Headcount reduction: unpopular yet persistent

It is a common and continuing reality in Australia that companies and organisations are consistently reducing headcount.  Generally this is seen negatively, as something bad for the economy or as an indication the company has problems.

Here are 5 enduring reasons why this issue is so persistent in our economy

1. Labours costs are a priority

   In businesses with a large operational footprint, labour costs tend to take up about 70% of operating expenses, even in capital-intensive industries, so when an organisation is seeking to improve its operating efficiency, labour costs are likely to be affected.

2. Digital disruption is reducing the demand for labour

   The technological revolution is steadily making labour comparatively more expensive. We are only partway along the journey and future labour demands are uncertain, but likely to be downwards.

3. The age of the market-driven, open trading economy

   The flexibility in our market-driven and open trading economy is designed to help businesses adapt in response to changing market conditions, and enables headcount reduction to occur. Our current economic design continuously pushes us towards greater efficiency and productivity, driving down real costs in order to improve overall prosperity.

4. Businesses must reduce headcount to survive

   Headcount reduction occurs when a business ceases an operation, closes an outlet or moves offshore. This is what businesses must do to survive in today’s economy. A business that does not do this increases the risk of business failure, costing everyone’s job in the end.

5. Operational problems lead to fluctuations in labour

   A lot of operating issues require additional labour costs, as resources are deployed to solve a customer-service problem. When the operating problems are solved, the need for the excess labour diminishes.

   As a community, we have yet to solve the problematic results of changes in workforce demands, the growing number of redundant job seekers and the limited opportunities for them, particularly the unskilled. It’s better to manage the change than to resist it. The internet will not be uninvented and the global economy is here to stay.

On the bright side, headcount reduction is not all bad. In reality, it is a necessary element of our dynamic and flexible economy. There are several positive responses we can have to it, and real cause to be optimistic about the future.

Here are 4 positive factors in a world of headcount reduction:

1. Disruptive new industries, products and services.

   Though not every business idea will be successful, many will, aided by the growing prosperity of our economy. This will create a plethora of future employment opportunities across a diverse range of industries  – some of which may be unimaginable now.

2. The rise of the knowledge worker and contractor

   More and more businesses buy skills and knowledge for specific needs, and this reduces their costs. It also creates the opportunity for knowledge workers to build high-income jobs through contracting on an ad hoc basis.  Knowledge workers and contractors will only increase in future.

3. The increasing role of education

   In the past thirty or so years, education has played an increasingly crucial role in propelling Western society into a new era of growth. In 2016, far more people have tertiary qualifications than in say, 1976. The focus on education has the effect of reducing the pool of unskilled workers, for whom job prospects are diminishing.

4. A reduction in working hours

   Though workers in 2016 seem to be working ever longer hours, the role of specialists, contractors, job sharing and outsourced services creates opportunities for businesses to tailor work to fit in with other priorities such as study or raising a family, achieving a better work/life balance.