The impact of economic downturn on human resource policies in small businesses: the case of North Macedonia
Date Issued
2022
Author(s)
Piperkova, Irina; Popovski, Vasil; Davitkovska, Elena
Abstract
Current economic conditions create challenging environment for
small businesses which could significantly affect the way they do business
and manage their workforce. Globally, businesses struggle to survive
amid the rising uncertainty, inflationary pressures and increased costs as
well as disrupted supply chains, which deeply affects their performance.
Such economic turmoil will inevitably result in cost cutting measures by
businesses, thus affecting their human resource policies and practices. This
raises issues related to the implications of the economic crisis on the human
resource function and the challenges in terms of human resource policies
that small businesses face.
Previous economic crises have initiated a great deal of debates about
the possible effects on human resource management policies and the
potential areas for action, as retention of key talent and nurturing employee
commitment. During economic downturn, businesses implement shortterm cost-cutting measures mainly by freezing recruitment, reducing
employee training and development budgets, pay cuts, reduction of
bonuses and even layoffs. Research on the effects of recession on human
resource management found that major areas that are primarily affected
refer to reductions in compensation and monetary rewards, training and
development opportunities and the staffing levels. However, cost-cutting measures undertaken by businesses should not be
at the expense of a severe loss of motivation and commitment among
employees or reduction of their key talent pool. Indeed, the major challenge
of human resource management during uncertainty is balancing between
short-term and long-term strategy. While coping to maintain their viability
through cost-reduction plans, businesses should also consider long-term
plans and strategy in order to be prepared for the post-crisis period. In
developed economies, many businesses are aware that in responding to the
crisis they have to develop strategies that combine initiatives to reduce costs
with measures to improve innovation and quality, employee morale and
engagement. In this regard, for example, the financial crisis of 2008 has not
affected the level of training investments considerably as major reductions in
employee training were not reported in developed countries. This is mainly
because the cuts on employee training and development were least effective
in the previous recession and had negative impact on employee commitment
and consequently productivity. In addition, major layoffs not only disrupt
businesses’ talent pools, but also diminish the motivation among employees
and affect their productivity levels. Therefore, in an effort to avoid major
layoffs and maintain their talent pools, businesses insist on short-term costcutting measures as reducing employee training or compensation and bonus
levels. Costs related to funding development opportunities are always
a concern for management, making businesses reluctant to continue to
provide development opportunities to their employees in such times.
The main objective of this paper is to assess the immediate effects of the
economic downturn on the performance and management activities of
small businesses in the Republic of North Macedonia, as well as their
response in terms of human resource management policies. An online
survey questionnaire was distributed to owners and/or managers of small
businesses in different sectors in North Macedonia. The questionnaire
included questions that would determine the negative effects of the current
economic conditions on small businesses, as perceived by business owners.
In addition, the questionnaire covered aspects pertaining to current human resource policies undertaken by small businesses as a response to the current
economic downturn, in terms of recruitment, compensation and employee
training and development policies.
The findings reveal that although small businesses consider increased
costs of doing business to be their primary concern, most of the surveyed
businesses did not and do not anticipate to decrease the pay levels or
monetary rewards of their employees, nor do they plan major reductions of
employee training and development opportunities. In fact, as a response to
the growing inflation, many businesses have increased pay levels of their
employees. In terms of staffing policy, the results show that the majority of
businesses have already frozen their planned recruitments, but do not plan
to implement layoffs. These findings are in line with the studies on firms’
human resource policy response conducted during previous economic crisis.
small businesses which could significantly affect the way they do business
and manage their workforce. Globally, businesses struggle to survive
amid the rising uncertainty, inflationary pressures and increased costs as
well as disrupted supply chains, which deeply affects their performance.
Such economic turmoil will inevitably result in cost cutting measures by
businesses, thus affecting their human resource policies and practices. This
raises issues related to the implications of the economic crisis on the human
resource function and the challenges in terms of human resource policies
that small businesses face.
Previous economic crises have initiated a great deal of debates about
the possible effects on human resource management policies and the
potential areas for action, as retention of key talent and nurturing employee
commitment. During economic downturn, businesses implement shortterm cost-cutting measures mainly by freezing recruitment, reducing
employee training and development budgets, pay cuts, reduction of
bonuses and even layoffs. Research on the effects of recession on human
resource management found that major areas that are primarily affected
refer to reductions in compensation and monetary rewards, training and
development opportunities and the staffing levels. However, cost-cutting measures undertaken by businesses should not be
at the expense of a severe loss of motivation and commitment among
employees or reduction of their key talent pool. Indeed, the major challenge
of human resource management during uncertainty is balancing between
short-term and long-term strategy. While coping to maintain their viability
through cost-reduction plans, businesses should also consider long-term
plans and strategy in order to be prepared for the post-crisis period. In
developed economies, many businesses are aware that in responding to the
crisis they have to develop strategies that combine initiatives to reduce costs
with measures to improve innovation and quality, employee morale and
engagement. In this regard, for example, the financial crisis of 2008 has not
affected the level of training investments considerably as major reductions in
employee training were not reported in developed countries. This is mainly
because the cuts on employee training and development were least effective
in the previous recession and had negative impact on employee commitment
and consequently productivity. In addition, major layoffs not only disrupt
businesses’ talent pools, but also diminish the motivation among employees
and affect their productivity levels. Therefore, in an effort to avoid major
layoffs and maintain their talent pools, businesses insist on short-term costcutting measures as reducing employee training or compensation and bonus
levels. Costs related to funding development opportunities are always
a concern for management, making businesses reluctant to continue to
provide development opportunities to their employees in such times.
The main objective of this paper is to assess the immediate effects of the
economic downturn on the performance and management activities of
small businesses in the Republic of North Macedonia, as well as their
response in terms of human resource management policies. An online
survey questionnaire was distributed to owners and/or managers of small
businesses in different sectors in North Macedonia. The questionnaire
included questions that would determine the negative effects of the current
economic conditions on small businesses, as perceived by business owners.
In addition, the questionnaire covered aspects pertaining to current human resource policies undertaken by small businesses as a response to the current
economic downturn, in terms of recruitment, compensation and employee
training and development policies.
The findings reveal that although small businesses consider increased
costs of doing business to be their primary concern, most of the surveyed
businesses did not and do not anticipate to decrease the pay levels or
monetary rewards of their employees, nor do they plan major reductions of
employee training and development opportunities. In fact, as a response to
the growing inflation, many businesses have increased pay levels of their
employees. In terms of staffing policy, the results show that the majority of
businesses have already frozen their planned recruitments, but do not plan
to implement layoffs. These findings are in line with the studies on firms’
human resource policy response conducted during previous economic crisis.
Subjects