How Is the Cost-of-Living Crisis Affecting the Recruitment Sector?

Wednesday 30 November 2022

Written by Mehul Thaker

How Is the Cost-of-Living Crisis Affecting the Recruitment Sector?

How Is the Cost-of-Living Crisis Affecting the Recruitment Sector?

Since the summer, we have seen the issues resulting from the cost-of-living crisis worsen, whether that’s increasing utility costs for individuals and businesses, the higher cost of borrowing or records levels of inflation making everything for individuals and businesses more expensive.

All businesses are impacted in one way or another by the cost-of-living crisis, but how is this impacting the recruitment sector and, more specifically, recruitment companies?

  1. With most expenditures now being higher, it may lead to an increase in the number of job seekers. Individuals that have not had increases in salary are actually going to be taking a pay cut in real terms and so employers that don’t offer any increase can drive individuals to look for a higher paid job. This will lead to a greater number of job seekers looking for employers that offer annual salary increases in line with inflation but, with inflation at 10%, this will be difficult for many companies with increasing costs. Ultimately, recruitment companies and the recruitment sector as a whole will be busy as there will be many speculative job seekers.
  2. Salary pressures will dictate conversations with both clients and candidates – the main focus of conversations will be on salaries as candidates look for higher salaries and companies trying to keep control of their costs as they face pressures to make profits when all costs are increasing.
  3. Recruitment companies will accept lower fee commissions and spend more time in getting roles ‘over the line’. Inevitably, with more candidates speculatively looking for better-paid jobs, a lot of companies and consultants will be spending more time with more candidates to fill roles.
  4. The sector will be increasingly busy – Interestingly, we have record-low unemployment levels but an increasing number of vacancies. Every recruitment company I speak to has many roles to fill and, in my opinion, this will get even busier as there are more job seekers and companies growing in a post covid Brexit marketplace. However, there is the possibility that companies cut roles and staff in order to save costs and so some specific industries and sectors may not have many roles for the recruitment sector to fill.
  5. An increased number of job seekers – As explained above there will be many speculative job seekers, but there may also be an increased number of non-speculative job seekers as the companies they are working for are unable to keep on top of increasing costs leading to redundancies and job losses. I imagine this will be very much at the lower end of the market, with small businesses being unable to survive.
  6. Increasing staff costs – Given inflation is running at record level highs of 10%, most recruitment companies that want to keep and attract top-performing consultants will face a higher wage bill. Whether this is increasing base salaries and higher commissions for placing candidates, the cost of retaining top talent will become even more expensive. If recruitment companies are not competitive with salary packages, they risk losing top talent to other companies as individuals consider their own income and costs given the higher cost of living they will face.
  7. Higher office running costs – Many recruitment companies we know have actually downsized from pre-covid offices due to the flexible work-from-home arrangements they have with staff. However, what we are seeing is that commercial rents are on the increase and of course, utility costs have dramatically risen. Therefore, most recruitment companies will have higher fixed costs and so, top-line performance and getting paid on time are key in order to stay solvent.

Overall, it will be a challenging time for the recruitment sector, but proper planning (both strategically and financially) and keeping on top of cash flow and financials will be key.

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