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Impact of Recession and Its Effects on HRM

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    The world has suddenly plummeted into a deep economic crisis (called Global Meltdown or Financial Tsunami), the worst ever since the 1930’s. It has almost taken all the countries across the globe into its grip. Almost all the sectors of economy with varying degrees have caught business by surprise during the current global downturn with so much swiftness that every day has become a question of survival.

    Organizations are grappling with low demand of their products, manufacturing plants are kept idling, export markets are dying, job markets are being annihilated everyday and the symptoms of slowdown are getting starker and starker with every passing day of downturn phenomena. Definition: A recession is a decline in country’s gross domestic product (GDP), in other words, it is a suspension of growth for a period of two or more consecutive quarters of a year. It simply means ‘not so much cash in hands’ to play with as before resulting in harsh measures like cost cutting, lay-offs etc.

    A recession normally takes place when consumers loose confidence in the growth of the economy and spend less. This 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 stock values are likely to fall and thus stock markets fall on negative sentiment. Impact of Recession in Developed Countries: More than half of the world’s economy has shrunken and among them USA- the citadel of capitalism and free market has suffered the worst.

    In the first ten months of 2008, there have been 1. 2 million job losses in the USA and the economy has suffered heavily due to financial crisis resulting in global credit squeeze. “There is a real risk that millions will be thrown back into poverty. ” (Dominique Strauss- Khan, MD, IMF) In present situation down fall in one sector leads to a negative impact on the other sector, thus altogether everyone feels the impact of the financial crises with the result of the current recession which started in US and slowly and gradually due to linked global world has impacted everyone. Recession in

    India: In the beginning, the mandrians of Indian Economy were skeptical and unwilling to accept the effect of recession on Indian economy. But historically, slowdown in developed economy has affected emerging economy like India in two fronts: First, USA is India’s largest trading partner. Exports are showing the signs of flagging, customers have started canceling orders and payments are not made on time. Secondly, the financial linkage it has with India may take a severe turn because of prolonged recession. “A crisis of this magnitude is bound to affect our economy as it has.

    International credit has shrunk, with adverse effect on our companies and banks”. (Dr Manmohan Singh, Prime Minister of India) The road ahead: the Real Challenges: The immediate challenge is how to bail out Indian Economy from further slips into a deep and long recession. Many stimulus packages are being announced by multicultural organizations to salvage economic slowdown, but, how far it will save us, the time will speak. “We must accept that we are part and parcel of Global Economy. The global boom drove up our growth to 9% and the global slump has lowered it to 5%.

    We must abandon the illusion that we can somehow grow fast again while the rest of the world stagnates. We must learn to live with global downswings and rid out the storm. We can not end the storm on our own; we must patiently wait for it to subside. This crisis was not caused by us and can not be solved by us. Our role is to rid out the storm. ” (Mr. S Ankelswar Ayir in SWAMINOMICS) HR functions at cross Road Recession has brought an era of gloom and doom for HR and in the present scenario it is buzzing with terms such as lay-off, cost cutting, right-sizing and cash conservation and presently these are the defining terms.

    Retrospection: Just a few years back “People are the companies’ greatest asset. It does not make any difference whether the product is cars or cosmetics”. HR is treated with much delicacy and care. They are more in demand in job market and the destinies of the companies are very much dependant on these people than any other resources. Over and above, there is also dearth of quality personnel in the job market. “The Human Resource Management sector is facing a huge talent crunch with only a handful of good human resource professionals being fashioned every year.

    There is a dire need to fill the gaps in the industries. 12. 8 million jobs are being generated every year during the 11th Five Year Plan of which the global benchmark depicts four HR professionals per 1000 employees. India needs 50,000 HR professionals every year”. (Indian Management, Dec 2008) They were lured with enviable pay packages and other benefits such as opening of cafeterias, gyms and even creches to retain them and discourage attrition. The Present Scenario: The Era of Pink Slip: Companies, world over, are frenzied with the object of cost saving/ cost conserving/ cost cutting by any means.

    The present economic downturn has witnessed various HR practices across global companies. “Employees in many selected industries have been experiencing salary cut; incentives and spending on corporate travel and conferences have been lowered; perks likes lunch vouches mobile phone allowances, stock options, fringe benefits, Diwali and New Year gifts budgets have been slashed by 60%. ” (Business India, Feb 8, 09. ) Salary Cut: Salaries have been slashed. Highly paid employees have been asked to agree on a voluntary cut as in the cases of Motorola and Jet Airways. Bonuses are significantly frozen.

    Even 15 out of 20 AIG companies have frozen compensation levels and increment. There has been the return on variable pay which the financial service sector has been increasingly using. Jet Airways has slashed salaries of its top key executives by 25%. Pilots and engineers earning 10 lakhs per month would have to experience a pay cut of 20% where as chief executive and operational heads would experience 25 % pay cut. The company has also decided to freeze all sorts of allowances to trainee pilots, though the pilots who come below Rs. 75, 000 per month salary bracket have been left out.

    Production Cut : Indian manufacturing sector has no less been affected by economic downturn. In many cases, companies have trimmed production by reducing the number of working days to three to five days a week. Hyundai India (by 25%), GM India (by 10%), Maruti Suzuki (by 6. 3%), Toyata India (by 30%), Madras Almunium Co. have all cut back capacity of production while some companies have shut plants or mills completely. Around 50% of 4000 ginning mills in India (mostly the Punjab, Maharastra, Gujarat, and Andhra Pradesh) have closed their shutter completely.

    The survey conducted by FICCI on the impact of slow down on the Indian manufacturing sector that textiles, metal products machinery and equipments, leather and chemicals etc, have planned cuts in their production ranging from 10% to 50% for the period November 2008 to March 09. Budgetary Cut: Companies across the globe have also tightened their belt by resorting to budgetary cuts. Reliance Industries Ltd. has launched “Mission Kurukshetra” to optimize costs across all its major industrial operations. Infosys, Wipro Technology and TCS Ltd. ave also economized through the reduction of power consumption, cutting travel and postponement of capital expenditure. NDTV India has also cut major rationalization costs. In many MNCs, international trips- are it short or long term- have been clamped. To overcome the ongoing economic turbulence, Airport Authority of India has restricted the officers on an austerity measure not to go on foreign tours more than four times in a year. Job Cut : All these cut being practiced across companies of the world have its percussion on HRM.

    Relatively slow economic activities, threats of job cuts and salary freezes have shifted the balance of power at the workplace back to employers. And a much-needed rewriting of workplace practices is under way at India Inc. The balance of power in the workplace has surely shifted away from employees back to the employers. And it is not just the now seemingly ‘unnecessary’ HR excesses of the boom years — recall ‘no-shows’, ‘talent crunch’, ‘counter offers’, ‘family holidays’, ‘dating bonuses’ and the like are being consigned to the dustbins even at relatively financial healthy companies.

    Job cut is the most difficult and perhaps the most critical but inevitable among the frugality measures taken by companies across the world, particularly in India. As per the estimate of ILO, the global unemployment could rise up to 210 millions in 2009. General Motors, the US car maker has asked 1600 of its US employees to leave by 1 May 2009. Fiat, the Italian car maker said it cut 4,600 jobs at its US subsidiary CNH, a construction equipment maker. As per ILO, 23 millions of people are expected to loose their jobs in Asia.

    At every level from the unskilled contract workers to architect, jobs are being cut. ” (Kumar Gera, Chairman Confederation of Real Estate and Developers Association of India. ). Slumps have also affected manufacturing sector, which is the second largest employer and heavy commercial vehicles are also in the same boat. Laying-off is also taking place in small and medium sized companies and unorganized sector which employ 150 million people or 30 % of our workforce in industries such as Power looms, Engineering, Mines, Transport and community and personnel services.

    These situations have already created lot of economic, psychological and sociological problems in the country (Business World, 3 Nov. 2008) Effects on HRM The big R word — recession — has reverberated through the halls and executive suites of companies across the country. Businesses need to reduce expenses and also ensure their long-term viability. “During tough times, companies look at cost-cutting techniques” . “If approached incorrectly, these cost-reduction measures can oftentimes negatively impact employee morale and security. ” Impact of the Recession on Employee Morale

    Due to the down economy, employee morale is at it lowest point, even among employees who have survived waves of layoffs. “Layoff survivor syndrome” and the resulting psychological recession among these employees are acute, causing feelings of anxiety, depression, anger and physical illness. No surprise. News of recession will have a negative impact on employee morale. Disheartened employees mean disengaged employees. In the current economic climate if a business is to survive, the work force must be fully engaged-emotionally, physically, even spiritually.

    The unfortunate reality is that many companies will go under because of failure to motivate, empower, and acknowledge their employees. Instead of deliberately and consistently communicating with employees, employers will go into “shut down” mode. The result will be increased fear among employees and mistrust of management. Facing absenteeism increases, productivity drops, and the loss of top talent to competitors, what can companies do during a recession with limited resources? Impact of the Recession on employee attitudes

    Most employees, regardless of their position, remain confident about keeping their jobs, with 52% believing it is unlikely or very unlikely that they will be made redundant. However, nearly one in five employees thinks their jobs are at risk. Unsurprisingly, public sector employees are more confident about the security of their jobs than those in the private sector. Nearly one in six employees say they are worried about the future as a result of the recession, and just under half agree they feel less secure in their job, while more than one in four respondents report there is more stress at work.

    Over a third of employees agree they are concerned about being made redundant. Employees are very pessimistic about their prospects of finding a job if they are made redundant, with almost two-thirds thinking it will be difficult or very difficult to find new employment. Conclusion Ups and downs are the basic nature of a country’s economy as well as organization. It must be remembered that there is always light at the end of the tunnel. Even though the road towards the tunnel may not be devoid of roadblocks, nevertheless, a little bit of optimism can make all the difference.

    During a downturn, the demand for high-quality, talented HR leaders sees a significant spurt because of the crucial crisis management role that HR has to play, either in the form of delivering bad news to employees or keeping the workforce productively motivated and engaged despite the stress at the workplace. However, there’s no dearth of managers who are quitting in search of greener pastures. With many industries coming going through the downturn everyone is trying to secure their career and HR managers are not to be left behind. Let us face the reality now.

    Though neither a single bank failed in our country nor any manufacturing units have been closed down due to the effect of slow down of the demand yet economic growth of our country has slowed down. In these times the right people does become more than a necessity – they become crucial. Now you need people who have the will to keep fighting.


    * Employee downsizing –An introduction; By SumatiReddy. •Appelbaum, S. H. , Everard, A. , and Hung, L. (1999). Strategic downsizing: Critical success factors. Management Decision, 37(7), 535-559. •Strategic HRM –By P. K gupta.

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