Tight labor market results in fewer firings

The flip side of America's tight labor market--filled with employers desperate for qualified workers--is a subject most executives are loath to acknowledge: Fewer people are getting fired. Although statistics are sparse, anecdotal evidence in the reduction of fired workers abounds. The phenomenon is especially evident among companies in the technology sector, where job growth is high, employee turnover rates are acute, and many start-up companies have inexperienced human relations staffs. "The line of subordination has moved," said Anne Pasley-Stuart, CEO of Pasley-Stuart Human Resource Consultants in Boise, Idaho. "With my technology clients, managers are more willing to tolerate more misbehavior. There's a willingness to work with employees experiencing difficulty--to spend more time counseling them--because it's so difficult to replace them." The Bureau of Labor Statistics does not compile data on the number of workers who are involuntarily terminated. Most states, including California, do not distinguish between fired and laid off workers when determining unemployment benefit eligibility. But experts say the ratio of unemployed to fired workers is roughly proportional: As overall joblessness decreases, so does the frequency of forced terminations. That means a big drop in the number of firings is a likely accompaniment to the 4.1 percent U.S. unemployment rate in March, which marked a 30-year low. Publicly, managers say the historically low unemployment rate does not translate into lower standards for new hires. They also cite examples of employees terminated for egregious workplace offenses, ranging from on-the-job drunkenness to sexual harassment. But privately, many executives and middle managers lament the high cost of executive talent searches and lengthy learning curves for new hires. Many admit that they have kept marginal employees because they fear they won't find a more able replacement in a timely manner. "There's a certain baseline for being fired that hasn't changed: If someone brings in drugs or weapons, they're out," said one HR administrator in a small technology company in Southern California. "But if they're unable to work with a group or if they have poor social skills, we have to tolerate it because it's a seller's market." Companies also may have a financial incentive to retain marginal workers. According to the human resources portal HR.com, the cost of a replacement worker is two to three times the cost of a retained worker. The cost increases as the salary and position of the worker to be replaced increases. Bottom line: An inefficient employee probably costs the employer less than finding and paying for a maximum-efficiency replacement; it cuts down on the hassle, disruption and risk associated with a new hire. Start-ups face additional concerns in deciding whether to fire. Michael Closz, vice president of marketing and sales at Fortress Technologies of Tampa, Fla., said the decision to fire an employee looms especially large for small businesses. His company employs 55 people, all of whom work in close proximity to one another. As a result, the company can't afford to have "weak links" sapping the productivity of the entire team. "We're all in this together, so we have to find out why they're slacking," Closz said. Executives and consultants say few companies retain clearly incompetent workers or misanthropes with no ability to participate in team projects. But they often retain unproductive employees and those who engage in slightly deviant behavior: chronic tardiness, unexcused absences, temper tantrums and a distinct lack of social grace. Working with what they've got Does this mean offices are filled with sub-par workers unqualified to perform the tasks for which they were hired? Will the historically low unemployment rate eventually translate into companies staffed by antisocial slackers? Not necessarily. "It can be a good thing if you can take an employee who genuinely enjoys the company and turn them around," said Tom Ferrara, chief executive of New York-based CareerEngine, an online network of category-specific career sites for information technology, sales, finance, law and medical positions. "If that person is just lazy and isn't doing a sufficient job, and you keep them there because you're afraid (that you can't find a replacement), it can cause problems," Ferrara added. "Peers look around and see that a person is getting the same amount of money but doing a quarter of the work, so why should they bust their ass?" To avoid a systemic productivity drain, companies are adapting to the reluctance-to-fire phenomenon. Several of Pasley-Stuart's clients have sent cantankerous employees to anger-management workshops, with results bordering on the miraculous. Quarrelsome but intelligent employees who may have been fired in a slack job market learned to control their rage and probably benefited outside the office as well, she said. Watch video Several HR executives said the tight labor market forces them to reposition problem employees. Instead of getting the ax, they're getting a transfer. "We've moved people from sales to account management or marketing," Ferrara said. "Maybe they're not good at outbound cold-calling, but they're good at maintaining relationships once an account has been established." Vickie Strong, human resources director for Pixel Magic Imaging of San Marcos, Texas, has had numerous successes with the transfer-instead-of-fire approach. "We just recently told an employee, 'We have another position here that would be a better fit for you and the company and would make you happier,'" said Strong, whose firm employs 180 people and is on an aggressive hiring binge. "People go into it with an open mind, not thinking that they were just being pushed out." Aiming for smooth sailing Fortress Technologies' Closz said the root of most firings is a communications breakdown: A manager doesn't understand why an employee behaves in a certain way, and an employee doesn't communicate his needs. The dysfunction escalates until the frustrated manager fires the disgruntled employee. To avoid breakdown, Closz invites disparate wings of the 55-person company onto his boat. The next cruise will unite product development engineers with salespeople. "They realize that the sales folks aren't so bad, and the developers aren't just a bunch of geeks," Closz said. "We try to fix bad attitudes. We try to find out what the problem is before it gets out of control." Although fewer people seem to be getting ousted from technology companies, other industries feel the low-unemployment pinch. Jeffrey Clark, president of Production Stamping in Milwaukee, moved his 70-person metal stamping firm last year to a depressed neighborhood with roughly 15 percent unemployment, compared with the Wisconsin average of 2.8 percent. He wanted to be closer to eager workers. He also started an "amnesty" program that allows workers convicted of nonviolent crimes to take unpaid leave with a guaranteed job upon their release from jail. A similar program allows leaves for substance-abuse rehabilitation programs. The company also gives flexible shifts to paroled workers with curfews. "We really had to reach out," said Clark, who bought the 51-year-old company last year. "We were losing employees who were good employees, valued employees, through bouts with the law...In this job market, we weren't willing to cast away employees who had trouble with the law." Keeping workers at what cost? Despite examples of rehabilitation, some say fewer firings may stifle innovation. Russell Hoffman, 43, said his motivation for starting his own company came in part after he was fired. He's now owner and chief programmer of The Animated Software Co. in Carlsbad, Calif., which produces educational software for professional training programs. "I took a look at what I was doing at the time and said, 'No one can fire me if I'm working for myself.' It's a nice position to be in," he said. "Who knows how many people would come up with interesting ideas if they weren't working for someone else."