This Week, In Recruiting - Issue 183

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Open Kitchen: The 4M Framework Applied to Talent Acquisition (Part One)

If Recruiting Brainfood has any sort of mission, it is sort out the signal from the noise for the recruiting industry. The world is a complex and confusing place and no one can claim they know how it all works but I suspect we can all improve our understanding the main themes which frame the decisions we as individuals end up having to make. One of the more useful frameworks I've come across to help do this is the 4M Framework. It's a pretty basic idea but it forces the thinker to zoom out to mega scale before successively zooming in to finally settle onto an understanding what we - as individual actors in this world - can and should do given the state of the state of that world.

Visual above is a pretty neat way to communicating the idea. There are 4 'M's' - Mega for global, Macro for industrial, Meso for organisational and Micro for individual. I'm going to use this framework to apply it to the world of recruitment. This might be a natural 4 parter, so lets start with today's Open Kitchen with Part One - 5 x Mega (Global) Trends

1. End of the ZIRP

One of the most important pieces of news last week was when Jerome Powell - Chairman of the US Federal Reserve - announced a larger-than-expected 50BPS cut in interest rates on the USD. It was the first time interest rates have been cut in over 2 and a half years, a period which has seen 11 successive rate increases as Powell sought to bleed down US tax payers 'excess savings' which had led to an overly tight labour market.

In layman's terms, Powell thought US workers had too much money, cost employers too much to hire them and thus they needed to be encouraged back to work by losing a great deal of that money. You do that raising interest rates which increase mortgage costs, credit card debt, car financing and the like. On this basis, it has certainly worked - US labour market is full of job applicants and employers no longer have the same difficulties of hiring 2021/2202.

Remember that period? It was the post-pandemic Golden Era of Recruiters - the same conditions which created our short lived honeymoon period when nobody could hire anybody (including us!) - lots of low interest credit invested into business growth (a.k.a hiring) - was precisely the conditions Powell sort to alter. We've since had two and half years of painful economic readjustment, as increased interest rates pulled money back from the economy into the banks, where it was not invested in now risky business growth but instead diverted into US govt bonds. This recapitalised the US treasury but didn't do much for anyone else.

Non-US readers might be wondering how all this affects them, but in a globalised financial world where the real freedom of movement is reserved for money, in order to avoid capital flight risk to the now higher paying interest rates found in US banks, your countries central bank also raised rates in order to match the incentive, encouraging the money to stay domestic.

The money that stayed became locked into the banks in the form of government bonds rather than lent out to businesses which needs credit in order to grow. So we've had two years of lay offs, hiring freezes, stalled promotions and the like. Your CEO might have sent the mass circular email titled 'Do More With Less' but they were only message carriers for the Chairman of the US Federal Reserve.

The question today - now that we've had a rate cut - are we going to see a a return to the zero interest rate period we saw after the Great Financial Crisis of 2008-2021, or do we expect interest rates to stabilise to 2-3%? The answer will determine how great 'the recovery' is going to be and how aggressive the hiring demand we're likely to see.

2. Hostile de-globalisation

Interest rate increases weren't the only driver for financial insecurity over the past few years. Covid, War in Ukraine, economic sanctions, rise of economic nationalism, War in the Middle East - of these negative externalities might be described as manifestations of 'hostile de-globalisation' - an unmanaged reversal of the policies of ever greater global integration which were promoted most prominently from the 1990's to 2016's by the Western world.

It should not be news to anyone here that introductions of these frictions to trade are going to increase prices, as it was the elimination of these frictions which reduced prices. Such a friction directly accounted for the cost of living crisis experienced in Europe over the past two years, on a commodity few European countries are self sufficient in - energy. We all personally experienced this in dramatically increased in domestic electricity bills in 2022/23, which were so excessive that many countries in Europe staged government interventions to help people pay their bills. Persistent high energy costs will continue to be drag on consumer sentiment. Yet making consumers poorer is not even the most significant factor to high energy costs. Having to pay more for energy is also a weight on individual business, especially those in the energy intensive sectors, where it might be the difference between a profitable business vs an unviable one.

The first chart in Mario Draghi's seminal Report on the Future of European Competitiveness was on the difference in cost of energy compared for EU vs US vs China.

No accident that he put it more or less on the front page. EU must find a way to cheaper energy input, or else continue to lose energy intensive industries to major competitors who can make things much more competitively. Citizens who are now more price sensitive are likely to buy best value for money, so this economic flywheel is already spinning. Economic protectionism is a weak response to these fundamentals challenges - at best will produce a temporary reprieve for uncompetitive industries - but it will do nothing to remove the underlying reasons for that uncompetitiveness.

3. Demographic Crisis

A labour economist friend of mine once said 'all recruitment problems are demographic problems'. It doesn't take much research to see that he was right.

We have a critical labour shortage in specific sectors because our working age populations in general are in decline. This is the result of a long, multi-decadal mega trend of every generation having successively less children than the one previous. The global average fertility rate is 2.5; the minimum replacement fertility rate is 2.1. In Europe and in most of the OECD, it is already well below 2, with some countries such as South Korea already down to 0.72 in 2023.

What causes the demographic crisis is subject to much contention, but what all protagonists seem to agree on is that once it takes hold, it is very difficult to reverse. There are almost no examples of countries which have reversed demographic decline, absent some sort of externality which breaks down the functioning of society - such as a catastrophic war. As such, the remedy which every country has so far resorted to is the same - import the workers from other countries where the working conditions are worse than yours.

I had a really interesting conversation last week with recruiters from Romania and Bulgaria. They were suffering a talent shortage, created in large part by losing their best workers to richer members of the EU, leaving them with no recourse other than hire abroad themselves, from places like Armenia, Kazakhstan and now even further afield - Philippines, Pakistan and so on, who in turn will suffer labour shortages which can only be filled by importing workers from elsewhere. Obviously we're going to run out of labour exporters at some point, but perhaps not before reactionaries come to political power on the back of anti-immigrant rhetoric.

Some of us might have noticed a paradox in the discourse on talent shortage; haven't we been a low growth economic cycle, where lay offs, hiring freezes, ghost jobs, terribly difficult job search are dominating the discourse?

But as Appcast recently showed us in their excellent post White Collar Gloom, Blue Collar Bloom, every sector has it's own labour market dynamics, which analysis aggregating data on national scale can often disguise. We have probably been in a white collar recession over the past two years. We have definitely been in a recruiter recession for this period. But there remain acute labour shortages for many blue and grey collar sectors - nurses, veterinarians, drivers, warehouse workers, retail staff - most of the jobs which were lauded as 'essential workers' in the Covid era, remain jobs which for which we lack labour willing to do it.

Who are going to do these jobs if we elect politicians who win on an anti-immigrant platform?

4. Climate Change & New Energy Transition

Outside of the US, the debate on climate change is generally settled.

It's actually easy to understand that releasing carbon which has been sequestered into ground over a period of millions of years into the atmosphere will increase the amount of energy in the global climate system, and in so doing increase the unpredictability of weather patterns and generate higher frequency of higher energy climate events. Changes in climate impact everything from agricultural yield, shifts in energy demand, infrastructure damage, decline in consumption, hospitality and tourism, increased operational costs, conflict over competition for newly scarce resource and the health & capacity of the human workforce working in increasingly inhospitable conditions.

Nations of the world are aware and whilst the climate goals agreed on the Paris 2016 agreement will be missed, there is unmistakeable progress in the shift to low emission, renewable energy, especially in solar and wind installations, where the total cost of installation is decreasing YoY. This collapse in installation cost is leading to increased installation, which further reduces installed cost, to the point now where the bottleneck is now the availability of installation engineers, rather than the material cost.

It's unclear how many job opportunities there will be in Green Tech, but we can imagine that the global rollout of an entirely new energy infrastructure would create the conditions for an industrial ecosystem to maintain, repair, renew and rebuild that infrastructure. More importantly though, is that renewable energy is inherently more cost efficient than fossil fuels, simply because it doesn't have refuelling costs - once the installation is in, the energy harnessed directly from the sun and the rotation of the earth, will be practically infinite. It's the best bet we have that new energy revolution will spur global economic growth.

5. Rise of GenAI

Our current moment has often been compared to the period at the beginning of the Industrial revolution, when a confluence of technological, economic, political and cultural trends connected, interwove and accelerated each other to entirely reshape the world. Is to much to compare the arrival of ChatGPT in November 2022 to the development of the steam engine by James Watt in 1765? Early iterations of the steam engines were also derided as fun curiosities, until it was clear that factories driven by them comprehensively outperformed those still powered by human labour. ChatGPT - or more properly - the class of technologies we are now calling Generative AI - is proving to be a similar productivity enabler, perhaps most significantly in the increase in velocity we are seeing in software development, where AI copilots have increase developer productivity and output, leading to what feels like an accelerating cycle of new innovation built on top of new innovation.

Significant job displacement appears to be inevitable, perhaps first in the white collar sectors. It won't be a robot marching in taking our job exactly as we've done it, but it will be AI / Automation will replaces a volume of work that might otherwise be done by people, suppressing hiring demand as CEO's increasingly prefer the lower maintenance of robot workers vs human ones.

We are all now in an individual race to ensure that we have future proofed our own career paths for this AI-enabled, AI-dominated future. We're also in a collective race to ensure that as many of the people displaced by AI and automation can find a way into new economies that will emerge, or else have access to productivity gains secured by automation such that they (we) can be sustained in good lives whilst we rebalance the idea of what work is to human society.

How Does All This Impact The Recruitment Industry?

It will do the following: operational efficiency will remain a forever priority, hiring will shift from discovery to assessment, organisations will de-layer and de-silo leading to new roles, demand for new types of skills, departments will disperse non-core jobs to the periphery a staging post for future automation, whilst core team members will cluster more tightly together in high collaboration intensity to try and find the innovation edge which AI alone will not be able to provide.

All this is at Meso scale, so see you next week with Part Two for a more in-depth discussion. Hope you've enjoyed it so far - let me know what you think!

Now out of the kitchen, onto the lounge 👇

What's Going On?

Big List of Recruiter Events to Attend in 2024

Big List of Recruiting and HR Events to Attend in 2024 - updated folks. Coming back from Recfest, no question my enthusiasm for in-person events has only grown. Make sure you check out this spreadsheet - add any you think are missing - and get attending some of these amazing events. Btw, we might as well start adding 2025 events also, so get cracking with this also!

IHR Live London, 26th September, Islington Design Centre, London

One of the events of the year is back, and so am I, as a late addition to the line up, talking about Talent Megatrends: Risks, Challenges & Opportunities for Recruitment in 2025. Building this talk now, so you better like it 🤣. Thanks Mark Lennox, Founder (IHR) for the invitation - always a pleasure to support hombre. Register here

Brainfood Live On Air - Ep274 - Hiring Manager Self Serve: How TA Can Enable The Line, Fri 27th Sep, 2pm BST

Multi-premise employers must have highly capable hiring managers on location. How can centralised TA help organisations which where a large percentage of the hires are going to be front line workers in shops, warehouses, railway stations and the like? We're going to find out with Deborah Caulet, Founder (Aligned Collective), Arjan Spies, Talent Acquisition & Employer Branding Lead (tHRibe.Builders) & Mary Kay Baldino, Head of Talent Acquisition (R1 RCM). We're on Friday 27th Sept, 2pm BST. register here

The AI-enabled Candidate One Year On: How and Why TA Teams MUST Adapt, Tuesday 1st October, 12pm GMT

Our friends Arctic Shores broke new ground last year with their research on GenZ use of AI. We're now well into the era of the AI-enabled job candidate and it's clear that our hiring funnels were never designed to handle it. What is the state of the AI usage today and what must employers do now? We're with Robert Newry, CEO (Arctic Shores), Martyn Redstone, Founder, (PPL Bots) and Samantha Hope, Emerging Talent Manager, (Shoosmiths). Must attend folks. Register here

How to Hire for AI Skills, Tuesday 1st Oct, 5pm GMT

Delighted to join the panel for this X-Team event on How to Hire for AI Skills. We're living in the AI-enabled era and there is no employer in the world who is not interested in increasing capacity with AI. And yet we have a massive global shortfall of expert AI talent. How do hire elite skills against elite competition? We're going to debate this out on Tuesday. Register here

Worksome Meetup: Operating with independent talent in the UK, Wed 3rd Oct, 830am - 10.45am, Lantana London Bridge | 44-46 Southwark St

In a VUCA world, it is essential for employers to create an agile and flexible workforce. Whilst the core component of any business will always be FTE, the non-FTE component will continue to increase as workers and organisations figure out new ways of working. What are the best ways to work with 'independent talent' in the UK? Join Worksome in this in-person meet up in London Bridge on the 3rd Oct. Register here

ERE Recruiting Conference, November 12-14, Anaheim, CA, USA

As I mentioned, I'm stealing Peter Hinssen's term, 'human premium'. I suspect that it, along with access to collective intelligence, is going to be the decisive component of human work in era of generative AI. How does this translate for us in TA? I'm going to be presenting a discussion on how recruiters can future proof in the era of AI. I would welcome any comments or contributions from the community in advance of this talk. See you in Anaheim: register here

NB: if you want a discount code, comment "ERE" below and I will DM you

Tec Rec 2024, TITANIC Chaussee Hotel, Berlin, November 24th–26th, 2024

I am back in Berlin folks, first time at Rec Tec since before Covid. Looking forward to sharing thoughts on the state of tech hiring, learning from local employers as to how the changing circumstances have impacted hiring posture, diversity and inclusion, state of remote, state of outsourcing. I have a 50% discount on tickets so make sure you get them here rather than elsewhere!

If you have an event, webinar or podcast going on next week and want it featured on next week's newsletter, comment below with the link and event details. Don't forget to at mention me so that I see it

End Notes

Last full week in not-so-sunny Blighty - going to be at a ton of great events, starting this week with an in-person breakfast event with SmartRecruiters and Real Links, followed by IHR in Islington Design Centre, where I'll be giving my a talk on ...TA Mega Trends. If you fancy coming to the former, message me privately and I can see if I can get you a place, if you want to come to the latter, make sure you come up and say hello.

Have a great week everybody.

Hung

Hung Lee is the curator of Recruiting Brainfood, and now This Week In Recruiting. Subscribe to both if you are into recruiting or HR or just interested in world of work.