Let us look at the recruitment industry as an example. Here we have an industry that has been around since the beginning of capitalism and is one of the world’s largest industry sectors, worth a staggering $420 billion. Currently, when a company wishes to recruit, they approach a recruitment agent, pay them money and are offered a service that includes the attracting, managing and assessing of the candidates for the specific role, all very valuable and much needed services for the company but horribly out of date.
However, for the purpose of this exercise, I would like you to consider the recruitment industry in its purest form, a commodity industry; where employees are the commodity and employers are the consumers. Now, let us consider that a employer wishes to invest in a new employee, the consumer wishes to purchase the commodity. Currently, using traditional recruitment methods, in order for this transaction to take place, the consumer would have to pay around 20% the price of the product, to an external agency for the transaction to take place. Vis-à-vis, the company would have to pay around 20% the base salary of the employee to recruit him/her. Surely this high price for recruitment is a disincentive for the employer to recruit, surely if this monetary barrier were to be provably demolished, companies would be more inclined to take on new employees.
Proof of this lies in the free movement of trade between countries. When the monetary barrier of trade is taken away and countries are able to trade freely amongst one another, lo and behold, we find that more commodity is sold and not less. I argue that, with the reduction in recruitment fees, we will see more jobs created and not less. If we can find a recruitment solution that is easier and cheaper, if not free, then our companies will suddenly have a whole host of jobs they would need filling by our unemployed.
There have been dramatic changes in technology over the last couple of decades and yet, in the last 20 years, recruitment agencies have not changed a bit. They persist in over complicating the recruitment process to try and create value in the service they provide, justifying to themselves, and to their clients, the massive premiums that they charge. Twenty years ago, I would have been the first one to put my hand up and say that the recruiters are worth their salt. One needed a vast knowledge and network of a particular sector to be able to target specific skill demographics effectively and pick out the very brightest from the candidate pool. Today, it is a different story and individual companies, have been empowered though the internet, to target and attract applicants using social media and online job boards. The true value comes in the managing and the assessing of candidates and this can be done utilising specialist software that is provided free of charge.
You could just about justify forking out, in excess of £5000, to fill a single position, if the candidate was a talent that would stay within the company for an extended period of time. However, in the current job market, candidates do not want to be working in the same organisation for the majority of their working lives and tend to chop and change between companies as well as industry sectors, typically employees stay around 3 years in a single company before moving on. If these statistics are to be believed, doing some quick maths and based on the conservative assumption that companies pay 20% base salary for a hire, companies on average are paying more that 6.5% the cost of all their employees on just recruitment!
Before you write off the recruitment agencies too quickly, you need to remember the plight of the estate agents 10 years ago. People were talking about the end of estate agents with the internet offering the power to cut out the middle man, yet still they find themselves managing to create value by over complicating the process and scaring sellers into seeking solace in the safety of their bureaucracy. It's unfortunate, but the same is starting to be true for the recruitment agents as they start to spin their bureaucratic veil to protect their industry from modernisation.
Let’s hope, for the sake of our unemployed, that recruitment modernises soon.