The New Normal – The Sequel: Impact on Jobs and Employees

In February 2011, we wrote an article on what we thought the “New Normal” would be for classification and compensation management in 2011 and beyond. We have subsequently received numerous comments from HR professionals who read the article. Virtually all of the comments were positive in the sense that people felt that we were accurately predicting the future. (If we just had a crystal ball that would tell us which stocks were going to go up, we could make some serious bucks out of this.) In this article, we will focus on changes to jobs and employees in general, but these changes will directly impact the classification and compensation systems that we discussed in February.

One of the comments we received in response to the February article was even more direct and to the point. Basically this person stated, “A tidal wave of change is coming much faster than most realize and I’m afraid many of them are going to get sucked away by the force. City managers and HR professionals need to be on top of the issues and begin to lead in their own organizations. My sense is that the HR folks have not fully embraced the change that’s coming. Yet their employees are looking for leadership. It seems the city management leaders are getting it, but if the HR professionals don’t jump into the conversation, they are going to be left behind.” In fact, they went on to say, they might be viewed as stalwarts—unwilling to accommodate the “New Normal.”

We are starting to see limited improvement in the overall economic climate around the country. Surveys are showing that private sector employers are anticipating pay increases of about three percent for the coming year (2011), yet we know that not all employers or all segments of the workforce are seeing the same level of improvement. While the private sector is making slow but steady improvement, cash strapped cities, counties and states are really feeling the pain. And those companies that serve the public sector are also struggling along with their clients. Until property values rebound from the economic downturn (this is predicted to be two years from now) that many areas of the country have experienced, property tax revenues will continue to wane. Sales tax revenues are improving, albeit slowly. We are seeing very difficult times ahead for the public sector as evidenced by major budgetary shortfalls in states like Wisconsin, Arizona, Michigan, Ohio, Texas, New Jersey, Florida, Illinois and California. In addition, because salaries make up a proportionately larger segment of local government budgets than state and federal government budgets, the odds are that the economic hit will be proportionately greater.

The Labor Department recently reported that in January 2011, local governments shed about 10,000 jobs, bringing the total to 236,000 since December 2007. Since about 64 percent of the country’s 22 million public sector workers are employed by local government agencies, things will change dramatically. For example, in Arizona, the legislature is seriously discussing eliminating substantial amounts of funding for education at all levels, including community colleges and the universities in order to balance their own budget. Talk about kicking the can downhill! Of course, the federal government imposes unfunded mandates on states and the states have never been shy about imposing similar unfunded mandates on local governments. Now, in addition to the mandates, they are simply pulling the economic lifeline that local governments have relied upon to provide both essential and mandated services. As a result, local governments must decide whether to continue providing the same type and level of services that they have been providing or whether they need to increase taxes and fees to pay for these services. In most cases, it will be a combination of things. Local governments will continue to provide most of the services but the way the services are provided will change. We see substantial change in the way the work will be performed. Jobs, out of necessity, are being combined and positions will be performing work that was previously performed by others but not necessarily those who were in the same job classification or who have the same skill sets.

One large city combined the jobs of the police chief and the fire chief, who will oversee and manage all of the public safety functions in that city. Years ago, any city manager that tried to do that would have been fired (although that might have also been the result of trying to combine the two functions into one). If the leadership of the two most essential government services can be combined, every other job in the organization is up for grabs.

Most of us have heard the expression “the perfect storm.” Well, that may very well be applicable to what has brought the public sector to the New Normal. Simply stated, the recession caused government revenues to plummet. The recession caused the value of assets held by pension funds to drop significantly, resulting in substantial unfunded liabilities to fulfill pension obligations. Unemployment in the overall labor market surged but the cost of goods and services purchased by the public sector did not drop to the same degree that the price of consumer goods decreased. Add it all up and we are where we are. Public agencies that do not deal with the realities of the New Normal are, in our opinion, doing themselves, their employees and their constituencies a grave disservice as the problems will not cure themselves and, in reality, will likely get worse. We do not believe that anyone wants to see individuals lose their jobs or benefits that they have acquired over time. Unfortunately, the New Normal says that we cannot always have what we want.

Positions are going to be eliminated, regardless of whether they are filled or vacant. Jobs are going to be combined. The organizational hierarchy is in for another round of flattening all because we simply cannot continue to operate as we have in the past. If you thought a normal span of control should be about seven subordinates, watch what is coming.