The recession supposedly ended two years ago. Corporate investments and proﬁ ts are up. But unemployment remains, and many companies that do have job openings are taking forever to ﬁll them.
So what gives? If companies are making and spending money, why aren’t they hiring?
Countless experts and major news outlets have weighed in on the issue, and no one can offer a simple answer. Rather, there appears to be a number of factors that have come together to create the perfect storm—a jobless recovery. There is no easy ﬁx, and the result of these combined factors could be a permanent shift in the US and western Europe hiring . . . and the way you recruit.
But we’re getting a little ahead of ourselves. First, let’s analyze why a jobless recovery is happening. While we can’t possibly explore every reason that may be holding employers back, there do appear to be a few root causes perpetuating this jobless recovery that are worth discussing.
Reason #1: Uncertainty in the economy
The ofﬁcial end of the recession was in the summer of 2009. But the so-called recovery has been so slow, it’s hard for many people, especially those still on the unemployment lines, to decipher the difference between now and the thick of the recession. Every time there seems to be a little spark in the economy, something (natural disasters, high gas prices, the debt ceiling debate, etc.) quickly snuffs it out.
Meanwhile, several governments are anything but employer-friendly. New laws and “crackdowns” on existing regulations are making hiring increasingly more expensive and complicated. And then there are the unknowns. For example, how will budget cuts in the wake of the debt ceiling deal affect businesses? What will happen to Greece? When will it be enough for Germany? What will the still-to-be-enacted provisions of the healthcare and social reforms do to insurance premiums?
All these factors have some economists talking about a “double-dip” recession. With that fear lurking, you can’t really blame employers for being cautious. After the devastating layoffs of the Great Recession, the last thing anyone wants to do is hire employees they will eventually have to lay off.
Reason #2: Companies learned to run lean
Another thing the recession taught employers is that they can do more with less. In previous recessions, employers were reluctant to make deep cuts to their workforces, so they kept more workers than they needed and productivity fell. Not so in this recession. Companies cut to the bone, and workers were just expected to work harder.
Now that companies know they can run lean, they are reluctant to add to their overhead, even as their business picks back up. Every candidate that is hired direct (perm) adds a huge payroll expense, plus they have to ﬁgure at least another 40 percent or more for employer taxes, workers’ compensation, unemployment, medical, dental, and vision insurance, etc. So a $100,000 direct-hire now costs an employer at least $140,000.
As an interesting fact I know that the return on investment (in payroll) of top employers worldwide is something around 1:12. Yes, for every Euro or Dollar they spend in a person they make sure to get 12 back… if that is not lean management I don’t know what it is.
And as technology advances by leaps and bounds, it’s getting even easier to get more done with fewer people. When companies ﬁnally reach the breaking point where they have no choice but to hire, they are only hiring as much as they absolutely have to, which brings us to the next issue.
Reason #3: The candidate dilemmas
Even when companies say they are hiring, it’s taking them forever to do so. Recruiters already know this and won’t be surprised to learn that it is taking hiring managers up to four times longer to fill open positions, according to The Wall Street Journal.
Why? Well, with all of the people looking for jobs, some hiring managers ﬁgure it’s a buyer’s market and are not willing to settle for anything less than the “perfect candidate.” Even when a recruiter brings a hiring manager a great prospect, it’s not uncommon for the hiring manager to ask for more candidates.
There is a different candidate dilemma in sectors like healthcare and technology, where there appears to be a true skills shortage. The Wall Street Journal stated that, although there are 4.68 unemployed workers for every job opening, companies say they can’t find the people with the right skills they need at wages they can afford in those areas.
The result: A ‘fundamental change’
The fact of the matter is that every company that stays in business will at some point have to hire again. But that doesn’t mean they have to commit to direct hires. Many instead are utilizing contractors to get the additional help they need while maintaining flexibility. As a result, contract stafﬁng has been one of the few bright spots in the recovery. In August, temporary/contract stafﬁ ng revenue rose 16 percent over last August, and temp-to-hire revenue rose 19 percent, according to Stafﬁng Industry Analysts.
That’s nothing new. If you’ve lived through previous recessions, you’ve probably seen for yourself how temporary/contract stafﬁng typically increases following a recession as companies test the hiring waters. But as Adecco CEO Tig Gilliam stated in a recent CNN interview, this time it’s different.
This recession was so tough, companies are very much more focused on ﬂ exibility going forward, and I think they are going to be looking for increasingly ﬂexible work environments in the economy as we get this recovery going.
Yes, I wish everyone good luck in planning their lives with more than a one year view of the future. Even more to my fellow staffers who suffer even more because of this than anyone else in the business.
This is no short-term ﬁx. Results of a recent study published in The Wall Street Journal show that 58% of employers expect to hire more part-time, temporary, or contract workers, not just over the next several months or year, but over the next five years.
A new workforce model
So what we are seeing is more of a permanent shift where companies are maintaining a core of direct employees and supporting that core with a larger outer ring of contractors. This new workforce model can help them navigate around the issues we’ve discussed by:
1. Allowing companies to remain lean because they can quickly bring in just the amount of help they need and just as quickly reduce their workforce when business slows.
2. Eliminating the fear of devastating layoffs because contractors know from the get-go that their assignments are for a speciﬁc period of time.
3. Limiting companies’ overheads because there are no employer payroll taxes, beneﬁ ts premiums, or administrative costs with contractors.
4. Allowing companies to “try-before-they-buy” because if they are not sure they have the “perfect candidate” or question a candidate’s skill set, they can engage them in a contract-to-direct arrangement.
The harsh reality
Business has always been challenging, but for many companies, it’s getting harder to make money than ever before. There are more government regulations, taxes, and more types of insurance. There are more attorneys waiting to pounce when a business makes a mistake. Technology has increased the pace of everything. Competition has increased. Margins have decreased, etc., etc.
Many of these challenges are not going away even when the economy improves. The harsh reality is that, even if the economy bounces back better than ever, direct job orders may never come back to the level you once enjoyed. Contracting used to be just a nice extra source of income, but it quickly could become THE source of income for many recruiters and other project managers or sales reps.
Companies are changing the way they’re doing business to survive in this new economy.
But I am left to wonder… is this really the best solution?
Reason #1 Against contract hiring: Agency fees are ridiculous
Any given company will pay a fee to a temp agency of 70% – 90% of the salary the temp will receive every month.
Meaning, if a temp gets $1 per hour, the company they are working in will have to pay between $1.70 and $1.90 for the temp to get that $1. and temps are no longer only juniors… there are senior temps, temps with leadership responsibility. Now calculate… For the $50,000 net salary a temp recruiter earns per year in Germany, or the $45,000 she/he gets in France, their asignee will have to pay:
In Germany $85,000 (+70%) and in France $85,500 in France (+90%!!!!).
If the country’s legal framework allows fixed term contracts E.g. Employing someone directly for a period of 1-2 years this move will save the company a lot of money, fixed term hiring keeps its flexibility AND you get rid of the other monsters that these companies bring to us.
And another important thing… in many countries a 12 months contract in this framework will allow your employee to get unemployment insurance from the government (Germany, Ireland, etc.) which in the normal temp basis (only 11 months hire) they don’t get. If you are going to get the best out of this person, promising them nothing in exchange… is it not only humane and fair to offer a little comfort in case of the worst as you are hiring them to be thrown to full life uncertainty? Think about it, with this employment situation, your temp cannot get a credit to buy a car, a house or pay their wedding… look a little behind the curtains.
Reason #2 Against contract hiring: Give a punch to employee engagement
Contractors these days are no longer blue collar workers. Today contractors have university degrees and work hand in hand with permanent employees in the same level of complexity, with the same level of confidentiality and I dare say the same level of results. A top performer leaving for no good reason is a low blow to any team’s morale.
Plus… how could anyone give their best performance until the end knowing they are out anyway? If they know they will leave and they were told once the contract was a part of the process to get hired?
You tell me how productive you can be if you have no idea if you are worthy or not, or for the simple matter… if you have no idea what will happen to you.
And then contractors only get reference letters from their employers, aka. the temp agencies… really this has no value.
Reason #3 Against contract hiring: Service? What is that?
An employee will go to the Human Resources department with different issues. Contractors get sent to their agency contacts which in my experience provide little or no guidance to the contractors around issues like immigration, insurance, taxes, sick leave, etc.
Most contractors get payslips that are hard to decipher as Egyptian hieroglyphics. From the moment they sign a contract, the documents are so unclear that there is rarely clarity on what the person will earn… an index per hour plus minus something… surprise every month… oh… and holidays are not paid fully, not even if they are only those stipulated by law. And in case their is a salary problem, no one to back them up.
Yes, many contractors finish their contracts feeling betrayed, maybe you get even in legal trouble… who knows…
With close to a decade in Staffing, I just don’t think this is the solution.