Middle-aged managers most vulnerable to redundancy

Jul 14 2009 by Nic Paton Print This Article

It's well-known that unemployment is what is called a "lagging indicator" when it comes to gauging where we are in the economic cycle, meaning redundancies and layoffs normally only start to pick up after many of the other economic signals, such as stock markets, have already turned upwards.

According to new research by business school Wharton, this means that it may not be 2013 before we start to see any significant optimism over unemployment in the U.S, with middle-aged managers, or those in 40s and 50s, remaining especially vulnerable.

Wharton finance and statistics professor, Francis X Diebold, co-director of its Financial Institutions Center, said that such managers tend to be vulnerable because they are, or at the very least are perceived to be, more expensive than their younger counterparts, lack some of the high-tech "savvy" needed to succeed in a more efficient workplace and are now facing a downsized job market that will stay that way much longer than usual.

"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 Ė which is by no means certain Ė it could still be 2013 before we see some significant employment optimism," he told the publication Knowledge@Wharton.

Two other factors are coming into play, argued Wharton management professor Peter Cappelli, is that in previous downturns layoffs at this level have tended to be temporary, but there is much less sign of that this time around.

Even if an equivalent job were open at another company, it would most likely not fill the position or will hire from within and, moreover, there was no sign yet of a new wave of smaller start-ups coming along that might be able to mop up some of the newly redundant, he said.

With the Department of Labor estimating that 14.7 million people were unemployed as of last month compared with 14.5 million in May, and 8.7 million a year ago, the signs are still not good, even if there is more optimism around.

What's more, for those aged 45 or over, the unemployment rate is some 6.9 per cent compared to 3.4 per cent in June 2008, hovering at around its highest point on record.

In the wake of the 2001 recession, by comparison, the unemployment rate for this age group peaked at 4.6 per cent in January 2003, compared with 6.4 per cent in January 2009.

What this means, according to Cornell University professor Matthew Freedman, is 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 will be 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," he argued.

And some jobs, for example, in automotive manufacturing, publishing, retail and financial services, may 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," argued Freedman.

According to Lynn Reaser, vice-president of the National Association for Business Economics, a 2,300-strong group of professional economists, managers should also be prepared to see a reduction in salary of between 15 per cent to 30 per cent.

They will also need to be prepared for job-hunting to be a slog, with many, many interviews, and for networking and use of contacts to be absolutely critical.

"Most of the other ones will come through making connections with schoolmates, work mates, people in clubs, religious organizations and so forth," she added.

But the good news is that, if you can get in the right mind-set, being unemployed in your 40s and 50s can be the opportunity you need to step back, re-evaluate and reassess where it is you and your career are going.

"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," said Wharton management professor Nancy Rothbard.

And, for many, the option of interim management, consultancy or simply freelance work may become the "next best" option Ė particularly as this is a model of working that more and more employers are moving towards anyway.

"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," added Wharton management professor Matthew Bidwell.

Retraining is clearly another option, with both UK and U.S universities reporting a surge of applications from older people to go back and study and retrain at college or university, either as a way of maximising their chances or simply as a way of "riding out" the recession.

"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," cautioned Bidwell.

"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," agreed Freedman. "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."

Yet, according to Peter Felix, president of the Association of Executive Search Consultants, demand for talented managers and executives in their late 40s and early 50s will come back, eventually.

"There is still a shortage of people in those critical experience and age brackets," he emphasised.

While, clearly there is "restructuring taking place", which middle-aged managers might be feeling the brunt of right now, there "is also re-growth," he added.