Published on 20/04/2016 by Punchmedia

Unemployment Rate Affects Recruitment Revenue

Demand for the industry’s specialist recruitment and employment services tends to change according to movements in the unemployment rate, however over the five years through 2015-16, industry revenue is expected to increase by an annualised 0.2%, to $11.0 billion. When the national unemployment rate declines, demand for industry services tends to increase as more businesses across the economy look to employ more staff. With higher unemployment levels over the past five years, as well as weaker business confidence and greater pricing competition over this time, the industry has only been able to expand slightly alongside increases in the size of the total labour force.

Revenue and Demand

Industry growth over the past five years is due to steady demand growth for workers as the size of the labour force grew, and low pricing growth as industry competition remained high. In 2015-16, revenue is expected to increase by 3.8% on the back of the declining unemployment rate and growing labour force, which will drive demand for recruitment services. Industry growth surged in 2010-11 and 2011-12 due to growing demand for permanent recruitment, with a return to industry employment and wages growth. Industry employment is expected to increase over the five years through 2015-16, contributing to an increase in establishment numbers across regional areas, while larger industry firms have increased employment to service more clients and niche markets. A greater number of smaller and specialised firms have entered the industry over these years, increasing industry competition and constraining profit growth. As a result, unprofitable companies have exited the industry.

In-Housing and Government Programs

The industry’s landscape was altered by the global financial crisis, and the economic slowdown and unemployment that followed. Although Australia’s downturn was mild compared with those of many other nations, it did enough damage to prompt a temporary but solid downturn in industry demand. Many businesses that were still hiring employees carried out their own recruitment processes to reduce costs. Increased competition for jobs among unemployed workers made it easier for Australian firms to bypass employment placement providers and find suitable applicants using in-house resources. In a complete reversal of the situation prior to the crisis, qualified workers were competing for fewer jobs. Other factors affecting the industry’s operating environment include changes within government employment, and job programs such as Jobactive, formerly Job Services Australia (JSA). The Federal Government outsourced its employment services program to the private sector through JSA in July 2009. IBISWorld estimates that 13.7% of industry revenue will be derived from Jobactive contracts in 2015-16. Government funding for employment services has generally declined over the past five years due to spending cuts. The Jobactive program has revised its contracts with providers over the years.

Industry Profit

Because the industry is highly competitive most employment placement and recruitment firms operate with relatively thin profit margins. Significant wage expenses, which are a fixed cost in the short term, make it difficult for industry players to cut costs quickly in response to periods of weak demand. In response to falling margins in the long term, firms can implement cost-cutting measures, primarily reducing wage costs through headcount reductions. Larger companies may also close branches to reduce operating expenses.

Outplacement and Other Trends

While overall industry growth is spurred by falling unemployment, some industry segments can benefit from rising unemployment. During periods of economic weakness and high unemployment, employment agencies in the industry are required to provide general CV and networking assistance to applicants, and a greater level of outplacement services to redundant staff. The improved economic environment after 2010-11 reduced demand for outplacement services, and led to greater one-on-one applicant coaching. Some client companies have looked to cut costs by reducing the size of their workforces and declining to provide outplacement and other services for former employees. Other companies have placed a greater emphasis on maintaining or protecting their reputations and good working environment by providing as much assistance as possible to displaced workers. The use of preferred supplier contracts or agreements has increased over the past five years, particularly for larger industry operators. Although this has some advantages, it may lock firms into a long-term discounted fee system. Some of these agreements may also allow for panels of preferred suppliers to be appointed, with competition occurring among panel members for each placement. An estimated 10% to 15% of industry revenue is generated through preferred supplier agreements, and this share is slowly increasing. These agreements may allow other value-added HR services to be provided to clients at higher fees, helping to offset any discounts.  

punchmedia

Curtis is a leading expert in the business-for-sale industry, serving as a senior content creator at anybusiness.com.au.

With a career spanning over fifteen years, Curtis has accumulated extensive knowledge in the domain of business sales, acquisitions, and valuations. His deep understanding of market dynamics and his ability to translate complex industry jargon into accessible insights make him a trusted resource for entrepreneurs and business owners looking to buy or sell businesses.

Author profile

Related articles

Our Coffee Craving Boosts Cafe Cash

03/09/2015 by punchmedia

Cafe and Coffee Shop revenue in Australia is expected to grow by an annualised 7.4% over the five years through to FY 15-16. According to a recent IBISWorld report, this projected increase includes a large spike recorded in FY13-14 caused by rising consumer sentiment and growing incomes and also includes a forecast rise of 3.2% in FY15-16 to $5.3 billion in total revenue. Much of the industry’s success is due to the count...