Hiring Costs to Mount as Job Market Tightens: iCIMS 2015 Hiring Trends Report
Josh Wright | Economist Corner
Thursday, Mar 17, 2016

The job market is turning from a buyer’s to a seller’s market. New figures released by iCIMS reveal that the number of candidates applying per position is declining, which will ratchet up competition among employers. What’s more, in that competition, certain groups of employers are clearly faring better than others.

Highlighting the challenge for employers: in 2015 there was a modest but progressive decline in iCIMS’ Talent Supply/Demand ratio (TSD). According to iCIMS system data, the average number of applicants per job filled in Q1 was 24.0, and fell to 21.3 in Q4. This conceals significant variation among industries, with average 2015 TSD ratios ranging from 19.2 for professional and business services up to 39.9 for the “information” category, which includes media, publishing, entertainment, and telecommunications.

This trend is consistent with the results of the most similar government survey, the Job Openings and Labor Turnover Survey (JOLTS) published by the Bureau of Labor Statistics (BLS). According to the JOLTS, the number of job openings increased over 2015, from 5.0 million at the end of December 2014 to 5.6 million at the end of December 2015.

For months now, government statistics have indicated that the U.S. economy is near what economists consider “full employment” – the highest level of employment that can be sustained without provoking a hazardous outbreak of inflation. Despite the eruption at the beginning of the year of fears about a potential U.S. recession, the latest figures indicate that payroll growth remained robust in February.

Increased competition for talent should lead employers to offer more attractive compensation packages. Economists and other analysts continue to scour every data release for signs of accelerating wage growth, but still the upswing looks gradual. Flukes associated with the BLS survey schedule in January and February have contributed to the latest fluctuations in monthly earnings data, but if the normal relationship between unemployment and inflation holds – a subject of some controversy at the Fed and in the financial markets right now – then wages should pick up this year.

As it took a very gradual and cautious approach to launching rate hikes, the Fed was focused in 2014 and 2015 on concerns about “slack” in the labor market. This was shorthand for the idea that there may have been greater weakness in the labor market than apparent from looking at the unemployment rate alone. Despite unevenness in the recovery, such talk already feels like ancient history. Even New York Fed President Dudley couldn’t bring himself to say "slack" with a straight face in a recent speech, instead noting above-trend growth was “sufficient to… more fully utilize the nation’s labor resources.” Translation: the U.S. labor market is as close to full employment as anyone can determine. Indeed, the unemployment rate is already at the level the Fed estimates is the long-run steady state.

This backdrop only increases the importance for employers to fine-tune their recruiting strategies. On this point, the iCIMS Q4 report suggests there remains some work to be done. Average time to fill a position extended slightly over the course of 2015, and there was some variation among different regions of the U.S. and among companies of different sizes. The laggards may need to check whether they are conforming to best practices, or can innovate around their idiosyncratic challenges.

Structural factors may be at play as well as cyclical ones. Longer time to fill appears to be part of a modest but distinct trend over the last few years due to a variety of factors, as documented by Glassdoor, but the tighter job market is likely to steepen the challenge. This will be a costly development. The CEB estimates that the average vacancy costs upwards of $500 a day per open position. Over the 44 days that iCIMS found is its clients’ average time to fill, that amounts to a loss of $22,000 in recruiting costs and lost productivity.

With robust job growth continuing into early 2016, this is not going to get any easier for employers. Even if wage growth is contained, those opportunity costs are likely to mount. If employers want to go shopping for talent, they are likely to find the price tag growing – one way or another.

about the author

As chief economist at iCIMS, an industry-leading provider of talent acquisition software, Josh Wright leads a team of data scientists in analyzing emerging trends in the U.S. labor market