Seven Employee Impacts That Could Result From the Debt Ceiling Turmoil

By Dr. John Sullivan

You might think it’s a stretch to connect the debt ceiling-related turmoil in Washington with HR, but that could be a shortsighted mistake.

While HR professionals can’t directly impact the debt ceiling decision, they do need to be aware of potential impacts that could result regardless of the decision. As a business professor with a background in both HR and economics, I have been able to assemble a list of impacts that organizations might encounter.

At the very least, HR should develop a plan for monitoring the relevance of each impact as it appears. The seven major impact areas include:

1. Distraction – The most obvious impact over the last few weeks has been employee distraction. It’s hard for employees to be 100 percent focused on their job during any period of economic or political turmoil. Distracted employees are more likely to make errors and less likely to be innovative when they are not fully engaged.

As the rhetoric on both sides of the issue escalates, distraction may turn uncertainty and even anxiety. There may be direct conflicts between employees that hold differing political views on how the debt ceiling was handled. Managers will have to be aware of this employee anxiety and conflict and HR will be forced to provide managers with guidance on how best to handle it.

2. Wage pressure – Because it is very likely this process will result in higher interest rates, one obvious area of concern among your employees will be their ability to finance large purchases. If employees have to pay higher interest rates, their wages simply won’t go as far.

Taken together, this could result in more anxiety, more foreclosures and ongoing credit problems. Making mortgages more expensive might make it more difficult to recruit new hires from outside the region or to transfer current employees between facilities. Employees and unions could also put more pressure on their managers to increase their compensation to make up for increased interest costs.

3. Retirements – There will certainly be major impacts when it comes to retirement planning. The expectation that Social Security and Medicare age limits may be raised and benefits reduced in the future may force some older individuals into early retirement.

For younger employees, it will likely lead to the postponing of their retirements and increased pressure on organizations to offer better retirement packages and medical benefits for future retirees. Leadership succession and workforce planning will certainly become much more complicated as reduced college hiring may lead to a shortage of prepared first level managers three to five years down the road.

4. Increased pressure on benefits – Because part of the debt limit raising package will include major cuts in government and welfare services, it is highly likely that lower paid employees and those with elder care responsibilities will be looking for additional financial support. Once again this may create anxiety and lead to increased corporate benefit usage and package pressure.

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Work/life balance issues will certainly become more complicated. As federal spending decreases, state funding will also decrease putting more pressure on firms to offer replacements for social benefits like childcare, elder care and tuition support. Reduced state and local government services can also mean longer commute times for employees and lower levels of police and fire security for the firm.

5. Reduced turnover – if unemployment rates remain high, fewer current employees are likely to leave. Reduced corporate revenues all-around will likely mean minimal hiring by competitors, resulting in few job openings that could entice your employees to leave.

If you offer great compensation, benefits and job security you will experience even lower turnover. If you do not, turnover rates may actually increase among employees whose families that require enhanced benefits, pension and retirement offerings.

6. Reduced corporate revenue – If federal tax rates are increased on corporations, there will be less money available within corporations for hiring and compensation. There is also a distinct possibility that this prolonged turmoil may lead to a “second dip” recession, or even a depression.

This worst-case scenario could obviously reduce stock values and corporate revenues, which could result in new hiring freezes, further cuts in HR and training budgets and corporations having to return to layoffs once again. If the U.S. credit rating is lowered, there will also be global financial impacts which could make it extremely difficult to do business in a few highly impacted countries.

7. Positive impacts – If your organization offers outstanding pay and benefits, that will make it easier and cheaper to attract top talent. Cuts in government supported retirement options could reduce “leadership gap” issues because it may drive your senior leaders to postpone their retirements and to stay longer.

The reduction in federal government spending will likely lead to less regulation and looser government enforcement. In the long term, if the current controversy results in the long-term strengthening and stability of the federal government, then the economic rebound is likely to be longer and more robust, producing exciting opportunities for firms strong enough to survive the downturn.

Dr. John Sullivan, professor, author, corporate speaker, and advisor, is an internationally known HR thought-leader from the Silicon Valley who specializes in providing bold and high-business-impact talent management solutions.

He’s a prolific author with over 900 articles and 10 books covering all areas of talent management. He has written over a dozen white papers, conducted over 50 webinars, dozens of workshops, and he has been featured in over 35 videos. He is an engaging corporate speaker who has excited audiences at over 300 corporations/ organizations in 30 countries on all six continents. His ideas have appeared in every major business source including the Wall Street Journal, Fortune, BusinessWeek, Fast Company, CFO, Inc., NY Times, SmartMoney, USA Today, HBR, and the Financial Times. In addition, he writes for the WSJ Experts column. He has been interviewed on CNN and the CBS and ABC nightly news, NPR, as well many local TV and radio outlets. Fast Company called him the "Michael Jordan of Hiring," called him “the father of HR metrics,” and SHRM called him “One of the industry's most respected strategists." He was selected among HR’s “Top 10 Leading Thinkers” and he was ranked No. 8 among the top 25 online influencers in talent management. He served as the Chief Talent Officer of Agilent Technologies, the HP spinoff with 43,000 employees, and he was the CEO of the Business Development Center, a minority business consulting firm in Bakersfield, California. He is currently a Professor of Management at San Francisco State (1982 – present). His articles can be found all over the Internet and on his popular website and on He lives in Pacifica, California.



1 Comment on “Seven Employee Impacts That Could Result From the Debt Ceiling Turmoil

  1. “50,000” manufacturing companies and “8-million­” jobs were lost to the cheap labor havens of China, India, Mexico, Philippine­s, and many others over the past decade. President Obama should put congress on notice… shame them back to the capital off their “5-week” hiatus, that there yet exist no greater urgency: an aggressive nationwide job reinvestme­nt program for America’s now chronicall­y unemployed­. Despite great Republican intransige­nce-opposi­tion, The White House must “go public” with a nationwide and targeted Jobs program. The just let the Tea Party Republican­s equally “go public” opposing it at their peril. America must match or equal China’s investment­s in hot job-creati­on segments: Stem cell research, nanotechno­logy, and clean energy.

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