2010 Professional Employment
A Right Recruiting Newsletter, January 2010
This Newsletter will be a combination of our Annual Employment Market Prediction with an attempt to provide a workable definition of the phrase - employment market. I’ve always believed that semantics and words are important so, before we get to the prediction section, we need to fully understand the definition of employment as it relates to us.
Employment, jobs, unemployment rates and careers are frequent topics in the news and on TV these days. Many people, both employers and employees, base hiring and career decisions upon the information they get from the media about these important topics. In this Newsletter, I will explain why almost all of the info that you receive on these issues is wrong. If you are involved in hiring or if you are just trying to manage your career, a better understanding of your particular employment market is critical for good decision-making. Also, from a larger, national and societal perspective, the ramifications of trends that we have seen at Right Recruiting will have a profound impact on how companies hire and on our educational system. Those changes, like most big-picture events, will happen over time. Just remember, you heard this here first.
What is an Employment Market?
The basic thing to understand is that there is no single employment market. There are many discrete markets that rarely, if ever, relate to each other. There sub-markets have diverse criteria. These criteria include geography, education, discipline/skill and experience level. Before we get deeper, let me give you an example.
Last year I had a client that was seeking a Machine Design Engineer who could also program PLCs. They wanted someone with 2-4 years of experience, a BS in Engineering and who would travel 25% of the time. They were located near Reading and would not relocate anyone. These were somewhat specific job specifications and, I forgot to mention, the salary was low as well.
When I spoke to the manager and HR, they were both confident that this would be an easy job to fill. They listed numerous local companies that were laying people off. They also knew that many industries nationally were in the midst of downturns. Piece of cake, they thought.
They were wrong. A closer look at their market dataset will help us understand the concept of many discrete employment markets. First, the list of local companies laying off did not include any company that would be likely to employ a Machine Design Engineer. That list included a retail company, a bank and a pharma firm that had been acquired by a larger company. Of course, the retail and financial industries are not generally good sources for machine design talent. The pharma firm was basically R&D oriented. Their engineering work was usually contracted out to national consulting firms and done elsewhere. Their expectation that local layoffs would profoundly benefit their recruitment was flawed.
Secondarily, on a national basis, they pointed to the auto industry as a source of talent. True, auto companies and suppliers hire many engineers. That industry was laying off people by the thousands, many of which could move into my client’s slot. There are multiple problems with this, however, and they are indicative of the specificity of multiple market criteria. Obviously, the first is geography. The nearest auto plant to Reading is in Delaware and that has more of an operational engineering function, not a design engineering function. Most of the people who fit the specs were from Detroit and the Mid-west. Oops, no relocation. The second discrete market criteria that got in their way was education. From my analysis of the resumes I’ve received from the heart of the auto industry, the design function is often done at the designer level by non-degreed contractors.
The degreed engineers have limited CAD exposure and basically manage the projects at a distance. So, even if we could get beyond the geography issue, it would seem that the skill and education match may not be as good as it first appeared. Lastly, and this point is often ignored, is the level of experience required. Someone with the required 2-4 years of experience graduated in 2005 to 2007. The auto industry has been in a downturn for the last 5-6 years. Their fresh grad recruitment has been limited. It’s more likely that the skill set my client required was be housed in the 10+ year experience labor pool. That would then make them unaffordable.
That is a good example of the disconnect between the concept of a national employment market and the real employment market that affects your hiring and career decisions. The reported national rate is 10%. The rate in Montgomery and Chester counties, for example, is about 6.5% and dropping. So we had a geographical disconnect. To complicate matters even further, the unemployment rate in our region for professionals with a college education is close to 4%. That’s a pretty low number. That’s also the market in which most of you work and live.
This example should show us the folly of basing hiring, employment and career decisions on the latest headline on CNN. Most media and business reporters focus on generalized national figures. That’s understandable because they are speaking to a broad audience. Fortunately, we at Right Recruiting can be more specific. After all, we are speaking only to people like you.
I see no reason to believe that this recovery will be different than any other recovery I have seen. There are different paces of recovery in different industries and different disciplines and we can go into that later. In general, however, a typical recovery will look like this.
Job Creation and Demographics
There is a predictable cycle to a recovery. For most of you, the market for your skills will have improved long before the media stops using the phrase “jobless recovery”. Understanding the signals and timing of the recovery can help you understand your situation, as an employer or candidate, much better than listening to CNN or Fox.
The first group of jobs to appear are generally for people with 3-10 years of experience. This holds true in every industry and in every discipline. It’s reliable, like gravity. Since I began recruiting in 1979 I’ve never seen any other demographic group lead the recovery. We literally cannot have a market improvement until this segment gets hotter. For purposes of this Newsletter, let’s call this the mid-level group.
The reasons are obvious. More than any other group, those people are the cheapest and easiest to hire. You get the most bang for the buck. A manager gets someone who has already been trained in their specific skill set and who has shown that they know how to report to work. They are also getting someone with less baggage than someone at a more senior end. People at the 3-10 year level are usually still a few years away from management aspirations. They will be content in their job for longer. They are cheaper and are more affordable. This is important because it means they are more easily trained. Remember, if it takes 3 months to become productive, someone at 60k will be productive after 18k in salary. At 90k, it’s 27k in salary. That’s a big difference.
When your business improves, the normal response is to add someone with about 5 years of experience to a swamped 4 person group to help them deal with the overload. It could be a marketing group, an engineering group or a new supervisor to manage a new production line. It doesn’t matter. Almost inevitably the spec for the job revolves around 5 years of experience, more or less.
To our eyes here locally, the mid-level market recovery began right after Labor Day. Modesty will not allow me to mention that we predicted that improvement back in January of 2009, so I won’t mention it. In September, not only did our project load jump, it seemed that more and more of the folks in that bracket were getting interviews in general. The pace picked up noticeably and has continued right up to the holidays. That’s a very good sign. As an example, yesterday I received a call from a company that has been silent on the hiring front since mid-2008. They now want a BSME with around 5 years of product design experience. That’s a classical mid-level job specification.
As we move into the first quarter of 2010, that market should gain in intensity. As business confidence increases, more companies will enter the market so demand will increase. Also, as I said in an earlier Newsletter, the supply of good, professional candidates at that level is soft. Frankly, there are not a lot of solid ambitious professional college grads in the workforce and those who area available will get sucked up quickly. That will drive the next market segment to improve – the senior professional/team leader.
A senior professional/team leader is someone with about 8-15 years of experience. They are generally well-skilled in the details of their job and are mature and worldly enough to manage projects and/or lead small teams. Their market tends to recover a quarter or two after the mid-level market. This demographic consists of people with both good tactical/operational skills in their profession and strong leadership and project skills. If they have manager titles, they are usually “working” managers. In other words, they also work as individual contributors on their teams as well as have leadership functions. Let’s call this the senior-level market.
Their are always two contributing factors to the senior market improvement. They are somewhat inter-related. The first is organizational and the second is financial. Let me explain.
Organizationally, over the first quarter or two of a recovery, it’s not unusual for a company to expand a group from 2 to 4 people. They usually do this, as I mentioned earlier, by adding some mid-level people. At some point they then realize that, gosh, they now have a 4 person department with no leader. They might have, for example, 4 Product Managers in marketing suddenly each reporting to a Director or VP of Sales and Marketing. That creates an organizational gap that eventually drives the need for a more senior person to serve as a conduit between the Product Managers and the VP. That’s the definition of Manager/Team Leader type. Voila! The next opening is for someone with 8-15 years experience who can lead a small team while, at the same time, managing their own portfolio of projects.
Financially, wage compression also becomes a factor. As the supply of mid-level candidates starts getting hired in the first steps of the recovery, their salaries gradually get bid up. In other words, those who were laid off get hired and the remaining pool of candidates is then composed of those who are already employed. At that point, a company needs to offer a higher salary to entice someone to leave a company rather than cherry-pick someone whose been laid off. As that bidding process takes hold, companies begin to realize that, instead of paying 65k for someone with 4 years, they can pay 68k for someone with 7 years. In other words, the initial salary differential between mid-level and senior-level professionals shrinks, thus eliminating one of the advantages of hiring the mid-level person – affordability.
So, over the initial quarter or two of the recovery, the improvement of the mid-level market drives an improvement in the senior-level market. If things hold to form, that senior market improvement should become evident in the first quarter of 2010 and gain in intensity in each quarter thereafter. Which leads us to the next stage of the recover, the manager/executive market.
It’s important to realize that 90% of manager and executive jobs get filled internally through promotion. This market represents the tip of the pyramid and usually has fewer available jobs than any other market. After all, there are only 3 reasons that companies hire managers and executives from the outside.
1) Company growth has created the need for a management or executive level skill set that does not exist internally. After all, a company that grows from $30,000,000 to $50,000,000 may not be able to cultivate enough internal talent to manage the new systems and tools required as a larger firm.
2) The opposite of No. 1 - a crisis or turnaround situation where the existing management and executive team has performed poorly and needs to be replaced.
3) A resignation of a manager or executive that comes as a surprise. In other words, a situation where succession planning has not occurred.
That’s it. Those are the reasons that manager and executive jobs get filled by external candidates. An examination of those three points tells us one thing. The first and most attractive situation has not existed for the last 1-2 years. In a recession, with few or no companies growing appreciably, option one, growth, as a creator of executive jobs is off the table.
Well, the recession is over and usually the fastest corporate growth occurs quickly as the surviving companies that have planned well during a downturn eat their weaker competitors for lunch. Since the manager/executive market is driven primarily by company growth and not by organizational or financial issues like the mid and senior level markets, the manager/executive market recovery’s timing is independent of the other market segments. It does not rely on a cascade effect, like the senior market relying on the mid-level market recovery. In fact, it’s often simultaneous to the senior market. Imagine a situation where a company hires a new VP of Engineering to manage their growth in April 2010, for example. He then turns around and divides his product development function in two, creating two Team Leader slots for people in the senior market.
However, the supply of executive candidates almost always dwarfs the supply of mid or senior level candidates. That adds an element of complexity to the employment process, both for the candidate and the company. There are three reasons for this oversupply;
1) The size of the workforce. Let’s analyze this logically. By definition, the mid and senior level demographics have a band of about 7 years of experience. Someone with 1 year of experience is too junior for mid-level jobs and someone with 25 years of experience may be too “management” for a senior level individual contributor job. However, senior and executive jobs have a wider bandwidth, generally from 15 years of experience up to 35 or more years of experience. A VP, CEO or managerial job can attract more candidates because, frankly, there are more people with the appropriate level of experience. It’s a bigger universe.
2) Executive and managerial candidates are often more mobile. They usually have relocated before for their career and know that they may have to again. An ad for a CEO that we ran in March 2009 drew 400 responses from all over the country. An ad for a BSIE with 5 years of experience run at the same time drew 25 responses, most of which were local.
3) The baby boomers are in the managerial/executive sector and there are a lot of them.
So, while the market for executive/managerial talent will improve, the oversupply of candidates will last a little longer than the one for the senior individual contributor. The oversupply will create static in the employer’s mind. They will work under the assumption that having many candidates for a VP job is the same as having many GOOD candidates for the job. In no other part of employment is there a larger disconnect between quality and quantity as there is in the executive/managerial segment of the market. An analysis of this requires more time and space than is available here but, as someone who probably fills more local jobs at that level than any other recruiter, I’ve always felt that the differences between poor, average, good and great executives is both larger and more difficult to quantify than any other type of job.
Lest we forget, the last market to recovery will be the fresh grad market. Hopefully, that recovery will begin by spring hiring season. As with the other markets, certain things must occur to spur fresh grad hiring. First, the mid-level market must recover to the point where the senior level is recovering. As the recovery in the senior market takes hold, the fresh grad market starts to gain traction. Why? It’s simple. Fresh grads, by definition, need the most training. Hence, their success requires an investment in managerial talent and they require a strong internal mentoring effort to become productive. For that to occur, any employer must be well stocked with senior level professionals who can mentor a fresh grad.
In any event, 2010 should be a repeat of the employment cycle we’ve seen in every recovery since 1979. We are in the middle of what appears to be a surprisingly strong mid-level recovery. The first quarter should begin the senior level recovery and the executive/manager recovery should be evident by April or so.
Different Professions and Job Creation
Put differently, this basically means – what will be the hot fields? Who will be in the most demand? Once again, there is a historical pattern for recoveries. Some professions recover quicker than others. Please keep in mind that we must remove the manager/executive market from this discussion. By their nature, C-level and VP level jobs are their own disciplines. A VP Sales/Marketing is an executive level hire, not a sales hire, for example. In this section we are talking about the market for individual contributors at both the mid and senior level.
Basically, two areas recover the quickest: technology and sales. That’s an odd combination, I know, and the reasons for their respective recoveries differ greatly. Technology people (engineering, operations, supply chain, etc) are highly skilled and highly specific in nature. That makes the candidate pool smaller than most other professionals, even during a recession. As a recovery takes hold, that level of specialization creates a tightening sooner than in most other fields. The best example of this degree of specialization is a story from back when I was training recruiters in my Chicago office. We had an opening from a client seeking a Mechanical Engineer to do product design. A new recruiter came to me with a resume of a mechanical engineer who had designed machinery. I had to tell him that the fellow was not right because the machinery was for in-house use and not a product to be sold. Then he showed me a resume of someone who had designed large pumps for sale to industrial clients. I had to disappoint him again. We needed someone who had designed high-volume consumer products. The next day he showed me a resume of someone who designed toys. That was great but that person had Solidworks experience and the client wanted ProE. Ouch!
That type of specificity is not unusual in technology jobs and can create shortages for skilled engineers and ops people IN CERTAIN AREAS. That last point is important, obviously, or it would not have been capitalized. Some sub-sectors will lag and some will thrive. An aerospace engineer in a period of declining military spending may find their skills less desirable than a generalized mechanical engineer, as an example. At some point this year I will devote a Newsletter to the value and harm of some of these more specialized degrees like aerospace, biomedical engineering and mechatronics, for example. If you are in technology, you must be careful not to draw the wrong conclusion from your market’s quick recovery. Your skills must be current and relevant or the recovery will pass you buy. You don’t want to be the COBOL mainframe programmer celebrating in 2000 that IT was “hot”. In technology, skills have a shelf life.
OK, if the driving point behind the technology recovery is supply and demand, how about sales? Usually, the sales recovery is driven by business strategy. In a shrinking economy, most CEO’s focus on cost cutting so financial people and lean manufacturing professionals are sought after even in a recession. Once a recovery takes hold, the same CEO’s can sense increased sales in the air and change their focus from bottom line protection to top line growth, at least the good ones do. Think about it, as more and more people want to buy a product, doesn’t it make sense to invest resources (salaries, etc) in salespeople to get to them before your competitor wakes up? The business world is littered with companies that missed the chance to be aggressive when others were still passive.
So far, our business has improved since Labor Day in two areas, engineering and sales. We’ve filled positions from design engineer to Manager of International Sales. This is all pretty typical in the beginning of a recovery and other business disciplines like marketing, HR and accounting should pick up noticeably in the first quarter of 2010.
Job Creation and Different Industries
People always want to know what the next hot industry will be and how they can join it. Basically, they want to time their career and move from industry to industry as one cools and the other heats up. Frankly, that’s like timing the stock market, only harder. There are too many variables and too much ambiguity to make a rational decision on hot industries. Plus, semantics get in the way. For example, is a company that makes military electronics a defense company or in the electronics industry? Is a company that does pharmaceutical packaging a pharma firm or a printing/converting firm? The classifications of companies into different industries is often done on a whim. That’s why there are a gazillion SIC codes.
But, it is still possible to make some predictions for next year. Here is what I think;
1) Pharma and the medical device world seem to have dodged a bullet in the new health care bill. But, having said that, I expect a gradual shift in emphasis within both those industries from new product development to manufacturing efficiencies as cost controls squeeze bottom lines. One of the most shocking things to engineers who have entered the pharma world in a capital projects capacity is how little their employer really cares about cost savings. That should begin to change.
2) Manufacturing will become glamorous but will still be misunderstood. The US is and will always be a manufacturing powerhouse. We make lot’s of stuff and will continue to do so. However, there are cost increases on the horizon that will surely increase labor costs for manufacturing (health care, unionization, etc). These cost increases will actually work to the advantage of many of you who read this. The more expensive labor becomes, the more valuable automation, equipment and systems become. Productivity will work to the professional employees advantage and will make manufacturing a desired employer for professionals.
3) Finance is not dead. It needs to become practical and not feed on itself. That bodes well for our region as most financial companies in our area support other industries rather than trade among themselves.
4) High tech and telecomm related firms should be on the cusp of a new product cycle that, in years to come, may mirror the Internet boom. Over the holidays I cheaply downloaded newspapers and books to my Kindle, listened to streaming music throughout my house with a Sonos/Rhapsody combination at virtually no cost per song and checked my emails at work on my cell phone. I am old enough to remember mailing resumes to companies. I also remember how great it was to call an 800 number to get CDs delivered to your home within a week. Don’t underestimate how much easier many things have become over the last 10 years. Progress builds on progress so expect more in the future.
5) Good companies in every industry will prosper and bad companies in every industry will wither. Creative destruction will require employees to recognize earlier whether their employer has a future and will require them to act sooner on that knowledge. Companies and professional employees will have less margin for error in both career and business management as the world compresses. Complacency kills in 2010 and beyond.
6) Green jobs will lose their luster, just like they did 25 years ago. Jobs in the green industry will basically become jobs in manufacturing. Some green products will find a market and some will not. Those that don’t will go out of business. For a reference point, research how many ethanol start ups from a few years ago are in bankruptcy.
So far, the pattern to this recovery is similar to others we’ve seen. To those who’ve been laid off and who have becoming frustrated and cynical about their careers, try to start the New Year with a fresh attitude. Participate in the improving labor market for your skills and understand that national generalized statistics have no bearing on the market for your skills. Don’t let the recovery pass you by.
Big Picture Pontification
Lastly, what does the fracturing of the employment market mean in general? Is there something unusual or worrisome about separate and diverse employment markets?
Yes, in my opinion. This is a trend that has been gathering strength for years, if not decades. We are becoming two countries. One, is the professional educated class. Two, is everyone else. That’s not good because, if the trend continues, the mix is not governable. And, guess what, there are more people in the “everyone else” category than in the professional class. One man, one vote combined with a fractured society has never been a recipe for a stable democracy.
As with most things, the answer is education. I’d love to get into that now but I don’t write well when I am ranting. They don’t make caps for typing on the computer that large!
As ever, thanks for getting this far. And of course, please remember Right Recruiting for all your employment needs, both as a candidate and as an employer.
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