U.S. recessions since the oil crisis in the early 1970s each had their own special causes and victims, but they also had something in common: They were over relatively quickly. The current downturn, however, is deeper and already longer than any since World War II. This spells trouble for one especially vulnerable group — managers in their 40s and early 50s. They tend to be more expensive than their younger counterparts; they may lack some of the high-tech savvy needed to succeed in a more efficient workplace; and they face a downsized job market that will stay that way much longer than usual.
Even in a “normal” downturn, the job market is a “lagging indicator” (meaning it does not show improvement for several quarters after the start of a recovery). And the current recession is anything but normal. According to Wharton finance and statistics professor Francis X. Diebold, co-director of the Wharton Financial Institutions Center, the employment picture is closely aligned with the depth of the recession. “If the recession really did bottom out in February or March, and if we stay on track and start growing at a positive rate by the end of this year — which is by no means certain — it could still be 2013 before we see some significant employment optimism.”
A generation ago, says Wharton management professor Peter Cappelli, director of Wharton’s Center for Human Resources, “layoffs at this level were temporary. Not now.” Even if an equivalent job were open at another company, that company will most likely not fill the position or will hire from within. In addition, Cappelli notes, in the 1990s, the economy experienced a “big wave of startups that would take on corporate people who had lost their jobs or bailed out of them. These days, we don’t see those smaller companies on the horizon.”
A survey in June by Watson Wyatt Worldwide reports that 52% of companies will employ fewer people than they did before the recession began. One third of the 179 U.S.-based companies polled indicated they still anticipate further layoffs, although this is down from 46% two months ago. “While many companies are planning to reinstate or reverse some of the cost-cutting actions made to HR programs over the past 10 months, most do not believe that things will go back to ‘business as usual,’” the survey states.
The numbers aren’t encouraging. According to the U.S. Department of Labor’s Bureau of Labor Statistics (BLS), 14.7 million people were unemployed (9.5%) as of June 2009 compared with 14.5 million in May (9.4%) and 8.7 million (5.6%) one year ago. The number of long-term unemployed — people without work for 27 weeks or more — increased from 1,621,000 in June 2008 to 4,381,000 in June 2009. Meanwhile, approximately 6.5 million jobs have been lost since the recession started 19 months ago. And the “underemployment” rate — which includes those too discouraged to look for work as well as those working part-time because they can’t find a fulltime job — increased to a staggering 16.5% in June compared to 10.1% a year earlier.
For those 45 and over, last month’s unemployment rate was 6.9% compared to 3.4% in June 2008 — “hovering at its highest point on record,” says Matthew Freedman, a professor in the ILR School at Cornell University. In the wake of the 2001 recession, for example, the unemployment rate for this age group peaked at 4.6% in January 2003, compared to 6.4% in January 2009. (In June 2003, it was 4%.)
Freedman suggests that while white collar management skills will always be in demand in some industries, middle-aged employees across the board “will have a harder time positioning themselves relative to younger workers who have new skills.” This is especially true “considering that over the past decade, the pace of technological change has picked up and the benefits of knowing the new technologies have increased. It’s the younger workers who will be in a better position to take advantage of new job opportunities.”
Wrong Time, Wrong Industries
According to Wharton finance professor Franklin Allen, “earlier recessions were more cyclical; things got bad and then they got better. This one is different. Our industries have gotten out of line with what we need. The auto industry grew too big; financial services grew too big; both will probably have to shrink, along with many others. We will see long-term structural changes. Unfortunately, that means it’s the older workers who will bear the brunt. The worst aspect of this recession is the waste of human capital.”
For the financial services industry in particular, it is not at all clear right now “what the landscape, and hence the employment situation, will look like moving forward,” says Diebold. “A lot depends on the new regulatory regime: Will it take a heavy-handed approach where financial institutions will be run like utilities,” or will the government use a “comparatively light touch, with probably a systemic risk regulator and some rearrangement here and there? Just how much the coming wave of regulation will strangle the financial services industry as we used to know it, and how much of the previous employment is just going to vanish, remains to be seen. There are many ways this could go.”
While hiring picked up slightly in education and health care last month, manufacturing, construction, and business and professional services continued to weaken. “Many companies, perhaps more so in this recession than in earlier ones, targeted mid-level managers for cuts,” says Cornell’s Freedman, partly because the service sector “saw dramatic expansion in the ranks of middle-level managers over the past two decades, which means they are a natural target” for cost-cutting. In addition, “unionization has declined, so employers are not as hamstrung by labor agreements. This manifests itself in a generally more nimble workplace where employers have an easier time cutting workers overall.”
The manufacturing sector has been especially hard hit in this recession, affecting the ranks of both blue collar and white collar workers. “When we talk about the loss of jobs in manufacturing, we think of workers on the line,” says Lynn Reaser, vice president of the National Association for Business Economics (NABE), a 2,300-member group of professional economists from corporations, the government, academia and trade associations. “But in many cases, those workers are salaried and can be in middle management…. This recession has been so long, deep and widespread that no industry has been spared.”
Some jobs — for example, in auto manufacturing, publishing, retail and financial services — will most likely never come back. “Laid off workers in their 40s and 50s are finding that the skills they have built up over many years are not as much in demand as they once were,” states Freedman. Prospects for those industries — and for these workers — “are fairly bleak, even once the economy starts to pick up again.”
Is the Worst Over?
Of course, the first step in any job recovery for older workers is improvement in the economy overall. Optimists suggest that the employment outlook is starting to show signs of life, however tentative. For example, the number of newly laid off workers filing for unemployment insurance dropped recently. Intermittent signs of recovery have cropped up in such areas as housing starts, auto sales and factory orders. While the federal stimulus plan has yet to kick start the construction industry, some economists expect this will happen soon. “There are many jobs out there, and companies know that mid and senior level managers do bring a tremendous amount of experience and insight to the table,” says the NABE’s Reaser. “In many cases, the major layoffs are over. We are closer to the end of this recession than the beginning.”
Adds Joyce Bradley, senior vice president and general manager, Delaware Valley region, of Lee Hecht Harrison, a global human capital consulting firm: “We are starting to see people land jobs. They are getting more interviews, there is more response from recruiters, and companies are starting to say they are thinking about bringing people on in the fall. Temporary staffing is up a little, too, which is a leading indicator in the job market.”
It’s not “a dramatic uptick by any stretch of the imagination,” Bradley says, but it does represent movement in the right direction. Some recruiters are putting unemployed individuals on their payroll, offering them benefits, “and then deploying them as needed in certain specialty areas. We are seeing this most often in IT and HR.”
Even when downsizing, she adds, “companies are always hiring. Maybe one of them is moving to a new IT platform and needs people with new skill sets. In addition, in order to take advantage of the number of people in the marketplace, some companies are upscaling” — i.e., replacing employees who aren’t necessarily top-level producers with others who have better or more relevant experience. “It’s a way to get the company to the next level in its industry.”
Bradley cites two examples of employees who recently re-entered the job market: One is a HR professional in training and development — “among the first areas to experience job cuts in a recession. She was 50 years old, had been out of work for close to a year, and had done consulting part-time, some project work, some pro bono work, and of course a lot of networking. She found a job as head of talent management in a Fortune 500 company which realized that even as it was laying employees off, it needed to focus on the people who remained,” Bradley says.
Another is a comptroller in his early 50s who had been out of work for nine months. Despite being somewhat introverted, he networked, “made a lot of connections” and drew up a list of companies he wanted to target. He was hired into a high-level finance job in a firm that was smaller than the one where he had been previously employed. “People have an image of networking as being cold calling and knocking on lots of doors,” says Bradley. “But you don’t have to know 300 people. You can have just five people in your network as long as you strategize about who you need, determine whether they know your industry, and so forth. And it’s a two-way street. Think about what they can offer you, and what you can offer them, maybe not immediately, but when you land a job.”
Reaser offers some additional advice, and words of caution. First, be prepared to see a reduction in salary of 15% to 30%, she says. Second, be ready for a widespread search effort, with “many, many interviews.” And third, remember that “networking is absolutely critical. Some 60% of the available jobs will not be posted on job search sites or other avenues, and most of the other ones will come through making connections with schoolmates, work mates, people in clubs, religious organizations and so forth.”
While going international is not feasible for everyone, Cappelli suggests that “it’s not an unrealistic [option], especially in countries like China and India where there is strong demand for people with managerial experience, such as running a business or a call center. Wages are being bid up because they are having trouble finding people to do those jobs.”
Beyond anecdotal evidence of job search success, Wharton faculty and employment advisers suggest a number of steps for getting back into the market. Dana Kaminstein, an executive coach and a fellow at Wharton Executive Education, focuses on the psychological dimensions of layoffs. He advises individuals “to first do an honest assessment of what happened [leading to their layoff] so that they are not looking for another job without figuring out some of the things that went wrong” in their previous one. Men, he adds, tend to be more “in denial” — and less honest with themselves — about this issue than women.
Individuals should also assess the job he or she lost in terms of, “Did it fit me, did it not fit me” and then think about what kind of job they would really like to be doing. “So you reframe this as opportunity” rather than a loss. Finally, he notes, individuals should not express anger at their old job or their old boss when talking with job interviewers or even network contacts. “In outplacement programs, employees can do some role playing” to help prepare for interviews, Kaminstein says, but if you aren’t in an outplacement program, “then do this role playing with a friend.”
Being unemployed while one is still in his or her 40s or early 50s “requires a lot of very individual decisions to be made,” adds Wharton management professor Nancy Rothbard. “It could be a time to step back and think about your priorities, and what you haven’t been able to do up to this point of your life. There may be things you missed out on that you can now pursue.” She acknowledges the difficulties of unemployment for this group compared to those in their late 50s and early 60s who are at an age where they could take early retirement “without any social stigma associated with it. There may be an economic impact, but the social implications are very different in that age category. Unemployment isn’t forced on them, in the same way it is on those in their 40s and early 50s.”
Wharton management professor Matthew Bidwell studies the fields of independent contracting and temporary employment. It’s “an obvious route” for people with certain management skills who can’t find fulltime jobs,” he states. “Employers are going to be much more comfortable bringing in someone in their late 40s as a contractor because they can easily let them go if it doesn’t work out, and they don’t have to pay benefits.” The goal, says Cappelli, “is to look for contract and project work, and hope that the economy improves enough that you can get sucked back up into a corporate job.”
Wharton management professor Stewart Friedman, author of a recent book titled, Total Leadership: Be a Better Leader, Have a Richer Life, sees project-based employment as part of a larger structural change in the way people look for, and find, work. “It’s about switching from an organization-based economy to a network-based one,” which he describes as “the movement to employment that can be done on a contract basis where you are part of a labor pool that is organized, not by firm, but by networks.”
He cites the example of a company that provides elder care for people in their homes or senior centers. The company, he says, is adding 10,000 new “providers” a month, including some who have been displaced from their jobs. “What I see happening is a redefinition of fundamental employment relationships and a much greater dispersion across different kinds of organized entities that supply labor for different needs in society. The firm as a unit of organization for that labor is no longer going to be as dominant. Instead, you will have a lot more people acting as independent agents with loose affiliations in numerous networks. This is consistent with the digital era of LinkedIn and Facebook, where knowledge about employment prospects is available in a way that is profoundly different than any time in history.” These days, Friedman notes, ”it’s much easier to be connected to the market for your talent.”
Another option for those recently laid off is retraining. Many older workers are following this route and, as a result, retraining programs are one area that is benefitting from a tough job market. New Jersey’s Burlington County College, for example, has seen a 50% increase in enrollment in its alternate teaching-certification programs. “It’s definitely the recession,” says Carol Grant-Holmes, BCC’s program coordinator. “We have people who have been laid off or who know that their positions are no longer secure. We have CFOs, high-level managers and people from the sciences, including pharmaceuticals. Many of them have always enjoyed the training part of their jobs, whether it’s working in real estate, financial services or computers. They will use some of those same skills teaching young adults or even middle school students.” The recession is “very positive for education,” Grant-Holmes adds. “My students have been the best and the brightest in very distinguished careers. It’s wonderful that they will be educating our children.”
But retraining is not without risks for older employees, notes Bidwell. “In theory, it’s a good idea. In practice, getting employers to hire you with untested skills in a new area is not going to be easy. Also, when you do that, you are going to go back to the bottom rung of whatever labor market you are entering. If it’s something you always wanted to do, you might get enjoyment out of it, but it probably won’t be a route back to real economic benefits.” Adds Cornell’s Freedman: “The older you are, the less incentive you have to get retrained, and once you finish retraining, the less time there is to reap the returns,” he notes. “Retraining is not trivial. It’s a big investment of time and money, and some workers may not have [the means] and flexibility to do that. For younger workers, the opportunity costs of training or going on to graduate school are lower.”
Restructuring and Re-growth
Peter Felix is president of the Association of Executive Search Consultants, the worldwide professional association for the executive search industry. In October, he says, “the industry hit a brick wall and the results have been disastrous. Many, many corporations stopped dead in their tracks for the first six or seven months after that period.”
Up until that point, the industry had “never had it so good,” he notes. “Things had picked up very quickly around 2004 because of the coming together of two major forces: The first was the so-called ‘war for talent,’ which was essentially a demographic issue related to the retirement of the baby boom generation, and the fact that the succeeding generation is much smaller. In the U.S., it’s 77 million people succeeded by a generation of 44 million. So straight off, there is a reduction in the number of talented people available at the critical points in their careers.”
The second factor was “the huge demand that came out of emerging markets, China and India especially, but also Russia, Central Europe and Latin America. All of them really started to take off, consuming a lot of senior executives, especially in infrastructure, energy and other basic industries that these countries would focus on developing first. The search industry did very well. There were not enough talented people to go around, which created a musical chairs, or high mobility, factor.”
Felix is optimistic that demand for talented managers and executives in their late 40s and early 50s will come back, and he agrees with Bradley that hiring has already picked up in May and June. “There is still a shortage of people in those critical experience and age brackets,” he states. For those who can’t wait, he suggests thinking laterally about the job market. “Skills are usable elsewhere. If you are a commercial lender, you might go with advising people. If you were on the buy side, you might consider moving to the sell side. There are still opportunities in the financial planning arena.”
He points to his group’s Member Mid-Year Outlook Survey on the senior recruitment industry which suggests that the shortage of executive talent that existed before the downturn “may be about to reassert itself. Industries such as life sciences, energy and consumer goods are beginning to return to pre-recession levels while the emerging markets (China and India) again rank at the top of those countries with the highest potential demand.” The report also notes that “63% of search consultants agreed that clients are currently sympathetic to out of work candidates.”
Clearly there is “restructuring taking place,” Felix says, “but there is also re-growth.”