America’s hiring boom continued in July, defying record inflation rates and consecutive months of GDP decline. As economists wrangle with the mixed signals and debate the likelihood of recession, wary business leaders can’t be blamed for taking a defensive stance toward budgeting and expenses heading into the fourth quarter of 2022.
One line item that shouldn’t be on the chopping block is employee learning and development (L&D). In fact, now is precisely the time to invest in upskilling workers.
Shrewd companies will use this time to upskill their employees and position themselves for long-term growth. Businesses that do so will emerge from this period of economic instability with a significant head start on the competition.
Here are four reasons why your business needs to continue investing in L&D.
4 Reasons Companies Should Focus on Upskilling During the Economic Downturn
- Other companies aren’t sacrificing their learning and development (L&D) budgets.
- L&D opportunities are the expectation — not the exception.
- Upskilling employees is cheaper than rehiring them.
- The economic slowdown won’t last forever.
1. Other Companies Aren’t Sacrificing Their L&D Budgets
In early June, ServiceNow acquired skills mapping and intelligence company Hitch Works. Ten days later, CornerstoneHR bought corporate training platform SumTotal Systems. The month closed with talent mobility provider Gloat unveiling a $90 million Series D round led by a firm focused on sustainable investments.
The common thread between all of these deals? As pointed out by HR analyst Josh Bersin, “In one way or another, the recognized importance of building employee skills and capabilities was a factor in each of these announcements.”
So why are companies and the market betting so much money on L&D during an economic downturn? Because these investments have a proven record of high returns.
2. L&D Opportunities Are the Expectation — Not the Exception
There was a time when learning and career development programs were considered a frill; a high-end perk used to incentivize management prospects alongside signing bonuses and extra vacation days. That time is over.
Today’s workers expect their employers to support their professional development. An overwhelming 94 percent of workers told LinkedIn they would stay at a company longer if it invested in their careers.
That’s especially true among younger employees, who are driving the Great Resignation as they reprioritize what they want out of their workplace. Nearly one third of millennial and Gen Z workers said they chose their current employer because of learning and development opportunities.
And it’s not just rising executives and white collar workers that expect L&D from their employer. Three quarters of frontline employees — a group that includes retail store associates, nursing aides, customer service representatives, and administrative assistants — said they prioritize learning opportunities for career advancement.
Workers everywhere are looking to their workplace to actively facilitate professional growth. Businesses who fail to do so will face an expensive problem.
3. Upskilling Employees Is Cheaper Than Rehiring Them
The fact of the matter is that employee turnover and layoffs are expensive. Very expensive.
The cost of replacing an individual employee ranges from one-half to two times the employee’s annual salary. Let’s run the numbers: if a 100-person organization that provides an average salary of $50,000 faces a 25 percent turnover rate (the national average in 2021), the company would lose between $625,000 and $2.5 million per year. Considering the national turnover rate is projected to jump by 20 percent this year, that range is conservative.
In an economic downturn, the knee-jerk reaction is to lay people off and rehire them in the future. The problem with this logic? Layoffs are just self-inflicted turnover — and they’re just as expensive as natural turnover.
Not only are layoffs expensive, but the plan to rehire talent is also expensive. A General Assembly whitepaper estimates recruiting a mid-career software engineer can cost at least $30,000 after recruitment fees, advertising, and recruiting technology expenses. (And that this external hire carries two-to-three times the turnover risk of an internal recruit).
A more economically savvy plan during an economic downturn is to keep employees on the payroll. And if companies are worried their employees won’t have much to do during the next few months, let them develop the skills that the company will need six months from now. Believe it or not, learning sabbaticals are more cost-effective than rehiring eight months down the road.
In fact, upskilling is more cost-effective than hiring in general. Remember how on average it can cost a company $30,000 to recruit a mid-career software engineer? “By contrast,” the General Assembly whitepaper explains, “the cost to train and reskill an internal employee may be $20,000 or less, saving as much as $116,000 per person over three years.”
4. The Economic Slowdown Won’t Last Forever
Economic ebb and flow is a given. A typical recession lasts between six and 12 months. This period of decline will, at some point, be followed by a period of growth.
Shortsighted businesses will save a quick buck by cutting employee development or laying them off (which, given employees’ insistence on L&D, effectively amounts to the same thing), then expect to hire talent back once they “need” it again. These businesses will find themselves playing catch up once the economy inevitably turns.
Other businesses will continue cultivating a motivated, productive workforce through employee upskilling. As their competitors slog through the expensive and time-consuming process of restocking talent, these forward-thinking companies will hit the ground running, jumping right back into growth and innovation.