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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4 Comments on “The Impact of Hurricane Katrina on The Recruiting Industry

  1. There will come a time in this country when your real estate taxes, insurance and utilities will match your mortgage payment. We are fast approaching it. I was raised in the real estate business and spent the first part of my professional career engaged in it. I do not say this lightly.

    The disastrous effects of Kartrina will not only be felt by the 2 million or so immediately and presently affected. The other 378 million people in this country are also affected; they just haven’t felt the full brunt of it yet. The government is soft-peddling the numbers so as not to cause panic: the increases in natural gas will be catastrophic to some/people will freeze to death this winter.

    The extra $12 per week it costs you to fill your tank this month over last month – take that and times it by all the cars in this country (there are 600million cars in the world!), let?s put it at 150 million cars – WOW how much spending can be taken out of the economy anyway? Does anybody remember what high oil prices in the 70s led to? Can we say 20% PRIME RATE in the early 80s? Remember that? How soon we forget.
    A sobering reminder:
    http://mortgage-x.com/general/indexes/prime.asp

    Going back to your mention of economics, Dave (which I was schooled in but am no master), there?s a terminology in it called ?sticky upwards?. What ?sticky-upwards? means is that once prices rise, they may settle back, but they usually never fall back to previous levels. They stay ?sticky-up?. How quaint and useful an economic policy it has become. I imagine the present Washington administration watching gleefully as gas prices rose to $2/gallon and beyond (even before the election!) AND NOBODY SAID A THING! Even Kerry said little on the subject, when it was a wide open door he could have walked through that may have delivered him to an election win. It makes you wonder, doesn?t it? It did me. Now that they?ve established the ?squeal point? is $3, that?s about where it will probably settle for the near-term and the foreseeable future. Nobody seemed to mind ?til it hit $3, then people started up out of their stupors to ask ?Huh? What?s going on??

    Still, $3/gallon, as you point out Dave, is substantially more than what we were paying during the summer. Dire consequences it cannot help but have.

    And the rest of the world? When America catches a cold, the rest of the world catches pneumonia. That?s the fact ? and the gateway for most of this country?s exports (including most of its food exports!) to the world went off those docks in Louisiana. It remains to be seen if other ports can process what Louisiana did.

    Me? When this perfect storm hit I was processing 700-1000 names per week and the phone was ringing off the hook with new business. It usually does this, though, at the end of summer, when people refocus on their work activities. Today, September 20, 2005? Phones are quiet, have become quieter as the last two weeks have progressed, and I?m processing about half of what I did earlier in the month. very little new work inthis week, about 200 names, to put a number to it.. It feels like post-9/11, all over again. I hope I?m dead wrong.

  2. Dave,

    Thank you so much for having written such an excellent overview of the disaster and its impacts. I spent most of last week assessing the damage in Mississippi as a volunteer on behalf of Nechama: Jewish Response to Disaster http://www.nechama.org . I’m on the Board so have seen the after effects of flooding, straight line winds, and tornadoes, but this was my first exposure to a hurricane. For those who have seen what terrible damage wind can do, it is nothing compared to the forces of water.

    I saw homes and talked with emergency management officials in Jackson, which is about three hours from the coast, Hattiesburg, which is about an hour from the coast, and finally Ocean Springs, Biloxi, and the northern suburbs of New Orleans.

    The damage in Jackson was consistent with straight line winds. It wasn’t hard to find damage to structures or trees. Most structures were undamaged, but some had siding or roof damage. Most trees were also fine, but some were snapped in two, many limbs lay upon the ground, and some were uprooted entirely. In short, virtually all of the damage was serious but cosmetic.

    Two hours south was Hattiesburg. It has become the de facto staging ground for the coast because it is the largest city in Mississippi that is close to the coast which still has most of its infrastructure intact. The damage to that entire region was similar to what you see when tornadoes rip through. Some structures completely demolished while neighboring structures almost unscathed. Every tree ripped apart in some clusters while trees around that cluster are only missing their leaves. Hundreds of houses destroyed and thousands damaged. Yet there were few contractors or other relief workers to be seen. They were there, but you had to look for them.

    An hour south was Ocean Springs and Biloxi. Everything within half a mile of the coast has been completely wiped out and, in some cases, everything within 20 miles of the coast has been destroyed or will need to be bulldozed. Entire neighborhoods now reduced to rubble. People wandering aimlessly through the wreckage that once was their home, although in many cases their homes are now located hundreds of feet from their foundations. I visited with the staff of the First Presbyterian Church in Ocean Springs. They felt that they were lucky because they ‘only’ had 10 feet of water come through their buildings and they only lost a couple of their buildings. Their church, after all, is located several blocks inland so they were somewhat protected. Every house closer to the gulf and most of those in the area will need to be demolished. Contractors and relief workers are everywhere. If I had to guess, I would estimate that at least 60 percent of the people in Ocean Springs are non-residents who are there to help with the recovery efforts.

    Our Nechama volunteers on the scene in Hattiesburg working shoulder-to-shoulder with homeowners. The critical need right now is not food or water. Those who still have houses need help in repairing and rebuilding. The first step is to remove everything from those houses that got wet, including all carpeting, furniture, wallpaper, wallboard, etc. When that’s done, what is left of the house is basically its frame. You walk in and all you see are exposed two by fours. That prevents mold from growing and taking over the house. If that happens, the house needs to be demolished. The next step is to rebuild.

    If you can spare a week or wish to make a donation to help rebuild the homes, lives, and hopes of our neighbors, visit http://www.nechama.org .

  3. David,
    What an excellent article, and so very true. There is so much more than will come from all of this than meets the immediate eye.

    For the Past three weeks I had been in Contact with The SBA re. forming an alliance w/ Trade Associations to help rebuild the businesses affected by Katrina, and thus RECREATE jobs.

    The SBA will be limited financially in regards to how many loans they can generate to help rebuild the 400,000 businesses that were impacted. Some of course were completely devastated.

    The Process which the SBA is attempting to implement is to have the Trade Associations contact each local state members and find out who would be willing to donate ie -Business Materials, software, hardware, business materials, automobiles. This will of course reduce financial impact, and hopefully then stretch the Loan Monies out so more individuals will be able to receive government funding. Individuals will then go to the local trade office with their requirements The Trade Associations will have a list of who will donate what, and when the items are needed those individuals will be contacted and their requests will be shipped to the business.

    When I looked around my own home and office, I was able to determine that between the phones and software and even a computer (due to upgrades) I had laying around, that I could help at least 1-3 recruiting business get off the ground.

    Please Note, that unless the Trade Association has special titles as a non profit group these donations may not be considered tax deductible. But the SBA said they will try to work with the Associations in that matter to help provide either the papers or as we know they are the government, and this is not a ‘normal’ circumstance, thus they will find ways to make it work. (Hopefully this will not
    prevent people from being generous)

    If we were to all Contact our Trade associations that we are working with – this can really help everyone in so many ways. Reduce some government spending, Recreate jobs that were lost (very important), which again will reduce the government and Insurance Cost impact.

    Please note also that Many People will not be able to recuperate from insurance. Many people do not Have Flood Insurance, only Hurricane, thus the impact can be horrendous. This would be considered Flood Damage Not Hurricane for many though NOT all of the people in the Gulf and N.Orleans.

    Also note that some other positions that are needed to be filled with urgent need are Financial and Insurance Adjustors, Claim Agents, Claim Investigators. There is also a need for energy and health and safety management investigators and more investigators re Fraud at banks and Credit card companies. Computer programmers, Support and installers, Market research Analysts and actuaries, Engineers. Research scientists such as Geologists and Environmentalists, Seismologists (there had been cutbacks by the government). Most of these positions are needed to be filled in both Government and Civilian sectors.

    Other impacts that will be seen due to the higher energy costs including higher Utility bills, will be businesses that will attempt to recuperate their expense by adding surcharges ? this will include shipping of produce and materials, (many mfg have already begun to raise prices),In Home and Business Service, retail, restaurants and hotels, messengers, deliveries, airline rates (we have seen a lot of this in CA). Price Gouging will also be attempted at the pumps (Ca is making attempts to make sure that this will not occur at this time).
    Due to the expenses some companies can reduce employment and overhead to go into shift schedules, having the bulk of work at the times when it is cheaper. Which will eventually impact the housing market as well.

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