My mom was a prolific piano teacher. When I was nine years old, one of her students, Wy-Quon, came over to show off a new propulsion system for his bicycle. He told me he was working on a more efficient way to travel.
His system comprised a compressed air canister mounted to the bike frame and a miniature rocket-engine nozzle that emitted the air behind him with a valve on the handlebar to control the flow. But all I needed was to put my hand behind the nozzle and feel the meager wisp of air blowing to know it was useless. It was a valiant effort and one I could not have surmised myself. But what Wy-Quon did was add complexity and tons of effort with little to show for efficiency gains.
We have the same problem in the labor market. Despite billions of dollars being invested in HR technology right now, the labor marketplace is one of the least efficient marketplaces in the world. That may be hard to believe considering we have sustained unemployment levels lower than we've seen since the Vietnam War, but it's true. While we are doing OK at keeping people employed, we are doing so at a great cost.
Here's how inefficient it is. First, we can look at the average cost per hire inside an organization. There is plenty of data on this and it varies (from $2 thousand to $150 thousand per employee in the United States), but most sources agree that $4,000 is about right. Next, we can look at hire rates, which is how many people get hired into new jobs compared to the total workforce. The BLS tracks this. The latest published rate is 3.8 percent, which means 5.8 million workers in the United States took a new job in October. If you multiply the two figures on an annualized basis, you get a look at what I call total labor market inefficiency, which today stands at $277 billion. That's the cost to fill all those open positions in the United States each year.
You can look at this at the organizational level too. Let's do a conservative estimate. 2017 data estimates most companies churn a combined 18 percent of people each year, combining quit rates and involuntary churn. If your cost per hire is $4,000 and you have 50,000 employees, that means you may be spending $36 million to keep your talent pool full (4 thousand times 50 thousand times .18).
Why is this so broken? Simply put, companies have no idea what skills their people have and they have no way to match open positions to people inside their companies. And employees have no way to showcase their skills and goals within the internal marketplace or see the opportunities that match their skills. The result: There is less friction for external recruiting than there is for internal mobility, so companies hire externally instead of internally, and the most ambitious employees look to outside job boards where they can apply new skills, grow them, and make more money. The cost of shuffling millions of people from one organization to another is astounding.
We ought to spend real time and effort solving the internal talent marketplace. There are three key ingredients:
- Visibility into the skills your employees and contingent workers have. Every skill at every level. This is your supply.
- A central view of the demand. All the jobs that need doing, including projects, open positions, major initiatives. This is your demand.
- An internal talent marketplace, where supply and demand meet. Employees can assert their skills and goals, and leaders and hiring managers can match the supply and demand, starting with internal first.
Getting there will require a historically siloed HR team to work more closely together. Talent should be tightly connected to learning and development to ensure critical skill gaps are being closed and the talent pipeline is rich and HR leadership should be working with the COO to show the financial savings of creating an efficient internal marketplace.
It's time we push for more efficiency and treat talent mobility as a core operational opportunity rather than a cute sideline benefit.