Category: Talent & Market Insights

Wages and Recruitment: The Pressure is Building

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The scene opens on an office with two people facing each other across a desk. The one behind the desk takes a piece of paper, and with exaggerated strokes, writes an unseen amount on it, folds the paper in half and slides it slowly across the desk. There is tension in the air. The paper is picked up, unfolded and read. The entire plot hinges on whether the amount, still invisible to the viewer, is accepted or rejected.


This performance has played out countless times in films and television. For those attempting to recruit in a tight labor market successfully, the scene may feel uncomfortably familiar. Determining the right wages at a time of record high job openings and low unemployment can seem daunting. Offering wages that are too low can repel the best talent while offering wages that are unnecessarily high can impact a company’s profitability. Understanding the causes of current wage pressures allows employers to make informed decisions that will have a positive effect on their recruitment processes.

Beyond Supply and Demand – Causes of Wage Pressure


It’s Economics 101: the cost of goods and services rises when their availability decreases. When there is low unemployment, available workers are scarce. Companies that are seeking to attract talent need to source from a limited pool of available workers as well as those who are currently working. Since the top reason that workers quit their jobs is for better pay elsewhere, companies face the dual challenge of finding the right salary to offer the workers they are trying to attract while also retaining their current employees. While this supply and demand scenario is critical to understanding wage pressure, there are other important factors at work in today’s recruiting environment.

Cost of Living


Inflation continues to remain at low levels in most major economies, but the cost of living is rising in many places due to high housing costs. This is especially true for cities that are major business and financial centers. Companies recruiting in these metropolitan areas need to factor in the current and potential future cost of living in these locations when determining their wage ranges as part of an effective recruiting strategy.

Competition from the Gig Economy


The gig economy was not a factor in wage pressure just a few years ago, but it is an integral part of today’s talent landscape. Uber, the company that pioneered this sector, surpassed 1.5 million drivers last year. Some people may choose to work in the gig economy to supplement the income from their full-time job. For others, gig work is an attractive alternative to working set hours, going to an office and having a boss. Employers that want to attract talent to fill positions need to know how their pay rate compares with those choosing to work as independent contractors by tapping on an app.

Skills Shortage


Supply and demand also come into play when there is a shortage of workers who possess the skills required by employers. Consider the example of welders in the United States. In 1988, there were about 570,000 welders compared to the 360,000 in 2012. The American Welding Society estimates a 290,000 job deficit for welders by 2020. Due to a skill shortage and increased demand, wages for welders are projected to increase at nearly double the rate of the average U.S. worker. Wage pressure resulting from skills shortages is a global issue. Employers should factor in the availability of workers with the required skills, or those that can be trained to acquire these skills, when determining pay rates.

What Wage Pressure? 


The United States and other leading economies have had sustained job growth and low unemployment for an extended period, without experiencing a corresponding substantial increase in wages. However, there are leading economists that believe that wage inflation is imminent. Employers seeking to find the best talent should take note of the current economic environment in the U.S. A recent article in Bloomberg reported that during the current economic cycle, the rate at which workers are leaving their jobs has accelerated to its highest point in the in the past six months. This is an indication that the strong labor market is giving workers the confidence that if they leave a job, another one can be found without difficulty.


The article goes on to cite The Federal Reserve Bank of Atlanta’s wage measure for job switchers, those who leave one employer for another, which has also rebounded to cycle highs in recent months, reaching 4.4 percent in March and 4.0 percent in April. The article goes on to note: “Seems like a good environment for workers facing stagnating real wage growth to start looking for greener pastures, forcing firms to boost compensation more aggressively to attract and retain employees.”

Relieving the Pressure on Recruitment


With so many factors to consider, how can employers determine a wage range that will attract the best talent without causing an unnecessary negative impact on profit? Companies should consider partnering their recruitment efforts with an expert, such as a recruitment process outsourcing company or RPO.  RPOs can provide information on current wage rates, the supply and demand of workers in specific markets and the ability to source and screen candidates. An RPO provides the steps to deliver the best candidates while delivering an employer the insight to offer the right wages to attract the right talent. By partnering with an RPO, an employer can leverage an understanding of wage pressure into an asset in its recruitment efforts.

Positive Global Economic Growth and Its Impact on Talent Acquisition

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According to the International Monetary Fund’s (IMF) World Economic Update, global economic activity continues to trend upward. Global production is estimated to have grown by 3.7 percent in 2017, which is 0.1 percentage point faster than projected and half a percentage point higher than in 2016. Global growth has been broad-based, with exceptional growth in Europe and Asia. As a result of better than projected growth in 2017, global growth forecasts for 2018 and 2019 have adjusted from 0.2 to 3.9 percent. The adjustment reflects amplified global growth momentum.

Positive economic growth numbers affect both large, multinational and small, regional organisations’ demand for and ability to recruit talent. To stay competitive in the battle for talent, organisations need to understand current economic trends and the effect they have on the labour market. In this post, we cover the impact of global growth on labour markets, how workforce planning can help organisations navigate growth and the need for flexible talent acquisition programmes to manage fluctuations in hiring needs.

Strong Global Economic Recovery and Increased Competition for Talent

While the global economy continues to grow steadily, the working-age population has stagnated. According to a demographic analysis conducted by the Wall Street Journal, by 2050, the global population will grow by 32 percent; however, the working-age population will increase by only 26 percent, a 6 percent drop off.

What’s more, in advanced nations, the working-age population will decrease by 26 percent, while according to the U.N., middle-income nations will see it rise 23 percent. Shrinking labour markets and talent pools will become a serious challenge in many major economies as labour market shortages could reach heights unseen in decades, especially in the U.S., Japan, UK and countries in Central and Eastern Europe.

Labour shortages cause increased competition for talent. Thanks to steady economic growth, organisations are on better financial footing than during the recession. Financial stability can lead to more investments in expansion and product development; however, skills and labour shortages can be stifling to growth.

This reality necessitates that business leaders reassess how they attract, develop and retain their organisation’s talent. Below, we list a few ways organisations can help bridge the talent gap as well as ways they can mitigate the effects of talent shortages:

  • Organisations should encourage recruiting teams to source from diverse demographic groups to find talent.
  • Organisations should look to cultivate a strong talent pipeline consisting of passive and active candidates to nurture and engage when vacancies arise.
  • If possible, organisations should partner with local governments to invest in infrastructure, technology, education and training programmes to help underqualified and less-educated workers improve their employability for the jobs of the future.

Planning for Talent Acquisition to Accommodate Economic Growth

Economic growth is transforming global businesses and the international talent landscape. Technological advances, further globalisation of markets, changing demographic trends and increased competition are changing the way organisations see talent acquisition in virtually every industry. To stay ahead of talent shortages and increased competition for candidates, organisations should take proactive steps, including integrating workforce planning into their business planning process.

Workforce planning is a process used to align the needs of an organisation with those of its workforce to ensure it can meet compliance, service and production requirements. Workforce planning can help organisations analyse their current workforce, determine future workforce needs and identify the gaps between the current and future workforce. The workforce planning process should include stakeholders from multiple departments of the organisation collaborating closely together to establish organisational goals and the talent needs to support them.

Essential components of workforce planning include:

Workforce Demand Planning

Workforce demand planning involves taking into account the key mission, goals and future objectives set by an organisation’s leadership and assessing the current workforce to determine if it is well-aligned enough to achieve them.

Estimating the Labour Pool

Estimating the labour pool entails researching the supply and availability of labour and comparing the talent supply with an organisation’s talent demands from both internal and external sources.

Managing the Gaps

Managing the gaps requires that the HR department establish tactics to proactively resolve issues that may arise between workforce demand and supply. This ensures that positions vital to achieving previously outlined goals can be filled in the face of labour shortages.

Economic Growth and Increased Competition Demand Flexibility in Talent Acquisition Tactics and Strategy

A competitive labour market and rapid innovation are spurring a need to reinvest in recruiting. More frequently, organisations are turning to talent acquisition experts such as recruitment process outsourcing (RPO) providers. The global RPO market grew by 17 percent in 2015, according to Everest Group, a consulting and research firm. The majority of global RPO growth is attributed to new deal activity, which grew at a rate of more than 18 percent from 2015 to 2016 and continues to trend upward.

For high-growth organisations, an RPO provider offers the benefit of a consultative partnership where the provider acts as extension of an organisation’s HR department to supplement and amplify recruiting resources. Throughout the engagement, RPO providers work to transform recruitment processes to help the client reach its long-term hiring and business goals. Experienced RPO providers embrace a mix of talent acquisition strategies, technology and emerging recruiting techniques to source and hire talent. Moreover, an RPO provider with experience hiring talent globally can leverage data to determine the best global talent markets to source talent from. The provider will also use global employment data and trends to design strategies that will attract talent to a client’s organisation.

RPO solutions provide scalability and flexibility to organisations by outsourcing the entire or parts of the recruitment process to an external provider. An RPO provider scales its team according to a client’s unique needs, deploying more resources for high-volume hiring periods and recalling resources when hiring slows. An RPO provider’s experienced team of recruiters, use of cutting-edge recruiting technology and recruitment marketing tactics make it well-equipped to handle scalable hiring needs. Because of the flexible nature of RPO programmes, providers can better navigate fluctuating hiring demands.

Contingent and Gig Workers

Organisations that wish to develop a more agile talent management strategy and position themselves for future growth are adopting a more scalable and fluid approach to recruitment, with contingent hiring at it its core. Research conducted by Ernst & Young (EY) revealed that organisations are increasingly embracing gig and contingent workers as a means of adapting to rapid growth and the changing nature of work. Contingent and gig hires are not a fad. In fact, 40 percent of respondents to the study expect to use contingent labour in the years ahead.

From the employer perspective, the uptick in temporary hiring and the growing utilisation of gig economy workers has provided substantial benefits. Below, we list a few of the benefits reported in the EY research:

  • Contingent hiring helps organisations better control labour costs by setting prescribed budget limits.
  • Organisations are more flexible in the skills sets and expertise they hire for.
  • Contingent labour provides organisations with the ability to rapidly respond to changes in demand for labour.

To manage contingent workforce needs, organisations can turn to managed service providers (MSP) programmes to support gig, temporary, temp-to-hire, direct hire, independent contractor (1099) administration and other needs.

Benefits of Engaging a Managed Service Provider:

  • An MSP programme delivers immediate ROI by analysing an organisation’s total spend and identifying ways to optimise and drive cost savings.
  • MSPs set baseline performance metrics to track improvements and quantify business issues, such as the cost of turnover and the lost productivity that follows. This provides clients with a real-time view of costs and areas for improvement and savings.
  • MSPs not only manage staffing suppliers and services spend but also work to streamline operations to scale and match growth cycles.

Conclusion

As the global economy continues to grow and the demand and competition for talent rises as a result, organisations need to stay abreast of the scope of talent available on the market. Talent acquisition specialists have adapted to the changes in global workforce trends and are equipped to provide organisations with the expertise and resources needed to navigate an ever-changing and challenging talent landscape.