The dangers of hiring on the cheap

Despite the drama at Toyota (talk about the risk of standardized parts) and the political sideshows in Washington, on the main stage of American life, something’s happening. Business is decidedly better.

As Chris Kuehl, economist for the Fabricators & Manufacturers Association, put it in a Feb. 1 newsletter, “The latest GDP numbers are the best they have been in over a year and a half and suggest that a recession is in clear retreat.” Alright! It’s time to start hiring again, right?

Not so fast.



An article in a recent Crain’s Cleveland Business shined some light on the foggy issue of hiring during an economic upswing. The reporter, who talked with several metal fabrication shops in the Cleveland area, brought up some well-known concerns. Shop managers are reluctant to hire because they fear the current business uptick isn’t sustainable. On the other hand, they don’t want to hire too late, or they risk putting strain on current employees, who may become disgruntled and find another position as the job market improves. If a shop’s really late in hiring, and employees are incredibly strained as business ramps up, no one has time to train new hires, even the most experienced of whom still need to get acquainted with a new company’s practices. So the new hires are likely to become disgruntled too.



The reporter also brought up another, less popular topic: hiring on the cheap. With the unemployment rate sky-high, manufacturers in certain areas have little trouble finding experienced, extremely qualified workers. Last year some employers took a deep breath and let go some core team members. Today these skilled people are still looking, their unemployment checks are running out, and they are now willing to negotiate salaries down because they need to pay the bills.

Don’t get me wrong, I think companies that have the cash should take full advantage of the current business climate to acquire other quality assets as cheaply as they can. But this grab-them-while-they’re-cheap logic shouldn’t extend to skilled people, at least not permanently.

That’s why I was relieved to read that the metal fabrication companies the reporter interviewed thought more long term. Tina Haddad, owner of R-H Industries in Cleveland, told the newspaper that job seekers were “very willing to negotiate,” but said that her company must “be competitive in the marketplace.” She added that hiring skilled employees at rock-bottom prices has long-term consequences.

I understand the supply-and-demand logic behind negotiating the salaries down. Demand for jobs outstrips supply by a long shot, so it makes sense that the employer should get better talent for less money.

That may make sense for buildings and machines. But employees? Buy a building, and it degrades. Find the right employee, and that new hire may get better over time. Why would any shop want to get that skilled employee—the cream of the crop—for a bargain, only to see that new hire jump ship for a higher wage when the economy improves?

I understand harsh market realities make hiring on the cheap just part of business. Maybe some companies have no choice but to hire skilled people as cheaply as they can, perhaps on a temporary basis, to get through these delicate times. But in my opinion, it’s a policy no company should carry on forever.