Friday, August 23, 2013

Why are there many more openings than hired employees?

A lot of the economics blogosphere has been quietly discussing this recent column by Peter Orszag, the former director of the Office of Management and Budget where he lays out a bit of a puzzle about the current state of the U.S. job market:
An odd puzzle is taking shape in the labor market: Over the past three years, the number of job openings has risen almost 50 percent, but actual hiring has gone up by less than 5 percent. Companies are advertising a lot more jobs, in other words, but not filling them. 
To get some sense of how significant this is, consider that if, since June 2010, hiring had risen a third as much as advertised jobs have (rather than only a 10th), and nothing else were different, job creation would be roughly 500,000 higher each month, and the unemployment rate would already be back to normal levels.
Orszag lays out four different hypotheses, all of which have been discussed widely since the Great Recession, but does not draw any conclusions. (The column is worth reading in full.) The 4 hypotheses are:
  • The classic "skills mismatch" explanation, i.e. "We can't find enough CNC technicians!"
  • Low offered wages
  • "Internal markets" theory, i.e. companies are finding ways of promoting people from within
  • A reduction in "recruiting intensity", i.e. they're advertising, but they aren't really looking  
All these theories have some evidence in the academic economics literature behind them (not that I can evaluate them reliably...)

I wonder if we are seeing a similar pattern in the chemistry world. Certainly (and this is a gut feeling and no more), the ads in the back of a physical copy of C&EN have basically dwindled to perhaps 1 industrial ad every two weeks or so. In that same vein, I can say that the last job ad by a major US-based chemical or pharmaceutical company in C&EN was probably 2 or 3 years ago. (Of course, the online C&EN Jobs database has routinely gotten a smattering of job postings directly from larger corporations.) In that sense, I think that "recruiting intensity" is definitely trending downward since 2008.

Are low offered wages keeping out-of-work chemists on the sidelines? Pfffft. Don't buy it for a second. Same with the "skills mismatch" theory.

I like the "internal markets" theory a lot, even though I have little evidence for it. (The paper that most recently and most prominently mentioned it is here; damned if I understand much of it. The basic idea: labor mobility is way down, because companies are doing more hiring from within.) Here's Orszag on that theory:
The third possible explanation is that the gap between job advertising and new hires reflects the growing use of companies’ “internal” labor markets. A variety of other indicators — including fewer people moving to take new jobs — suggests that companies are often filling openings from within. Many nonetheless advertise such positions externally, which would boost the job-offer rate in the data. The survey counts only jobs filled from outside a company in its statistics on hiring, so the increase in job-offer rates for this reason would not correspond to an increase in hiring rates. 
This possibility doesn’t explain why the gap is wider for smaller businesses, because larger companies have more robust internal labor markets. But it is consistent with anecdotal evidence that external applicants are facing more onerous interview processes and that companies are hiring outside job candidates only slowly and cautiously.
I personally know of one "internal markets" hire, but I'm sure that are more, i.e. permanent interns sllooooowly becoming actual full-time employees, etc...

Readers, what do you think? Which hypothesis matches your experience in job hunting recently?

7 comments:

  1. Shouldn't "A reduction in "recruiting intensity" be 'an increase in screwing with people'?

    I know for a fact (don't ask how....) small companies will post job ads to try and make themselves look like they're growing (and, surprisingly, this does fool some investors). I assume this less the case at big companies, but wonder there if it's not HR idiots posting job ads to justify their own marginal value to the firm?

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  2. I know at my university where I work HR requires ANY job opening to be posted, even if it is a candidate within a lab that is to get a promotion in the lab. Also, in light of the fact that half of the post-docs where I work are PhD's from mainland China that would suggest that half the post-doc job postings will not be filled by americans. I know, of course, that these jobs it may be difficult to find american PhD's to fill ehtem--many are smart enough to know that if you post-doc in my 2nd tier institution then you will probably never get a decent job afterward.

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  3. recruitment companies advertising for non-existing jobs and only interested in having your resume in file, for every job-opening 10 recruitment agencies will try to fill the same vacancy and advertise (Rik)

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  4. In my area, there are some small companies that post the same job ads every 2-3 months. I contacted one company, but unfortunately have never heard back.

    Where should we report this advertising for non-existing jobs?

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  5. 1. There's definitely some skills mismatch although not in the way they think. The problem is that your typical HR "professional" would not know a CNC technician if he stood in front of one.
    2. I don't believe that for a second - if this were the case, CAS building, for example, would be empty right now.
    3. Sure, it's called temp to hire
    4. Now, this one they nailed.

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  6. I worked for a small company that did contract research. When things got slow they brought people in to interview so the staff could work on their interviewing skills, and so they would have qualified people green lighted and waiting in limbo if a big order came through. I wasn't the only one who was frustrated about interviewing people when there was little chance anyone would ever be hired. The company still has a dozen jobs listed, and there were only about two dozen that were employed at any given time. Way more "openings" than there are ever going to be hires.

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  7. I think HR personnel who handle applications can avoid the 1st reason by streamlining the application process. Research about the requirements of a specific job always helps or if all else fails, there are consultants who know a lot more about the job . The most plausible reason for me would be the 3rd. It's much more economical for companies to do it this way than to hire externally.The fourth one would just be plain cruel if it were true. Why would anyone waste resources on aggressive advertisements of job openings that virtually do not exist? But overall you've made good conclusions on the reason. Now the problem is how do they fix this trend to better accomodate the currently unemployed?

    Donna Roland @ epiphanystaffinggroup.com

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