and human
resource research.

Global Recession and HRM

The financial downturn is impacting developed as well as developing economies

are likely to get worse as the European countries, the US and others go into a deeper
depression due to the increase in job losses which often follows recession. The slump in
the market and increased job losses will have some important implications for the
changing task of human resource professionals. As the unemployment continues to
increase, HR professionals are likely to be dealing with more stressed employees who
are the sole wage earners in their families.

As recession is becoming the part of the normal cycle of business. Therefore it makes
just as much sense to plan for recession or downturns as it does to plan for good,
economic times.

OBJECTIVE
This economic downfall has affected all the major sectors in India including IT, aviation,
banking, real estate, tourism, outsourcing, telecommunication, etc with its consequence
mainly on the HR policies of these industries.
This article discusses
1. Impact of economic slowdown on employment in India.
2.The emerging challenges of human resource management in
the global recession situation.
3. The strategy adopted by HR personnel to deal with these
challenges.

HYPOTHESIS

In today’s economic meltdown where job cuts, loss, pay reduction, last come first
go, insecurity of employment atmosphere prevail, HR has special responsibility to
create ease environment to the affected by counseling, displaying care and concern,
preparing them for multi skill task, engaging and deploying in other required areas of
functions like security, crisis management team, etc.
 Global recession has raised various emerging challenges
for Human Resources Managers

 HR needs to be proactive & innovative and try to come up with early

interventions as for any organization to survive during recession.

REVIEW OF LITERATURE
“The global economic crisis is expected to lead to painful cuts in the wages of millions of
workers worldwide in the coming year. It predicts that the slow or negative economic growth,
combined with highly volatile food and energy prices, will erode the real wages of the world’s 1.5
billion wage-earners, particularly low-wage and poorer households. Between the years 1995
and 2007, for each one per cent decline in GDP per 2 capita, average wages fell even further by
1.55 percentage point, a result that points to the possible effects on wages in the current crisis.
[International Labour Office (ILO), 2007-08].

‘The economic slowdown of the advanced countries which started around mid-2007, as
a result of sub-prime crisis in USA, led to the spread of economic crisis across the
globe. Many hegemonic financial institutions like Lehman Brothers or Washington
Mutual or General Motors collapsed and several became bankrupt in this crisis.
According to the current available assessment of the IMF, the global economy is
projected to contract by 1.4 per cent in 2009.Even as recently as six months ago, there
was a view that the fallout of the crisis will remain confined only to the financial sector of
advanced economies and at the most there would be a shallow effect on emerging
economies like India. These expectations, as it now turns out, have been belied. The
contagion has traversed from the financial to the real sector; and it now looks like the
recession will be deeper and the recovery longer than earlier anticipated. Many
economists are now predicting that this ‘Great Recession’ of 2008- 09 will be the worst
global recession since the 1930s’. [Choudhari 2008]
“The financial downturn that is impacting developed economies are likely to get worse
as the European countries, the US and others go into a deeper depression due to the
increase in Job losses which often follows recession. The slump in the market and
increased job losses will have some important implications for the changing tasks of
human resource professionals. As the unemployment continues to increase, HR
professionals are likely to be dealing with more stressed employees who are the sole
wage earners in their families”. [Mujtaba, 2008}

“The global economic crisis has brought to the forefront of organizations the concepts of
viability and survival which at these times can be desperate pursuit. There are three
main reactions in organizations, namely the corporate reactions in organizations,
namely the corporate reaction to remain viable, the employee reaction to survive the
turbulence, and the human resources reaction ( including recruiting and hiring talent,
corporate organization, training and institutional learning)”. [Kathleen Patterson & Gray
Oster, 2008]
“In emerging economies, growth is projected to slow down appreciably but still may
reach 5.0 percent in the year 2009. The overall recruitments are lower for the industry
this time as companies remain cautious amidst the global financial crisis.” [Srivastav,
2009]
“Growth in real wages has slowed down globally in 2008 because of the economic crisis
and the trend is expected to continue in 2009, despite signs of economic recovery.
Growth in average wages reduced from 4.3 % in 2007 to 1.4% in 2008. Real wages in
the first quarter of 2009 also fell in more than half of 35 countries, compared to the
annual average of 2008, “Wage deflation deprives national economies of much needed
demand and seriously affects confidence,” “Minimum wages are an important policy tool
for social protection and proposes that minimum wages be combined with other income
support measures and/or tax reductions”. [ILO,2009]

"The last time anyone faced a situation like this was in the 1930s, so if there is anyone
who is 98 (assuming they should have been at least 20 then) and is coherent… the rest
of us are figuring out and learning on the fly," reasons Elango R, chief human resources
officer, Mphasis. According to Elango, "Managing the unknown, visualizing into the
uncertain future, constantly calibrating and tuning the variables… and hoping to high
heaven that you are on the right path… are responsible for increasing stress levels." He
believes that the challenge is to take long term decisions without issuing the short term.
This requires skills, knowledge and thinking that are not called on in a growth
environment. "In a growth environment, one's pre-occupations are different, and having
seen growth for years most of us are skilled at this. The current business environment
entails a delicate tightrope walk balancing both the business interests and employee
interests." [Elango R, 2008]

Research methodology
Secondary Data collected from various sources like
•
Economic & Political weekly
•
HRM Journals
•
ILO Reports
•
Ministry of Labour & Employment Labour Bureau

Analysis & interpretation

Impact of economic slowdown on employment in India.

Ripples of recession leading to reduction in exports to developed countries are being

felt by all the developing countries. Credit availability and its cost have become major
areas of concern. The combined impact of all these factors would be loss of
employment and reduction of income leading to social distress. The International
Monetary Fund (IMF) placed the estimated world output growth at 3.75 per cent in the
year 2008 and 2.2 percent in the year 2009 in World Economic Outlook (WEO),
November 2008, which represented a significant slide from a level of about 5.0 per cent
in the year 2007.

The global situation deteriorated rapidly after mid September, 2008 following the
collapse of Lehman Brothers, one of the top five investment banks in the US, the
collapse of American International Group (AIG) Bank and also of the mortgage lenders
Freddie Mae and Fannie Mae. There has been a massive choking of credit since then
and a global crash in the stock markets.

The deepening of the global crisis and subsequent deleveraging and risk aversion
in the global markets affected the Indian equity and the foreign exchange markets.
While the Indian economy has a sufficient internal ballast to withstand the impact of
global recession because of overall strength of domestic demand and the predominantly
domestic nature of financing of investment and exposure of exports to less than 20% of
GDP, nevertheless some slowdown is inevitable.
It may be observed from Table 1 that the total estimated employment in all the sectors
covered by the survey went down from 16.2 million during September, 2008 to 15.7
million during December, 2008 resulting in job loss of about half a million. It is seen that
the employment declined every month during this period. It has also been observed that
the employment in all the sectors/industries studied went up significantly over the period
from March, 08 to September, 2008. Beyond September, 2008, it has however,
decelerated at all industries/sectors level at an average rate of 1.01 per cent per month.

Trends in Average Employment

Period Average Employment in
Percentage
(millions)
change
September, 08 16.2
October,08 16.0
-1.21
November,08 15.9
-0.74
December,08 15.7
-1.12
Average Monthly change
-1.01
Source: Government of India, Ministry of Labour & Employment
Labour Bureau, Chandigarh.

From the above data it is observed that the management people

and employees may experience anxiety around a number of issues during
an economic crisis or downturn.
The monthly average rate of employment loss during Oct- Dec, 2008 was 1.01 per cent
whereas in January, 2009 the rate of decline has increased to 1.17 per cent. The increase in
rate of change is mainly due to the decline in employment in IT/BPO sector in January, 2009 in
contrast to the increase in employment during Oct-Dec, 2008 and also higher rate of
unemployment in Automobile Sector. The month wise employment trends are presented in
Table
The emarging challenges of human resource management in the
time global recession

The role of the Human Resource Manager is evolving with the change in
competitive market environment and the realization that Human Resource Management
must play a more strategic role in the success of an organization. Organizations that do
not put their emphasis on attracting and retaining talents may find themselves in dire
consequences, as their competitors may be outplaying them in the strategic
employment of their human resources.
With the increase in competition, locally or globally, organizations must become
more adaptable, resilient, agile, and customer-focused to succeed. And within this
change in environment, the HR professional has to evolve to become a strategic
partner, an employee sponsor or advocate, and a change mentor within the
organization. In order to succeed, HR must be a business driven function with a
thorough understanding of the organization’s big picture and be able to influence key
decisions and policies. In general, the focus of today’s HR Manager is on strategic
personnel retention and talents development. HR professionals will be coaches,
counselors, mentors, and succession planners to help motivate organization’s members
and their loyalty. The HR manager will also promote and fight for values, ethics, beliefs,
and spirituality within their organizations, especially in the management of workplace
diversity.
These paper discusses few important challenges of HRM due to
recession and i.e…

1.Problem of Recruitment.
2.Managing downsizing program appropriately.
3.Talent management.
4.Stress Management.
5. The Return on Recognition in a Recession.

.Recruitment and Recession .

Recruitment industry is going through a tough time at this moment, the numbers
have dropped drastically for the biggies and even recruitment agencies are battling for
survival. Synergy Solutions provides recruitment services to companies in India and in
US, the biggest challenge today is to find newer and better ways to add value to the
clients. There is a need to find innovative ways to improve recruitment ROI for the client.
First things first, the base idea is not to wait and find ways to weather the storm but
to take proactive measures to tide the wave. The world is changing very quickly to
combat recession and it’s about time we translate our thinking into action or else we will
be late. The main reason being the companies who are hiring have recently made
drastic cuts in their recruiting budget and are in the process of streamlining their side of
the story.
 Companies (clients) has to demand greater accountability from recruitment agencies
and focus on improving their recruitment ROI. Recruitment agencies / staffing
companies who are agile in their operation and can quickly adapt to the changing
environment will emerge victorious at the end of this recessionary period.
Few areas where placement agencies should focus:
 Closely monitoring the way each industry is changing in
current times and the way companies within the industries are
changing their hiring strategy.
 Build stronger relationship with clients thereby working closely with your
contact points in the company to get clarity on their internal hiring plans and
prepare accordingly. This will also help protect your share in the pie from your
competitors.

 Clients will use this recession to re-negotiating the recruitment

contracts with recruitment agencies. Since numbers are falling every day recruitment
agencies will be concerned about their cash flow situation and as a result will have no
option but to be forced to negotiate their existing contract. New client would want to start
the relation on the terms advantageous to them, that means lower rates and tougher
terms.
 Look out for companies who are brave and would consider
recession as the right time to recruit good quality talent at the right price. These are
usually multinationals with deep pockets and would want to drive competitive advantage
home. Be smart to attack these companies.
 Train your recruiters to be tactically smart and agile in their actions.
During the boom there were a lot of open positions and even more candidates
available so the match making activity was comparatively easy and largely
govern by the good sentiments in the market. During tougher times recruiters
need to be smart and get themselves deeper into the fit gap process and ensure
win - win situation for the client and the candidate
Use of technology and social media applications to hunt better profiles as
compared to job boards. Sites like LinkedIn, Facebook, Twitter and other social
and business networking sites are fast becoming every recruiter’s trump card. Lot
of head hunting can happen over these networking sites.
If your salary component are on the higher side and you
foresee that it’s going to be difficult to sustain then take adequate action now try and
offer a mix of lower fixed and higher variable with an assurance that salaries will get
back to normal once the market stabilizes.

Managing downsizing appropriately.

Virtually every country has to face the impact of a global economic downturn which can
be in the form of recession, slowdown, depression or growth recession. When a
downturn occurs, the organizations have to suffer heavy losses and bear the brunt of
slow revenue generation. During this period, there is also less spending by the
consumers, less investment by the investors and more of savings. Even the sectors
who have been thriving in the boom period try to save more.
Numerous causes can be attributed to the economic downturn and one of which
affects the business is lack of skilled manpower. Other reasons could be the increasing
population, lack of food supply, climatic condition, and entry of substitutes, inapt
investments and technological changes. The shift in supply and demand hugely affects
the entire business cycle. There can be acute shortage of cash supply leading to less or
poor investments.
All of this may ultimately affect the morale of the employees which should be a
concern to every organization. Also, the decline in growth and decrease in profits
certainly calls for certain top-of-the- line strategies to make adjustments to serve
organizational needs.
Managing the teams or human capital at this juncture is a Herculean task. So, a
manager should devise certain strategies in order to manage teams during down turns.
Downsizing during this period is certainly not a good option because if there are merits
of laying off of employees, there are many demerits too.

What should a manager do to manage teams or workforce?

•

Hold special meetings: During this unsafe situation, the

organization’s top most head or CEO should brief the meeting where the main subject
should be the employees and their concern. If the head of any organization feels
confidant, the whole organization feels confidant. Alternatively, middle-level managers
and senior managers can conduct private meetings where they can console their
subordinates. Also, give your workforce to ask questions and express their feelings regarding
the business insecurity.
•

Motivate the employees: The key to managing and retaining the employees during
downturn is motivation. Apart from the special meetings being conducted, a manager
should regularly be attending to their problems and constantly trigger the employees to
have good mood.
•

Offering challenging assignments and opportunities: If you offer your teams the challenging
assignments, they spirits will be lifted and they will manage to survive even in bad
times.
•
Explain to them the importance of their existence in
jobs: There is no use crying over the spoilt milk, just like economy turning to a bad shape
and business showing downfall. Its better that you discuss about the new projects and
subsequently tell them what role they have to play. How their productivity can make the
organization grow, explain to them.
•

Initiate change by identifying key people: There are few employees who are
influencers and can bring about a lot of change in the organization. If these employees
are given the right message to convince other team workers, the organization can move
in the right direction.
•

Identify the achievers and reward them: Even during this period, you should give your
employees the bonuses and increments if possible. In this way, they will always remain
motivated and perform.
All the above points are crucial to letting the organization grow to greater heights and
following the above strategies will promote the general health of the organization
despite economic downturns.

Talent Scenario during Recession

The law of demand and supply mercilessly applies to human resources, also. During the
economic downturn, companies were able to downsize by getting rid of redundant work
force and dead wood. They also restructured the employee compensation (mostly by
decreasing) to stave off financial losses. Only those employees The law of demand and
supply mercilessly applies to human resources, also. During the economic downturn,
companies were able to downsize by getting rid of redundant work force and dead
wood. They also restructured the employee compensation (mostly by decreasing) to
stave off financial losses. Only those employees

These survivors got the opportunity to handle a variety of tasks that further
sharpened their skills and made them multi- skilled. Thus, overall quality of talent has
increased. At the same time, those who were out of job lost this opportunity to hone
their skills in a new challenging environment. Adding to our woes, slashing of training
and development budgets has led to a depletion of the number of skilled employees
within the companies.
Such steps from companies have created an altogether tricky scenario: The
quality of talent within the companies has increased (raising the bar of the talent), while
the quality of skills available in job market has dwindled. Now, recruiters can hire the
required quality talent not from outside but from inside their competitors’ workplace.
While many have forgotten the term “War for Talent”, the phenomenon is slowly
re-emerging. “A study by Accenture has found that more than two-thirds of executives
are now deeply concerned about not being able to recruit and retain the best talent. In
today’s global and highly competitive economy, the war for talent is now global, not
local. The survey of more than 850 top executives from the U.S, UK, Italy, France,
Germany, Spain, Japan and China found worries about talent management were
growing, with 67 per cent this year putting it second only behind competition as the key
threat, up from 60 per cent last year.”
It may be worth noting that great companies such as Infosys, responded to the
downturn by investing more in training. Instead of fearing of financial losses, these
corporate focused on improving the quality of their employees’ skills. And the effect is
visible in their financial results. Member of Infosys’ board of directors and head of HRD
and Education and Research, T V Mohandas Pai said, “In response to the economic
crisis, we had stepped up our investment in training. This has made us more
competitive in fulfilling clients’ needs today.”The demand for talent in the market will
never cease. Retention will always be a challenge.

New Definition of Talent

While war for talent continues, the bar for talent also goes up. Old skills and
competencies may not work. Companies now need salesman who does not sell
products but does sell solutions; production managers no longer control the operations,
they are expected to innovate and improve productivity; and quality managers need to
study competitive products with more zeal and help develop better products and
services. The employer’s expectations have changed and are set to grow:
•

Highly Productive: The talented employees need to be highly productive. They

should deliver much more than they are compensated for. If that happens,
employers are willing to give larger share to them.
•
Multi-Skilled: Companies have discovered that one way to decrease recruitment
cost is to have multi-skilled employees. Multi-skilled employees help reduce
manpower dependence, and the overall sum of all the multi-skilled
employees is greater than the same number of equal number of specialist.
•
Self-Managed and Self-Motivated: Self-managed and self- motivated employees
reduce managerial efforts. This helps organizations to have less number of
managers.
•
Innovative and Out-of-the-Box thinkers: As the rules of the business change
and competition increases, the existing solutions no longer work.
Companies need employees who constantly infuse new ideas and provide
out-of-the-box solutions to meet a customer need that seems to have no
end.
The Key to Retain Talent Lies in HR Policies and Practices

As organizations increase their expectations from employees, employers too have to

significantly change the way they manage the talent. Talented employees continuously
need new challenges and goals they can achieve, and a continuous supply of
information and resources they can use to solve business problems. And needless to
say, they will in return demand more lucrative and effective compensations, a great
work culture and friendly HR policies.

“Even during the recession, companies are reviewing and revising their leadership development
programs. Survey after survey indicates that people who quit their jobs do so because of
their relationship with the boss, not because of dissatisfaction with their job. A recession
is a perfect time to take a hard look at leadership style and training to increase
employee satisfaction with management.”

Five Important Talent Retention Factors

Lets us consider five factors that can help organizations retain talent to meet the client
and business requirements in post- recession era:
i.Clear Goals, Targets and Expectations: You need to tell them what exactly you expect from
employees and what should they do to meet these expectations. A talented mind
without a direction is most likely to pull the plug than a mediocre or a dead wood.
ii.Balanced Work Environment: Talented employees have huge positive energy and they
exhaust this energy to meet the deadlines. But often they need time to re-energize
themselves. Organizations that want to retain talented employees need to provide a
positive environment that allows them to re-energize themselves more often.
iii.Track Performance Goals and Provide Analysis: Innovators and hard workers need
constant motivation to perform better. They need to know whether they are producing
desired results. Any suggestion of not being able to deliver throws them in doldrums.
One way to let them know about their performance (whether improving or declining) is
to point toward specific results, achievements or failures (which they can fix before it is
tool late).
iv.Fair Evaluation of Performance: At the end of the day, the high fliers want to get
acknowledged for their work. The first acknowledgment of the hard work is a fair and
formal appraisal of their performance. They should be specifically told where they met
expectations and where they did not.
v.Compensation to Maintain a Decent Lifestyle: Employees who deliver quantity with quality
also expect from employers fair compensation that is compatible with the market. If not
first, compensation remains the second most important cause of brain-drain from
organizations.