Why most recruitment agencies are suffering while unemployment is low

The unemployment rate is the most quoted figure in any report on the Australian labour market.

If it’s going up, that’s reported as bad news (for workers and governments), and when it’s going down, it’s good news (more people employed means more taxes paid and more consumer demand).

However, the unemployment rate is an incomplete picture of the labour market.

It’s especially incomplete in 2024, when for most recruitment agencies, a 4.1% unemployment rate would mean happy days but largely the industry has been suffering declining sales and profit.

Hays ANZ the bellwether agency for the local industry, most recently reported a 20 per cent decline in net fees for the September 2024 quarter, compared to the same period last year following on from a financial year (2023-24) that was its worst in decades.

Jobs and Skills Australia report just over 4 in 10 Australian employers were hiring in October and employers adding headcount have consistently outnumbered employers reducing headcount since June 2021.

One of the primary reasons for the discrepancy between headline employment data and agency recruiters’ experience is the declining growth rate in full-time jobs.

For the ABS a full-time job is defined as one where the employee has worked at least 35 hours in the survey week – working 34 hours or less is defined as a part-time job.

In the July 2023 – June 2024 financial year. total employment grew by 2.8%, but full-time employment only grew by 0.7%; meaning 3 out of every 4 new jobs created was part-time. Total monthly hours worked in all jobs grew by only 0.5% across the same period, meaning that part-timers, on average, were working fewer hours each week compared to a year earlier.

One interpretation of this result is that employers, still burned by the recruitment problems of the post-COVID boom, prefer to keep staff and reduce their hours rather than make headcount reductions.

This excess capacity in existing employees reduces full-time jobs growth as increased demand for labour is taken up by increasing the hours of existing employees, hiring part-time workers, or both. In the current market hiring full-time employees is the least-preferred option by many employers.

Part-time jobs are not only less likely to be recruited by a recruitment agency, but they are harder, hence less profitable, roles for an agency to fill.

The following chart is a striking visual representation of the correlation between the unemployment rate and the growth rate of full-time jobs.

 

The key data point is that full-time job growth is now back to mid-to-late 2016 levels so it’s no surprise that most recruitment agencies are hurting. It’s made even worse (comparatively) because the 2022-2023 years were so prosperous (in both absolute and relative terms).

This chart more accurately represents the experience of agency recruiters in Australia compared to the traditional labour market headline data.

I expect sales and profit for most recruitment agencies in most markets will only see a consistent upward trajectory when the growth in full-time jobs is consistently above 2 per cent and heading towards 3 per cent.

How long that will take is anybody’s guess, especially with global uncertainty heightened the imminent return to the White House of Donald Trump.

It could be a bumpy ride, folks.

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