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The UK Recruitment Bubble
In 1964, Roald Dahl wrote a novel about a poor young boy who came into great fortune by obtaining a Golden Ticket from his favourite chocolate bar. The ticket grants Charlie (the boy) and a guest of his choice access to the most secretive of locations, Willy Wonka's Chocolate Factory - The sugary utopia of the fantasy world. Inside the factory, Charlie and the other "winners" are presented with a series of seemingly impossible temptations. Charlie, being more humble than the other contestants, starves off his desires until the very final temptation, the Bubble Room. Charlie and Grandpa Joe (his guest) proceed to slurp down "Fizzy Lifting Drinks" and rise into the heights of the bubble room.
What is the motto from the story? Its actually more of an analogy, but. Even the most humble are not immune to participating in bubbles.
Whilst the world economy continues to bleed from 2008 and sovereign incompetence, we decided to look at something a little bit closer to home. We were recently told - "your a bit Macro". Well for the benefit of that individual and many others, we are going to dig deep into the UK recruitment sector and explain why the current level of sector expansion is both unsustainable and ready to pop.
In the UK, the job market is pretty thin. This is a result of, among other things, a stagflationary economic environment. Stagflation, if broken down, is a detrimental multiplier to both the economy and the population that service it. For instance, companies facing low levels of growth are less likely to actively recruit new individuals and, thus, unemployment either stagnates or continues to grow. Worse still, and what is occurring in the US, is that many jobs become outsourced to cheaper sources of human capital (e.g. India) on a more permanent basis.
Looking at the UK unemployment cohorts, the most worrying is clearly those under the age of 25. In a matter of 11 years, the unemployment rate in this age bracket has risen almost 10% with a bias towards unemployed males compared to females.
Rightly, some of you may think that looking at the whole population does not fairly represent the disparity between those who chose to enter full-time education and those who did not. However, the figures for those who entered higher education are truly staggering. The Higher Education Statistics Agency published a report in September that revealed that 28% of those who graduated in 2008 are not in full-time employment.
Graduates also come with the added pressure of higher expectations, both in terms of salary and the role that they wish to pursue. In simple terms, an increasing number of people now feel like they justify a career in a top tier institution (e.g Accountants, Law Firms, Banks etc.) due to their improved credentials. But the maths does not stack up. With Biochemists applying to be Traders and Historians applying to be Accountants, their is a huge surplus of labour.
Enter, the Recruitment industry. A job seekers and employers dream - Well, thats how the theory goes. In reality, employers become fearful of losing their staff and job seekers become frustrated by objective barriers to interview. Don't get us wrong, recruitment fulfils an essential procurement operation for companies nationally but the industry has got out of control. What started its life as a facilitation service has become a dog eat dog eat industry where inter and intra company rivalries have reached dizzying heights. But why?
At this point, we feel that the discussion should be broken into two sections. Firstly, the money and secondly, the Barriers to Entry.
The Money. One only needs to do a quick search on eFinancialCareers to realise that 90% of the jobs advertised are either through recruitment agencies or to work for recruitment agencies. The agencies themselves usually charge a fee structure that represents a % of the salary for the role in question. For instance, one of the largest and arguably most aggressive recruiters on the street charges a 40% fee for any placements. Easy Money ey? Place 10 guys on 100k a year and walk away with 400k….not quite. The recruiters (or consultants) themselves walk away with a slither of this fee that grows on a tiered basis. However, if placing a large number of candidates into a well paid set of jobs, this can be very lucrative.
As a result, recruitment agencies have sprung up everywhere, and we mean everywhere. A recent poll revealed that within the M25 there are 19 000 recruitment companies. To put that in perspective, the M25 is a 188km ring road. Using some estimations as to the area inside the M25 using Pi, we make that 6.75 recruitment firms for every square kilometre.
With this growth came a demand for low cost staff who could be easily moulded and drawn in by the promise of ludicrous monetary incentives. Enter the graduates:
Graduate / Trainee Recruitment Consultant/s required £££££
Graduate/Trainee Recruitment Consultant/s required Average 1st year OTE of £35,000 rising to £60K-£100K+ in year 2
Junior or Trainee Head-hunters
Basic salary of £25,000 + uncapped commission: realistic total earnings Year 1: £40,000 - £60,000 ; Year 2 £80,000 - £120,000: and Year 3 +: £150,000 + +
Advertisements, like those above are strewn across the internet. Don't believe us, look under the investment sector of Guardian Jobs. Of the 19 "investment" jobs available, 18 are working for recruitment companies. Why would I want to work for KPMG as a trainee accountant and get paid circa £30 000 when I could become a recruitment consultant and be a millionaire by my late 20's if the above is to be believed?
We are not saying that these sums cannot be earned, quite to the contrary. We are sure that a few record breaking consultants do achieve these sums but it is only a matter of time before the laws of a market start to catch up with them. More on that later.
The next part of the puzzle brings us to how these firms are able to start up. Essentially, this is a barrier to entry issue. To start a recruitment company, you need a phone, an internet connection and a healthy helping of determination. If you phone bash for long enough, the law of averages says that something will bite. Most are started by individuals with a reasonable level of experience and relationships who use graduates to do the phone bashing and "researching" but the fundamentals stay in place. Given that the barriers to entry are low and the potential commission revenues through ownership are so much higher, every half experienced recruiter is starting a firm. Don't worry, if things get dry they can just recruit for recruitment. Yes, there are whole companies set up to do just that….Sounds a bit like Iceland to me.
To divert for a second.
When Iceland was in its "boom", everyone wanted in on the act. So what did they do? They sold items to each other for hugely inflated prices to become "rich". As Michael Lewis explains in Boomerang, if we sell you a cat for a billion dollars and we buy a dog from you for a billion dollars it does not make us billionaires.
Back to recruitment.
So whats the issue? A group of young girls and guys are out there starting up firms and earning good sums of money. Sounds great. Very Entrepreneurial. Well, the issue lies in the fact that recruitment firm hiring and creation is outpacing the number of available non-recruitment jobs by a huge rate and now the competition for business is getting considerably more fierce.
If we step back and think about this a set of economic principles, the result is very clear. We have a contractionary demand situation with and exponentially large supply expansion that is continuing to boom. As a result, the price level (% fee) falls exponentially to reach a new equilibrium.
This is what is happening in recruitment. As the market becomes flooded with firms, the market rate for placing a candidate starts to fall. An anonymous source revealed that their fee had fallen from 25% to 5% in some cases just to secure business and this will start to happen market wide.
From a business standpoint, one of the biggest issues is due to the rates that the companies are exposed to. Those targeting the best clients need a prestige postcode and those aren't cheap, many of the firms in London are based within walking distance to their city clients and rely upon the chunky commission structure to foot the bill. If this disintegrates, so does the postcode.
To an investor, these businesses now look like duds. High cost liabilities, low cash flows and a remarkably thin asset level.
Our favourite short is Michael Page (MPI.L) which trades with a P/E multiple of 20.48 with an EPS of 0.18
The company itself operates with a debt to equity ratio of 23.15 which we find unbelievable due to the uncertainty of its cash flows.
We also find the valuation of £1.1bn mind-blowing for a company with only £28.5m worth of tangible assets and a £66m hole in share reserves for their employee trust.
Over the last six months the stock has been send tumbling by 26% and was a poor performer in the beta driven rally that we experienced last month.
So how big is this bubble? Well, its not exactly going to be the next dot com boom or credit crunch but it is substantial enough to have a serious knock on effect to graduate and the under 25's unemployment levels for those involved. The long term fear is that the UK develops a population where those of high educational levels leave for other countries where the jobs available require a greater analytical focus across the board. Economists refer to this phenomenon as a Brain Drain.
Where do the under 25's go to find work? That is a question facing almost every developed country in the world at the moment. We see the long term effect been increased levels of migration from westernised countries towards those who are developing and, in some cases, have a knowledge deficiency. But, they better be quick, the level of educational development within a number of these countries is growing at a rate that would render the western man an expensive and un-necessary capital acquisition.
We leave you with a quote by Aristotle:
"All paid jobs absorb and degrade the mind"
And Dale Carnegie for those of you not chasing money:
"Don't be afraid to give your best to what seemingly are small jobs. Every time you conquer one it makes you that much stronger. If you do the little jobs well, the big ones will tend to take care of themselves"
Tick By Tick Team
@TickByTick_Team
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First published on 9th Nov
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I?m young, I don't have a bizarre hair style, I can speak properly and dress smartly. I lived in a mouldy, cold and damp whilst at university. In actual fact I am holding down two part time minimum wage jobs that let me apply for loans in Britain when I'm struggling with cash and doing volunteer work because the jobs just aren't out there. For the ones that are, I have applied for all of them, and employers do not even reply. I certainly don't think that the world owes me something and definitely don't expect everything handed to me on a plate. I'm working to raise money to fund further qualifications so I can get a good job and give something useful back to society. It's easy to just call British workers lazy, instead of blaming the greedy employer and the traitorous Government, the liberals have a lot to answer for so don't just blame Cameron. Not to mention the ignorant disaffected upper middle-class and left-wing media elite. But who cares and who is helping to lift the British youths confidence and make them see they can be capable and compete? Nobody. Being British in Britain means nothing these days!
Living in London and having just gone through a recruitment cycle, I thought I'd add my 2 cents:
The banks hire almost excursively through recruiters. I applied for many jobs directly and never got farther than a "unfortunately..." The recruiters on the other hand, threw my CV at anything that they and I thought I could do. After three months and lots of interviews, I have an offer. Over the last few months I must have talked to a new recruiter every other day. I went to the offices of about a half dozen agencies. Some were big outfits and some were clearly struggling (empty chairs and desks where it was obvious a recruiter sat previously). I do think they serve a vital function for the banking industry in pre-screening candidates. From what I understand, a role will be released to maybe 4(?) agencies who can then submit at most 4 candidates for the role. That limits the number of CVs that need to be sifted through. Because of this, when a new role is released, I needed to express interest or not right away (usually within an hour) or the recruiter would contact another candidate and I'd be passed over. There were a few days where I'd get four recruiters contacting me for the EXACT same role. So, the competition for candidates and roles is fierce. IT is a key differentiator among the agencies. One recruiter called, texted, and e-mailed me whenever a new role was released. They were also the agency who ALWAYS got to me first. There is definitely some monkey business that is played by the recruiters. I had one recruiter quote me a daily rate significantly higher than another agency for the same role. When confronted, the agency said they bid slightly less than the max quote. Makes sense as the bank would want to interview the cheapest candidate to see if they could do the job. So, while the agency's and the candidate's interest are aligned in placement, the agencies don't always get the top rate for the candidate as they value placement first and foremost. All the recruiters I met were in their early to late 20s. I suspect the successful ones either start their own agency, manage other recruiters, or place higher caliber candidates. The position I landed is in the middle office so, while it's a decent rate, it's no where near the 7 figure category. Some of the recruiters are complete morons too. Each agency would take my CV and reformat it. I had one agency leave off all my University education! I have a BA and several Masters. My CV just showed my high school! Another recruiter sent me to an interview but got the name of the person I was to meet wrong. The receptionist could not find the person so, I had to call the recruiter and get it straightened out. In my first banking job, about 60% of the people in my department (about 20 people) were contractors. I worked with contractors from South Africa, New Zealand, Australia, Poland, Canada, Greece, Singapore, Malaysia, India, and a couple of Brits. I wonder if the contracting model only works because of NHS (ie contracting couldn't work in the States as employer provided health care is so important).In short, yeah, I imagine a lot of the recruiters will go under and I do see them as a necessary evil.
Two major themes are destroying the old recruitment, hammer the phones recruitment model; social media - specifically linkedin, and margin compression due the the fact the the banks are bankrupt and simply don't have the money that they once had. These two themes have resulted in the vast majority of banks conducting recruitment internally -- no need for spiv external recruitment firms in the City In terms of a firm you want to go short, one word Adecco FIRST POST BITCHES
I spent ten years in the executive search industry based out of London. "Recruitment" is by far the activity of choice for anyone that has lost their job, is between jobs, is tired of their job and, of course, anyone that has half an entreprenurial spirit and wants to set up a new business.
All recruiters share by and large exactly the same candidate database and exactly the same client portfolio. Business is drummed up exactly how you describe it: by mashing the telephones. Few if any understand that a candidate today is a client tomorrow thus few "recruiters" offer added value other than spreading CVs far and wide hoping to send them before any other recruiters and double hoping that some of their candidates stick. And this is why most candidates never hear back from the recruiter. When you are sending out hundreds of CVs weekly you barely remember who you sent for what position and when. And yes... a large number of advertised jobs are fake because they may no longer exist; but once the advert is paid for, it is still run even if the job has been filled or cancelled.
Recruiters that do well are those that are able to build personal relationaships within companies. The candidate side of the business gets much less attention.
When done properly with a dedicated portoflio of candidates and clients, head hunting can be both fun and rewarding.
This deflationary crisis will wipe out most recruiters but given the low barriers of entry and nonexistent regulation, many will stay in business and many more will enter the fray. This is probably still one of the few existing free markets.
That precisely is the problem with that kind of work, treating the candidate side like second-class citizens.
But that will always be the case. The recruiter gets paid by the employer, not the candidate. Until that business model changes, it will never be any different.
Just have everybody working in recruitment.
I've worked with a few recruiters in the past but never found work through them. I've always found work through "cold calling" - finding companies where I liked the technology and sending out emails or calling.
Just recently got a response back from someone in SF (cold calling again) and it looks like a go. Feeling somewhat ambivalent about it though. I'm frustrated by the lack of opportunities in Canada - no entreprenurial companies.
"The Blair labour government imported 3 million mainly uneducated africans , muslims and albanians while keeping 2.8 million UK indiginous on welfare. 3 million more voters for them was an added bonus..."
Same thing happening in Australia now under our Marxist Maiden PM. Just fly to Indonesia, take a boat to Christmas Island & destroy your docs on the way. A warm (gubermint) welcome is assured and if they're a bit slow in giving you every damn thing you want, just BURN THE JOINT DOWN! Then you get it. Too easy.
The comment re integration of muslims is an angle I hadn't considered: I thought it was just the extreme looney left wanting to bring down the existing order via. a break-down of social cohesion (a la UK) and then replace it with their socialist Utopia. But then again, isn't the result much the same thing?
Coming to America (actually already happening in America, but will increase).
uhh.....uneducated Africans came in a slave boat 300 years ago.
Also the indigenous Americans (the natives) are already on welfare reservation with casino boat jobs.
US history goes back more than 20 years....
I think the high turnover rate is the same for drug runners and consumer sellers, too.
The connection between recruitment services and actual production of goods and services is very thin. The underlying foundation of the job market is an environment of selling into declining markets. For any efforts to increase the labor pool, there must be an increased demand for what the labor pool does. These recruiting efforts are trying to create a market, without support for it.
http://georgesblogforum.wordpress.com/2011/11/02/the-daily-climb-2/
The UK reports there are 287,000 families wherein no one has ever held a job or worked a day in their lives. No history of going to work, the kids have no concept as they have never seen Mummy or Daddy ever head out the door to provide for themselves. Its criminal what has been done for a little power and self-piety.
The Blair labour government imported 3 million mainly uneducated africans , muslims and albanians while keeping 2.8 million UK indiginous on welfare.
3 million more voters for them was an added bonus.
Integrating Muslims into the New World Order is one of the current top priorities. Hence the massive immigration of Muslims into Anglosphere nations. This is not a coincidence. Islam is seen as a major obstacle to one world government. Thus the wars, with nation after nation being toppled then their society engineered into something compatible with the NWO.
I thought a worldwide caliphate WAS the NWO.
bingo
Democrat Jon Corzine's friend the muslim is doing the same thing in the USA.
The guy isn't any more muslim than he is christian. barack obuma is a sociopathic narcissist, neomarxist flim flam man. He is also a great reflection of the generally decayed and pathetic mess that america has become.
Oh shut up
For the larger part, temp, staffing and recruitment agencies are no more than pimps in search of prostitutes for johns. The proverbial johns(the employer/client) and pimps (recruiters/staffing) protect each other, while ensuring the prostitute(the person wanting to do the work) gets screwed.
This is especially so when such are used as regulatory dodges in places like the UK and the US, where middlemen are usually something to be removed, not added. The more staffing and recruitment agencies you see, the worse off the economy will be.
In my neck of the woods in US (suburbia) Iam seeing more and more individuals coming over from the UK. Ireland and Scotland to take management jobs. No doubt this trend will continue with the UK opting out of a Euro bailout because of regulations impacting the financial and related sectors---the industry that now represnts 40 % of income in private sector. Compared to 30 tears ago when it was less then 10%, we are now out of balance and can expect a correction depending on continued bailouts, QE III, IV, etc, That is when there will be pressure on Headhunters in all western nations. Of cource another trend is for US management moving to China as consultants engineers and financial types.
At least the Irish corporate managers know how to raise potatoes when the time comes.
And I am sure if your family is ever stuck putting food on the table, your 350 pound wife can go back to the circus to earn a few bucks!
I get calls DAILY in the US from all these Indian Speaking IT "recuiters" asking me how much I want per hour, if I'll take 1099 or W2, when can I start Yadyada. They see my resume on Monster.com, call and bug me about MY immigration status! (I AM A 4th Generation American!!) WTF MY Immigration status!!?? Okay, so I say $20/hr. The next joker calls me I then say $21 and so on. I'm up to $50/hr. Every time these pukes call me I add a buck an hour you know why??? Because, all they do is submit my credentials to some state or other federal agency they are looking to recruit for and I never hear a damn thing. This market is a joke.
It gets better! These are imported Indians residing in NJ, CO, VA, IL calling me to hire me for a job in North Carolina. So, we will even outsource our insourced outsourcing because this country is so fucked up that there is no other incentive but dollar driven. Hire someone to do it for $8.75/hr in another state? Efficiency be DAMNED! It's all about the BUCK!
Then, ask one of these So-called "recruiters" a technical question...CLUELESS! WHAT A JOKE!
Why are you working in IT if you aren't pulling at least $50 an hour? Not worth the hassle or the pain of dealing with imbeciles at any rate lower than that. If you're 3 years into your IT career and aren't at least at $50 an hour....you're doing it wrong.
Entry Level IT? $50/hr? USA? LOL!
please....hot skills going for $150/hour.
1099 means you pay double FICA + your own health insurance without subsidies. you need to ask double the salary to break even.
I will thanks for the tips!
Recruiting companies make money on databank availability for search. They do not find you a job. Many adverized jobs are fakes.
Another trick is to call you and ask for the decision maker on hiring so that they can contact them if they need people. That's how they start to build a nexus.
the net has very few jobs and they aren't advertized. wanna get hired? goto a temp service.
http://covert3.wordpress.com
http://expose2.wordpress.com
Taliban is always recruiting young couriers. All you have to do is either drive or wear some heavy jacket to directed destination and you get paid in virgins.
Most of them are a little slicker than that. They'll ask you for "references" but those references are really just free contacts they can add to their company databases. My resume hasn't been on the net for 2 years and I still get emails daily from companies I've never heard of, usually from a recruiter with an Indian sounding name.
Oh and you made a good point about most of the jobs being fake. The big recruiting companies will have at least a couple of people dedicated to building contact lists and gobbling up resumes for the databases. One way they do this is by posting whatever hot job titles are that they want resumes for with salaries that are significantly above market rate. Just bait for job seekers to send them resumes.
Remember, 3rd party recruiters are nothing but sales people and what they're selling is YOU.
that's what middle management is all about.
.