The Impact of Hurricane Katrina on The Recruiting Industry

We’ve all been touched in some way by Hurricane Katrina, the worst domestic natural disaster in our lifetime. Ripple effects in our economy and our industry are only beginning to be felt. Heroic and tragic stories of friends, relatives, and colleagues continue to reach the public. Our own industry is also not immune to the personal toll, as Gerry Crispin (who has penned some great thoughts on the tragedy) pointed out recently on his blog:

On a conference call with colleagues from SHRM late on Friday, I learned that the Society had taken a government list of Gulf Coast zip codes where mail can no longer be delivered (seriously impacted areas) and cross checked it with the membership roster. Eight thousand names came up. I’m still getting my mind around that one.

We are all trying to get our minds around the human side of this tragedy. Meanwhile, hints at the potential impact on the business world and the supply of jobs and talent can already be seen. The Economics of Hurricane Katrina Beyond the human toll, initial evidence of the economic impact could be seen immediately in higher gas and energy prices. Gas prices have jumped nearly 40%, with economists expecting them to peak in September and then (hopefully) begin to lower. Home energy prices have risen, in some areas up to 50%, and they might increase as much as 75%. Needless to say, economists will be watching closely for the effect of the first waves of home energy bills are sent out. What does this do to the economy as a whole? Recently, the Congressional Budget Office (CBO) predicted that the U.S. economic growth as measured by GDP ó previously estimated at three to four percent growth ó will decrease by an entire percentage point in the second half of the year. In short, Katrina has taken one-third to one-fourth of the projected growth out of our economy. That’s the bad news. Now here’s the good news. As cities rebuild, economists predict a rebound effect to between three and four percent growth again. No worries, you might think. We’re on track to bounce back: lest we forget the “broken windows fallacy” from Econ 101. To summarize, think of a vandal throwing a rock through a shopkeeper’s window. The shopkeeper has to spend $100 to replace the window, which boosts the window manufacturer’s business and the company they hired to install it. Yes, the shopkeeper has a nice new window in the end ó but if the shopkeeper’s window didn’t break in the first place, they’d have a window that worked and $100 that she could have spent elsewhere. The example above illustrates how the economy could suffer from the hurricane. It will look like a net gain as we spend on rebuilding, but in reality it’s a net loss if there is less money available to spend on other items and we potentially run up larger government deficits. The Effect on Specific Industries Certain industries will gain a huge boost from the rebuilding, while others might see less demand for their goods and services. Hundreds of thousands of people now have to rebuild their homes, their lives, and their livelihoods. Their income or benefits through this period are likely to cover the basic staffs of life ó housing, furniture, clothing. Disposable income will be an unfamiliar concept. Most will be less likely to pay for brand-name merchandise or luxury items. Areas that could temporarily suffer financially and to varying degrees include:

  • High-end merchandising
  • Luxury items
  • Consumer electronics
  • Airlines (two filed for Chapter 11 recently)
  • Manufacturing, which often requires large amounts of oil-based energy
  • Tourism to the affected areas
  • Alcoholic beverage makers and distributors
  • Insurance, which will pay out large sums of money in the affected areas
  • Regional and national government (which will pay an estimated $100 billion or more)
  • Local universities
  • Shipping
  • Communications
  • Energy

Industries that could ultimately prosper financially include:

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  • Construction
  • Home building
  • Building materials
  • Architecture
  • Tourism/business travel to other areas of the country
  • Furniture makers
  • Steel
  • Volume and discount retailers
  • Manufactured homes (the government will pour over $3 billion into this industry to provide temporary housing)

Jobs, the Talent Supply, and the Huge Responsibility of Recruiting Hitting closer to home, the labor supply is currently in a state of massive, although somewhat temporary, flux. The CBO said estimates of the impact on employment in September alone range from a decline of 150,000 jobs on the low side to 500,000 jobs on the high side. Much of this impact will be tempered by the growth curve that jobs were already on, meaning that employment growth until the end of the year would be 400,000 below the 600,000 to 800,000 pre-Katrina estimates. Many chambers of commerce, corporate entities, and vendors have worked diligently and admirably to hire displaced workers. Some recruiters make the assumption that this disaster has created a new talent supply. This is true to some extent and for some industries, but it remains to be seen who will want to return to their original homes once this passes. Employers may alternatively consider creating semi-temporary, more flexible, work arrangements with displaced workers. Allowing Gulf state employees to work for a flexible, extended period of time in a different location ó possibly as long as two or three years ó could allow employers to fill some of their openings quickly with loyal and productive employees. Temporary firms will likely be very busy during this time and anxious to position themselves as an outlet for evacuees. Healthcare employers in particular are flocking to the region, which may leave the area understaffed in this area in the years ahead. As the rebuilding efforts commence, a need for city planners, architects, engineers, and construction workers will grow very rapidly. It will be important for the vendors managing these efforts to start getting ahead of demand ó workforce planning and building bench strength now should be a key part of their strategy. Looking for people right before or even after these projects start will only delay the reconstruction, cost taxpayers money, or ó worst case scenario ó trigger a global recession driven by our inability to rebuild a vital energy supply center fast enough to drive energy prices down. Related to the last scenario, it’s hard to imagine that a recruiting failure could ultimately ignite a global recession, but this is a realistic possibility. Here’s hoping the recruiting departments in these companies have the ear of top management. Conclusion As always, it’s not possible to predict exactly what will happen in the future. But there are signs that point to expansion in some areas and contraction or stagnation in others as a result of Hurricane Katrina, which ultimately affects all of us in the recruiting industry. The average recruiter may not see his or her job change at all: Good people will still be hard to find, great people will be harder to find, and there may not be any additional talent from affected areas to fill this void. Other recruiters will see new supplies of talent, but it remains to be seen how long-lasting that will be and how creative employers can be in tapping this resource. Still other recruiters will see their jobs get much more difficult as they compete to hire talent with industries that are part of rebuilding efforts. I encourage you to post a comment about your own experiences and how this has affected you, your recruiting efforts and your company as a whole. Please also visit the American Red Cross and help out in any way you can.

Dave Lefkow is currently the CEO of talentspark (www.talentsparkconsulting.com), a consulting firm that helps companies use technology to gain a competitive advantage for talent, and a regular contributor to ERE on human capital, technology, and branding related subjects. He is also an international speaker on human capital trends and best practices, having spoken in countries as close as Canada and as far away as Malaysia and Australia. His consulting work has spanned a wide variety of industries and recruiting challenges with companies like Starbucks, Boeing, HP, Microsoft, Expedia, Washington Mutual, Nike and Swedish Medical Center.

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