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The Recruitment Market Place and Why it Sucks

By: Toby Marshall

Careers The recruitment industry may be inefficient and charge huge fees, but it’s only a small industry - surely it can’t cause billions of damage to our society?

It does.

The damage is caused by market ‘inefficiencies’ or friction. How?

1. It adds huge costs to organisations looking to hire people

2. It means that many people are working in jobs they are not happy with because it takes too much time and effort in this flawed market for them to hunt out something better

Before we look at why this is so, it helps to look at some theory - economic theory, and in particular the theory of markets. Apologies, but economics does have some uses, and occasionally I’m glad I studied something so turgid.

With markets, two things are always required for them to work well:

1. All the buyers are readily accessible in one place, with all the information about the seller’s products also available - creating what economists call liquidity. This ‘place’ can be physical (such as a local market), or in newspapers ads, or increasingly on the internet

2. People can quickly find and use the information they need to decide whether to buy or sell

With these two conditions filled, markets are efficient and will work well. Efficient means the cost of buying and selling is low: there are low transaction costs, and the prices are competitive. In an efficient market, if a seller is charging more, he had better have a pretty special ‘widget’. Or be pretty persuasive.

An example of markets that work well are the old market towns that existed for thousands, of years, where the distance between markets was based on travel times. All the buyers went to the market town, as did all the sellers, and you could look at the produce and goods to assess their quality (and sellers could check the colour of their money).

Modern markets include the Stock Exchanges and Commodity Exchanges. To buy shares you go online to the Exchanges as that is where all the buyers and sellers are.

Good markets are efficient, with only a small gap between the ‘buy and sell prices’.

So why does the recruitment market suck? Because it doesn’t meet the two conditions for a healthy market:

* Buyers and sellers are not in the same place, there are many separate markets * Important information relevant to the decision to buy or sell is not readily available and in many cases each side is unaware of the needs (and thus opportunities) of the other side

What are these separate places or separate markets for labour?

The employers are the buyers of labour, and they put their ‘offer to buy’, their advertisements, in many different places. This creates a variety of ‘markets’ including:

* National newspapers (AFR; The Australian) * State/City newspapers (e.g. SMH), in the front of the paper or in the classifieds; the papers further break up the market with ads on Monday, Wednesday, Friday and (mainly) Saturday * Regional papers (Newcastle Herald; Central Coast Express; etc) - which have recruitment ads. And often employers or recruiters put them into these papers and the SMH * Industry journals and magazines * Free give-away papers * Job Boards on the internet - heaps of alternatives here; there is incredible overlap, with jobs placed on different Boards. Also the newspapers that own the classifieds give you online ads virtually for free. Incredible amounts of duplication * And lastly, the recruitment agencies. Employers put their jobs in what are effectively hundreds of other markets, the agencies. Many jobs go to multiple agencies, each of whom will then advertise in multiple places. So the same job often appears in 5 or 10 or even 20 different places. What an inefficient market!!!

So all of these are separate and overlapping market places - the overall result is chaos.

The second requirement for good markets is that buyers and sellers quickly find the information they need. With jobs advertised in so many different places it is hard for sellers (of their labour) to find the buyers (the employers), particularly when recruitment agencies are getting in the way. This is particularly the case when so many jobs are ‘hidden jobs’ and are not advertised anywhere – often because the costs of doing so are high and only sometimes because of confidentiality issues.

Like all agents or brokers, information is a large part of what recruitment agencies sell. So naturally they will block the free flow of information. The obvious example is they don’t put the employers name on their ads, so we don’t know who their client is until we apply.

When speaking at conferences I often ask employers about their recruitment advertising: what works and what doesn’t. Many think that online Job Boards don’t work so feel they need to stick with the newspapers for the moment which is understandable.

The main reason Job Boards don’t work is because of the confusion in the market. In fact, online Job Boards have (temporarily) added to the confusion as there are now even more places to hunt for jobs, an even greater spread of localities to search within, adding to the time and costs of buyers and sellers.

One fact is unarguable: The internet is the perfect market place for jobs to be advertised. Online Job Boards are faster, cheaper, your ad lasts for a month, they minimise transaction times, and they maximise information flow. Utilised and developed properly, Job Boards are a thousand times better than the tree destroying alternative.

Recruitment practices need to change drastically for us to have an efficient, productive industry. And part of this critical change will be how jobs are advertised. Internet advertising is clearly the future, and will result in a fairer, more equitable industry with better outcomes for all.

The sooner this change occurs, the better.

Internet Job Ads will work well when 4 things happen:

1. The HR managers realise they have the capacity and the skills to decide to stop newspaper advertising. The exception is for some important and hard to fill job where they need to cast their nets widely: perfect for the newspaper when it is not crowded with other recruitment ads.

2. Employers place online ads directly, not through recruitment agencies, so that applicants can find the information they need. Applicants can then be certain that there are real jobs there, and will be able to make better decisions about the jobs they choose

3. When the Job Boards like Seek and Monster invest in better ‘matching technology’ to make their searches more effective. They’ll invest when the the first two conditions are in place - then Job Boards will be even better at matching and back end processing (however, their current systems still work a thousand times better than the ad in your paper recycling bin!)

4. The recruitment agencies lose their privileged ‘gatekeeper’ status. So the blockages and inefficiencies they cause disappear - minimising the damage of their huge fees, appalling treatment of candidates and highly questionable ethics

So, the recruitment market is absurdly inefficient - how does this really affect you? What are the consequences?

Perhaps half the Australian population is working in the wrong job: either working for the wrong company, or just doing something they don’t want to do. What research backs this up?

This estimate comes from talking to hundreds of people in the recruitment industry and thousands of job applicants over many years. And, if anything, the figure is likely to be very much higher than 50%. It doesn’t mean they can find something hugely better, just better. People often know what better means, but just can’t find it. They also might know what they would like to do but are insecure about moving when the market is so ‘opaque’ in case they make a mistake.

The negative impact on our economy of this collective misery caused by so many being in the wrong job is huge. We have discussed the impact of doing what you love – it gives you energy and enthusiasm and your contribution to the company is much higher. Your productivity - that magic thing that makes economies grow - grows.

Imagine if most Australians were in jobs they were even slightly happier with.

The impact on our economy would be extraordinary if people could more easily find a job that matches their skills and passion: there would be a huge and permanent lift in productivity. Permanent, because people won’t chop and change jobs so much if they can easily find out just how green (or brown) the grass is out there.

And companies will pay people wages closer to their true value. In this new world, employees can more readily explore the market if they are not getting their value from their current employer

Economists do get a lot of things right (just don’t believe them when they claim wisdom on such matters as the timing of interest rate changes!). They know that an informed market is an efficient one.

The recruitment market is very ill-informed and therefore very inefficient.

Toby Marshall is an active speaker on the international conference circuit. His mission: To give all companies, no matter how few employees they have, the information and expert help they need to do their own recruitment and selection and find great new staff. You can get more resources at www.abacusrecruit.com.au
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