Tuesday, December 21, 2004

A short explanation about predicting recruitment levels

It’s that time again. My daily trawl of HR and talent related news is increasingly dominated by survey after survey saying that the job market will boom in 2005.

It is also the season in many firms when budgeting happens. Managers are asked about their forecasted recruitment for next year. My advice would be – take these estimates and expect increases.

It’s probably worth looking at what causes recruitment. A simple way of looking at recruitment demand within a firm could be:

Recruitment demand=population * turnover + expansion demand

Where Recruitment Demand is the number needed
Turnover is the rate of staff turnover (between 0 and 1)
Expansion demand is the how much the company wants to grow by (of course this could be a negative).

OK, so that in itself doesn’t help you much. What you need to do is understand the factors that will indicate future changes in turnover and expansion demand.


Turnover changes quite predictably during an economic cycle. When there is a slowdown fewer people enter the labour market but as confidence increases many of those who were dissatisfied start to come onto the market. Turnover increases as market supply increases, however salaries remain stable as the increase in supply is greater than increase in demand (wages are pretty sticky otherwise you might expect a slight decrease). We are pretty much at the end of this period, unless you are in countries such as Germany or Italy.

As the market continues to heat up the pent-up supply is used and demand then starts to exceed supply. Wages start to rise. The prospect of increased wages start to bring more onto the job market, though as I described before people tend to make trade-offs when deciding to leave so increased wages will affect some more than others.

Finally, as most recruitment is reactive, and few businesses build surplus into their staffing levels more people leaving causes those that stay to work longer hours. This has a negative impact on morale which again leads to higher staff turnover

Many businesses will therefore see an increase in staff turnover in 2005

Expansion Demand
There are many, many factors that could determine this but I am going to recommend that you look in particular to some lead indicators.

The number of contractors and consultants is an excellent lead indicator of future staffing levels. As the markets for these workers is more liquid than for permanent staff the number in your workforce will increase in advance of permanent staffing hires. Depending on who you believe businesses in the US and UK are running at about 15% up on the number of contractors compared to 12 months ago.

Expect your managers to come to you enquiring about increased staffing levels, and pay particular attention to parts of the business where the number of contractors has increased the most.

Another similar indicator is the level of hours worked within the business. This can be quite hard to measure accurately unless your business has a culture of timesheets. Maybe you want to build an index based on a regular questionnaire. It will also give you a way of judging morale.

Finally it is worth having a look at some business confidence indexes (also quite common in the press at this time). This presents a slightly different picture with some surveys suggesting demand has gone flat.

The dynamics of this system are quite complex, but given this you should be able to ask the relevant questions of managers when in discussion about next years’ recruitment targets.