In May 2019, the Bureau of Labor Statistics reported that the U.S. unemployment rate remained level at 3.6%, with employment increasing in both professional and business services as well as healthcare. These numbers paint a much different picture than the unemployment rate during our most recent recession, which hovered at 10% in October 2009.
A strong economy gives us reason to celebrate. But what does that mean for your recruiting efforts? Do you have less qualified talent to choose from? The labor market is tightening - in April 2019, the ratio of employed individuals per job opening was only 0.8.
Even though there are fewer candidates per job opening, turnover has increased. The most recent statistics from the Bureau of Labor Statistics indicate that in April 2019, 5.9 million people were hired but 5.6 million separated employment, with 3.5 million of those separations representing people who voluntarily quit their jobs. These numbers show that employees are willing to leave their current positions for new opportunities. According to a recent LinkedIn survey, the top reason people leave their current jobs is for a better job.
With a tight labor market and fierce competition, it’s a job candidate’s world. Hiring managers should realize that candidates have increased choice and decision-making power when it comes to job openings. Now, as a recruiter, you need to place your focus on getting the best return. And that’s with employee referrals.
1. Recruiting Passive Talent is Hard
Often, when we think about recruiting, we get trapped in the “active candidate” pipeline. We consider who’s looking for a job and how can we attract them to us. By recruiting active candidates, companies limit themselves to a small talent pool. Businesses can expand their talent pool 10x by focusing on employee referrals.
With referrals, employees will encourage their close friends and acquaintances the apply for a job opening at their company. This attracts potential candidates who may not be looking for a new job actively. Seventy percent of the world’s workforce is comprised of “passive talent,” those individuals who aren’t looking for a new position. Eighty-seven percent of both active and passive candidates would consider a new opportunity. And, referrals are the top way people discover a new job.
2. A Strong Economy Boosts the Quality of the Referral
In a tight labor market with low unemployment rates, companies will attract a higher quality candidate. And, considering referrals already produce above-average candidates, companies will notice highly desired recruiting results. Because unemployment is currently so low, the market isn’t saturated with job seekers. As demonstrated by the statistics above, employees are willing to quit their current position for a better opportunity.
By implementing technology to assist in employee referrals, employers can identify top performers within their employees’ connections that are an excellent cultural fit. Additionally, technology can help employers track results on the quality of hire, enabling organizations to tailor their recruiting process further. Finally, technology removes bias—whether intentional or unintentional—while speeding up the process of hiring. Let’s face it, computers have the edge on humans when it comes to time management.
3. Employee Referrals Convert Faster
In a strong economy, it’s all hands on deck. Companies want to take advantage of spending patterns as well as investments for growth. After all, we’re overdue for a recession by almost five years. When recruiting, employers want to get top candidates hired so they can hit the ground running.
Referred candidates are hired faster than non-referred job seekers. For example, employee referrals are hired in 29 days, more quickly than the 52 day process for other hiring sources, representing a 55% faster hiring rate. Not only are referred candidates more quickly to hire, but employers will enjoy a 75% reduction in cost per hire. Where traditional hiring methods cost anywhere between $4000 and $20,000, referred candidates cost anywhere between $1000 to $5000. Thus, not only are employers getting higher caliber candidates, but the referred hiring process positively impacts the bottom line.
4. Employee Referrals Have Longer Retention Rates & Are More Profitable
In addition to faster hires being friendly on the bottom line, referred candidates have longer retention rates. A recent study showed that after two years, referred employee retention clocks in at 45% whereas employees hired from job boards registers at 20%.
Referred employees also contribute to the bottom line beyond their hiring expenses. For example, employees hired through a referral program produce 25% more profit than employees from any other source. Also, in another recent survey, 82% of employers stated that referred employees contributed more to return on investment than employees hired from different origins. That’s nothing to sneeze at. In such a tight and competitive labor market, companies want top performers, making them money.
5. Improves Employee Engagement
Allowing your employees to refer job candidates also improves morale. If referred candidates are hired into the company, the referring employee will not only feel as if his or her voice matters, but that he or she contributed to the company’s growth and success. Feeling part of the team is critical to loyalty and improved employee engagement.
Further, if the economy is booming and the labor market is tight, companies may have employees taking on two to three positions while specific positions remain open. With such intense competition for top talent, employee referrals can fill these open positions, taking the stress off other team members. In this way, employees can see the direct benefit of a good hire.
Hiring top-performing, dedicated employees is no easy feat, especially during a strong economy. Companies, however, can still achieve their hiring goals while contributing to the overall success of the business by encouraging employee referrals. By straying away from job boards and other recruiting platforms, employers can spend their valuable time recruiting the best fit for a position through referrals. What a great win in a healthy economy.