Q1. "In what ways might economic crises and recessions affect employees, focusing on the SME sector?"
Economic crises and recessions are far-reaching cycles of negative or stagnated economic growth. Employees in SMEs (that is, small and medium-sized enterprises averaging 250 individuals or fewer) are particularly affected by such events. The effects are highly societally disruptive in multiple areas, from employment, investment, trade, and public services. How SME employees experience these vulnerabilities and challenges may include:
- Heightened job insecurity, lowered incomes, or reduced benefits due to market uncertainty and possible working conditions changes (Chatrakul et al., 2017). As demand for products and services decreases, SMEs undergo a degree of instability as revenue, profit, and cash flow decline (Hurley et al., 2021). HR practices can mitigate the effects of this by providing financial or emotional support to besieged or vulnerable employees.
- Depreciation of motivation, well-being, productivity, engagement, or amplified stress levels (Chatrakul et al., 2017). This can come from the increased volatility in SME market opportunities as customers, suppliers, investors, or regulators behaviourally avert risk. HRM practices can help assuage some of these fears by communicating with employees clearly and frequently about organisational performance, plans, and policies.
- As competition rises from larger enterprises with diversified portfolios or the resources to weather such crises, SME employees may need new skills or training to remain competitive and meet the changing needs of consumers (Hurley et al., 2021). HRM policies can champion innovative and collaborative programmes for employees to help them adapt or learn new working methods. This has most recently been evidenced by many SMEs adapting business models to prioritise online sales or delivery services during and since the COVID-19 pandemic (Hurley et al., 2021).
Chatrakul Na Ayudya, U., Prouska, R., & Beauregard, T.A. (2017). The impact of global economic crisis and austerity on quality of working life and work-life balance: A capabilities perspective. European Management Review, 16(4), 1-16. doi: 10.1111/emre.12128
Hurley, J., Karmakar, S., Markoska, E., Walczak, E., & Walker, D. (2021). Impacts of the COVID-19 crisis: evidence from 2 million UK SMEs (Staff Working Paper No. 924). Retrieved 28 February 2023, from https://www.bankofengland.co.uk/working-paper/2021/impacts-of-the-covid-19-crisis-evidence-from-2-million-uk-smes
Q2. "Is it important that employers understand the impact of such events (economic crises and recessions) on employees?"
As iterated in Q1, economic crises and recessions are highly impactful societally. However, SMEs are affected unevenly according to size, sector, location, and employment management practices (Albonico et al., 2020). Some employers are more resilient or adaptable to economic downturns and uncertainty. An essential aspect of this resilience is how crises impact employees, particularly in mitigating workforce reduction as the last, and not first, recourse of SMEs (Albonico et al., 2020). HRM practitioners are uniquely situated to articulate why employers need to appreciate the impact on employees.
- An advantage of employers understanding the impact of economic crises on employees involves the improved capability to budget, adapt operations, and manage risk factors. By aligning the resources and support necessary to meet employees’ needs and expectations, employers can positively impact employee well-being, reduce conflict, and improve retention rates (Chatrakul Na Ayudya et al., 2017). One mutually beneficial and commercially competitive practice would be to promote employee learning and development to foster new skills.
- Times of recession and hardship can lead employees to experience heightened stress, anxiety, and uncertainty about the future. This often leads to unproductive behaviours such as demotivation or disengagement (i.e., absenteeism) (Prouska and Psychogios, 2016). By understanding the impact of such crises on employees, employers can design supportive, nurturing environments to increase the likelihood of maintaining employee commitment and productivity. Examples of this in practice include flexible working arrangements, recognition programmes, and strengthening the psychological contract (Chatrakul Na Ayudya et al., 2017).
- Albonico, M., Zdravko, M., & Sharma, R. (2020). How the COVID-19 crisis is affecting UK small and medium-sized enterprises. Retrieved 28 February 2023, from https://www.mckinsey.com/industries/public-sector/our-insights/how-the-covid-19-crisis-is-affecting-uk-small-and-medium-size-enterprises
- Chatrakul Na Ayudya, U., Prouska, R., & Beauregard, T. A. (2017). The impact of global economic crisis and austerity on quality of working life and work-life balance: A capabilities perspective. European Management Review, 16(4), 1-16. doi: 10.1111/emre.12128
- Prouska, R., & Psychogios, A. (2016). Do not say a word! Conceptualising employee silence in a long-term crisis content. The International Journal of Human Resource Management, 29(5), 885-914. doi: 10.1080/09585192.2016.1212913