Racing to the Bottom: The New Era of Recruiting
It seems there has been a perceptible change in the business climate since that fateful day when the government first told us to stay six feet apart. We may have taken the advice both literally and figuratively. Our relationships seem strained. Business culture feels calloused and transactional. A culture where “the ends justify the means” seems to have developed while we were struggling to keep our heads above water – and we’ve devalued our business relationships as a result. I look at everything through the lens of the recruiting and the labor market – because that’s my vantage point – but there’s a larger story here. One that relates to all businesses. One that relates to us as people.
Racing to the bottom may have become the new norm, but perhaps there’s a way out.
The Trillion Dollar Injection
The labor market has been a hot topic of conversation. It’s been picked at, scrutinized and debated throughout this multi-year inflation and deflation cycle and has become the new basis for Fed policy maneuvers. Yet no one seems to mention one important fact: Everything that has occurred in the labor market over the last 4+ years – and I mean EVERYTHING, good, bad and indifferent – is a direct result of the financial stimulus.
Starting in 2020, five trillion dollars were pumped into the US economy—for good reason. The entire economy was about to collapse, and everyone in America was about to lose their jobs. The government stepped in. It was the right thing to do, and it worked.
I have an 8-year-old son who is fascinated by numbers. He told me that a trillion seconds is equal to more than 30,000 years, so I had to do the math. He’s right.
Five trillion seconds is equal to 158,000 trips around the sun. From here to the Paleolithic era, at a rate of one dollar per second.
You get the point. That’s a lot of dough.
So, with all this money sloshing around in the economic system, it’s no surprise there were some unintended knock-on effects. Almost immediately, the labor market began to overheat. Business rebounded. Simultaneously, there was an acute scarcity of labor. Reminder: Up to this point, the entire country was locked indoors and having an existential crisis about what they were doing for a living. Young people vacated urban centers. Millennials got hitched and started nuclear families closer to home. A great demographic reorganization was underway. A cultural reckoning in the workforce. All this occurred while employers were desperate to respond to rising demand and staff their operations. Like a kid with a sugar high, businesses started to move too fast and take risks.
It got sloppy. Quick.
It still is to some extent.
The Economic Tide and Its Revelations
I sure didn’t go to Wharton, but I’m sure at some point, even they discuss economics in the simple terms of “buyers vs. sellers” markets. Some conditions favor one or the other, which tend to ebb and flow over time, obeying macroeconomics the way the tide obeys the moon. Warren Buffet’s famous saying, “When the tide goes out, you can see who’s swimming naked,” is a reference to the kinds of fraud, speculation, and unscrupulous behavior that generally exist when things are going too well for anyone to notice. Well, by 2021, the water was up to our eyeballs.
The recipe goes like this:
Take one serving of pandemic.
Add trillions of dollars.
Shake vigorously.
Serve.
Cue the shameless salesmen.
The Recruiting World’s Perfect Storm
In the recruiting world, it was not solely a matter of supply/demand that effectively chummed the water. Incredibly enough, other conditions accelerated the race to the bottom.
Suddenly, the barriers to entry to business creation just went POOF. They vanished.
Remote work conditioned much of America to the legitimacy of business being performed from anywhere. And while that argument can be made (because any broad-stroke argument can be used to justify virtually anything), we tend to naively overlook some important details on our way to the promised land of working from our basements in our sweatpants. Like — what’s good for an employee MAY NOT necessarily be good for an EMPLOYER.
The Erosion of Business Barriers
The barrier for entry for any business is necessary to keep disreputable characters from gaining easy access. The cost of a local office lease, hardware, software, infrastructure for an employee base (salary, benefits, 401K), legal accounting, etc. – is not only a cost of doing business – it’s a barrier that ensures that the vendors you are partnering with have sufficiently succeeded long enough to either self-capitalize or convince lenders they’re credible. This tends to weed out the duplicitous types because it requires commitment, investment, visibility, and accountability in the community you serve – all things you don’t have time for if you’re just trying to make as much money as possible while the going is good. When we suddenly shifted to culturally accept anyone with a laptop and an internet connection as a “real” business, we inherently accepted a huge spike in risk – much of it undetectable at first glance.
The Rise and Fall of Opportunistic Industries
Some industries flourish overnight and then recede as quickly as they come. How many people became real estate agents during the blisteringly hot residential market just before the interest rate rise? They were earning commissions from people buying houses sight unseen. Full ask offers. No inspection, no price negotiation. Do we really think that every newcomer to the industry was well-intentioned? That they didn’t cut corners, and it wasn’t just a blatant money grab? How many people were committed enough to stick through the lean years that followed?
Recruiting isn’t much different. In the past several years, recruiting has seen an influx of new “agencies” pop up in every local market, where they have no prior connection. They come from out of state (with lower operating costs), and many are showing up outside this country. The design field, in particular, has been plagued by recruiters from outside the U.S. Many, in fact, are working from England. They need nothing more than a US phone number purchased online. Clearly, they’re coming because their markets have huge over-capacities, so they’ve spilled into this one. It’s simple supply and demand. The demand was everywhere, so the suppliers showed up. Sure, they’ve got that charming accent (I admit, my Queens brogue can’t hold a candle to their King’s English), but have we considered the risks of doing local business transactions with someone who isn’t even here? Who’s not even operating as a legally registered business entity in the United States?
The Hidden Risks of Remote Recruiting
As it turns out, there’s plenty to consider.
If you’re paying a premium for a product – any product – and you can pay the market rate for something with low associated risk or the market rate for something with high associated risk, which would you choose? What risks are there in working with companies without long-term interest in being in your market space (do you think recruiters actually want to work the night shift in the UK forever)? What corners will they cut? What dubious practices will they consent to? Do they respect local Department of Labor laws? How does that impact you? If someone can never be held liable, can they be counted on to do the right thing? Go to a NYC subway station, open the emergency exit door, and see how many people will pay the fare if they can walk in for free. Do we really believe everyone is conditioned to “do the right thing” when no one is looking? Of course – some of us are (I, for one, still suffer from an epic amount of Catholic guilt) – but let’s be honest, this is humanity we’re talking about. There are a lot of selfish and lazy people out there.
Tell me if you think that the contract you signed with a company that exists in another country is legally enforceable. Do you think you would have any legal recourse in a dispute over a 20K fee with a company in England? No, you wouldn’t. The attorney’s fees would eclipse what you’d ever hope to recover. This, in essence, renders your agreements completely useless. Remember – the contract is there to offer YOU protection. If it is unenforceable, you will get burned.
The Evolution of Recruiting
Before we get further, let’s remind ourselves – why are you paying for recruiting in the first place?
Recruiting has consistently grown since the internet era of the late 90’s. Prior, job tenures were much longer. Changing jobs year after year was the exception – and staying with an employer for decades was the rule. But if Monster.com and the internet job boards were the first to pierce those social norms, they were all but shattered once LinkedIn showed up. Tenure has been plummeting since. Do we really believe AI will reverse this trend? I hardly think so.
Along with the pace of employee turnover, there’s been a rise in cultural momentum calling for pay equity and an end to discriminatory practices in hiring. Responding legislation and labor regulations afforded workers new protections. This, of course, is a good thing, but we’d be naïve to think that this has not led to frivolous claims. Employers, nervous about making missteps in interviewing, increasingly turn to recruiting to mitigate exposure. It makes good business sense. Lower risk ultimately benefits your bottom line. As a result, the relationship between recruiting and businesses has become more enmeshed over the past two decades.
But what exactly is the service that you’re paying for?
Here’s how recruiting has always worked: You, the client, are looking for a needle in a haystack. I, the search firm, find needles for a living. You and I meet so you can describe the specific needle. If we agree to terms, I jump in the haystack to look. You only pay me under the condition I find it AND successfully navigate the process to an accepted offer. It could take me two days, or it could take two months to find the needle. Success is not guaranteed. Countless variables could leave me empty-handed at the end of the process. The fee represents the investment risk vs. the chance of a favorable outcome. The terms should be set to place the risk directly in the center of the table between me and my client.
Here’s how recruiting has worked during the frenzied, post-pandemic era:
You’re looking for a needle in a haystack. A random individual with no local track record or established credibility calls you and offers a twig, a chopstick, and a tuning fork. They say, “They’re all great needles; just pick one.”
The premium you pay is the same as you would pay to a company that is working specifically for you – but when you are responding to someone marketing a resume to you, are they actually working for YOU? Who set the terms of the engagement – you or them? Let’s not forget you’re certainly not the only person who’s received a call today. They are marketing those candidates to ALL of your competitors as well. They have little or no interest in what serves you best; they are simply putting the cart before the horse and offering you a solution before they ever asked if there was a problem in the first place.
The Current State of Affairs
So, to recap, the past four years have afforded us an artificially stimulated economy that has led to fear and loathing in the labor market. An extreme “sellers’ market” at a time when the floodgates were left open for bad actors in recruiting because we were all hoodwinked into believing that remote work could effectively globalize local marketplaces without risk. We’re now overrun by an endless stream of sales calls, plaguing our cell phones even (a wonderful new level of intrusion), with vendors from Florida to Mumbai flooding our local markets, pretending they are right down the street – all of it, soon to be exacerbated by AI (if it hasn’t been already).
The Upshot
There’s still good reason to believe that this is transitory. Common sense would say that we can’t continue to accept lower professional standards once the evidence piles up, confirming the losses. There is always a hidden cost for an easy fix, and the bill will come due. We’ve been in “buy now, pay later” mode for too long.
It’s not 2021 anymore. Business may not be stellar – but it’s stable. Resignations have all but ceased; the staff is complaining less and showing up more. It’s an election year, an unpredictable stock market, and we’re still analyzing every word Jay Powell says. There’s no need to capitulate to vacuous, inexperienced recruiters. I understand that good talent is not always easy to find. The employee retention you’re currently benefitting from results from the stagnant labor market. When people don’t change jobs as often, it’s harder to find the right people when you need them. There is still a need for recruiting services – but let’s acknowledge that it’s a buyer’s market. That means the terms should skew to your benefit – not the other guys.
Action
Meet your vendors in person. Risk has a way of dropping when you meet eye to eye and have the chance to size someone up beyond their headshot on a zoom screen. If your recruiters are not local to you, consider if they really can give you what you’re paying for. If you’re working with an entirely “remote business” or “solo operator,” ask yourself if they slashed their operating costs at the expense of the work product they are offering. Any mitigation of quality will cost you more time and effort to hire. They will make more mistakes and expose you to risk and liability.
Look carefully at contracts. There are terms and conditions that need to be considered. Everyone’s situation is different; you need equitable terms for both parties. The dubious salesmen are clever. Read carefully.
The Shameless Plug
If you’ve made it this far, you know I put at least a couple of thousand words of thought into this – so if you’ll allow me this one shameless plug:
Call me.
Call my Partners. Call my team. We’re in New York, Boston and Denver. This firm has been running successfully for over 13 years. Our experience in the field goes back even further. We’re experts in design, construction and development. Our reputation is high. We’ve worked hard to earn it. We’re still doing things the right way.
This will pass. We will be here when it does. We look forward to talking to you about YOUR BUSINESS.