Hire Economics - A Primer

Few would argue that the public job market is not very effective in bringing buyers and sellers together. Job-seekers and companies alike are frustrated by it’s inefficiency, the cost, the time it takes for nothing to happen, and when a decision is finally made to buy and sell, we often discover the deal we made was not as good as we hoped. Bad information and bad economics are at the root cause. An understanding of “Hire Economics” offers some potential solutions.

Supply vs. Demand, Price and the Time Value of Money

In any market there is generally a buyer and seller. In the job market it’s sometimes hard to tell them apart. Obviously, if the demand for candidates is greater than the supply, the candidate has the stronger bargaining position and the price should rise. If there is an excess supply of strong talent the company can dictate the terms and the price will decline. Since supply and demand is fixed, without some sort of flexible pricing built into the system the market can’t naturally come into balance. Unfortunately buyers and sellers in the job market predetermine the price before they even start bargaining, so equilibrium is never reached. This is what’s referred to as a frozen market.

Compounding this inflexibility is the implicit assumption on the company side that the supply of top talent is greater than the demand. While the assumption might be valid for high volume positions, it’s preposterous, flawed and fool-hardy to use in a talent scarcity situation. Even if the excess supply assumption is true, it further assumes that a top person is willing to accept the starting price offered, is a high achiever and is willing to do a job which on paper appears to be a lateral transfer. This is an unlikely scenario and why the job market is, at best, only useful for filling rank-and-file positions where average performance is acceptable. Few companies fully appreciate the implication of this.

It’s About Time

In the current market, too many long-term decisions are made based on short-term information. Companies box check skills and compensation, and job-seekers box check the title, location, the company name and the compensation. Yet 3-4 weeks later when all of the information about the candidate and the job is on the table, compensation is of lesser importance in the final decision. Companies often modify their initial price and list of requirements to attract a stronger person, and stronger people will often take less than their initial demand for a better long-term career opportunity. This is how time enters into the decision, but few players in the market are willing to invest the time necessary to fully understand what each party is buying and selling.

Despite these challenges there are ways to make the job market more efficient. Here are some starting points:

  1. Modify the job to fit the candidate, don’t force the candidate to fit the job. Start with flexibility on all fronts including compensation and the scope of the job. Under this scenario buyers and sellers would naturally engage in open discussions before defining their requirements.
  2. Advertise career opportunities that emphasize what the job-seeker will be doing not what they need to have. This will attract more top performers who are more interested in the career growth opportunity. This alone will put compensation into the back seat.
  3. Slow down and force full disclosure. Just by treating the hiring decision as an investment requiring a target ROI even if hard to quantify, rather than a fixed expense, increases the importance of the decision and how it's made.
  4. Reengineer the transactional “Apply Now” button and auto-match skills process. This should be replaced by an “Explore Now” option. Ask those interested to submit a half-page write-up of their biggest comparable accomplishment and a link to their LinkedIn profile. Only the truly qualified will take this extra step if the job seems compelling. (This two-step is perfectly legal. Here’s a white paper from The Essential Guide for Hiring & Getting Hired validating the concept.)
  5. Don’t engage in Day 1 box checking conversations. As part of the “Explore Now” conversation and before box-checking skills, recruiters should review the candidate’s biggest comparable accomplishment to see if there’s a fit. Job-seekers should ask the recruiter to describe the biggest challenges and potential impact of the job before asking about compensation. This simple shift will change the nature of the subsequent discussion and add flexibility to the market.

Hire Economics – Afterword

The microeconomic cost of a bad hiring decision for the company is lower performance and increased turnover. The lost opportunity cost is far more reaching. The existing job market and it’s reliance on skills-infested job descriptions and inflexible pricing precludes the hiring of diversity candidates, high potential candidates who are light on experience, fully-qualified candidates who aren't interested in lateral transfers, older candidates who have a different mix of comparable experiences, and returning military veterans who have remarkable experiences that just don’t fit into some convenient skills-based box. In light of this, maybe everyone should take Hire Economics 101 before making these types of hiring decisions.

______________________________________________________

Lou Adler (@LouA) is the Amazon best-selling author of Hire With Your Head (Wiley, 2007) and the award-winning Nightingale-Conant audio program, Talent Rules! His latest book, The Essential Guide for Hiring & Getting Hired, is now available on Amazon. You might want to join Lou's new LinkedIn group to discuss hiring related issues.

Photo credit: Igor Normann / Shutterstock

Taleda Young Roth

Nonprofit Organization Management Professional

10y

Great Article that desires to be heard!

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Taleda Young Roth

Nonprofit Organization Management Professional

10y

I really did enjoy reading this article. I know from personal experience all points mentioned can and should be looked at closely. I too am frustrated with the internet process in searching for employment, especially when you are more than qualified for the position. These points mentioned would give more of an even playing field across the board for both the employer and job seeker. This is a

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Deena McClusky

Snapshot Specialist at Progressive Insurance

10y

Many awesome points but I disagree with keeping compensation off the table. HR departments constantly complain about how overburdened they are, and yet they post jobs with no reference to even a range of compensation. This wastes the time of both the company and the applicants who may not be picturing the same financial range. Don't make people jump through a million hoops to apply, including requiring they offer up their own salary history, if the employer is not willing to offer up the range for the position.

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Jerry Tedder

Trainer/Job Coach at Temporary Resources, Inc.

10y

I want to comment on step 1; modifying the job to suit the candidate. I came to TR 6 years ago from working in Diecast for 20yrs and also being a pastor. They did not have a job for me but decided they needed to create a new opportunity and see if it would work, so they created the job; trainer/job coach. The requirements were laid out as specifically as possible to include industrial equipment training as well as orientations for clients and onsite walkthroughs to evaluate worker progress. The primary goal was to supply client companies with good workers who were qualified to do the job with the desire for this to be a career opportunity. My job was to do all that I could do through training,orientation and testing as well as on the job coaching to help them be successful. after 6 years, I am now training trainers to do the same.

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Christophe Bourdoiseau

Marketing Manager - Independant Music Professional

10y

As a job seeker with strong & varied, but not necessarily congruent skills set I see the value in this article. It is intangible, yet allows me to realize some of the quirks that are built into the status quo of the "job market"! Thank-you for the help in shift of personal perspective.

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