Cyclical recruitment trends

The WSJ recently had an article “Keeping ‘overqualifieds’ onboard” stating that many of turnover is increasing in the US, and is especially affecting those hires recruited during the downturn on low(er) salaries.

Two questions come to mind that I think are worth exploring:

  1. Can job changing be predicted throughout an economic cycle?
  2. Will job changing effect those who are hired at below their own subjective worth?

The answer, of course, to both questions is ‘yes’.

Job changing throughout an economic cycle

When we are predicting turnover risk in a firm there are two sizable components:

  • How is the overall turnover going to change?
  • Which individuals are most at risk of leaving?

A key component to help predict the former is a general perception of how strong the employment market is.  Employees have a search cost associated with job changing.  These costs include the time / expense incurred during the job-changing activity and a risk perception of how likely it will be that any new job is secure.  During a slow-down people assess that costs and risk will be high and therefore the benefit of staying exceeds the benefits of changing.  They stay where they are.

As their confidence increases so does their assessment of the likely costs/benefits.  This creates an increase in the overall level of job churn.

One good source of data to show this is the US’s JOLTS data and to compare it with the Consumer Confidence Index:

 

Taken from “Evaluating Estimates of Labor Demand and Turnover”; Mueller, Wohlford, Bureau of Labour Statistics.

In the above occurrence the authors found a correlation of .73 is found which is positive and significant.  Other studies have shown similar correlations.

Whilst the CCI is a good indicator of overall activity some industries may experience greater or lesser effects.  A secondary indicator (which seems to also be a leading indicator of consumer confidence) is share price and it is worth exploring whether an index of sector stocks is a better guide to sector employment changes, and therefore the implications for any particular firm.

Do job negotiation outcomes have implications for retention of employees?

Whether an employee is under-paid or not is not a great predictor or likeliness to leave, partly due to how they perceive pay as only one of the benefits of the job.  A far greater effect is how they perceive they are paid and the subjective value they feel after negotiation.

A study in 2009* showed that the subjective value is a good predictor of future performance.  The authors note in their conclusions for practitioners:

…hiring organizations might benefit by paying close attention to their job offer negotiations. What transpires in these negotiations may have lasting implications for the future employee–employer relationship. Given the apparent disconnect between economic value and long-term attitudes, employers should realize that conceding on objective issues may have a limited effect on evoking goodwill from their employees—except to the extent that doing so influences the employees’ immediate SV. This suggests that employers need to make the value of concessions clear to employees to be fully appreciated.

Companies that have negotiated hard through a downturn, knowing that employment is relatively scarce, could find that the employees perceive this in a negative way and it is that subjective level that is building retention issues in the future.

*Curhan, J. R., Elfenbein, H. A., & Kilduff, G. J. (2009). Getting off on the right foot: Subjective value versus economic value in predicting longitudinal job outcomes from job offer negotiations. Journal of Applied Psychology, 94, 524-534.