The REC Says the Recruitment Industry Grew by 14%… or, Did It?

Many people believe that the recruitment industry is booming.

The Recruitment Trends Industry 2017-18 report, produced by the Recruitment and Employment Confederation (REC) seems to suggest as much.

But look a little closer, and all that optimism seems a little… overdone.

Let me begin by making it clear that none of what I’m about to say is intended to be a criticism of REC.

They do great work, their reports are fantastically useful and it’s only reasonable to expect positivity from a company that is championing an entire industry.

It’s also important to note that their report covers the entire UK recruitment industry – permanent and temporary – whereas I’m only concerned with the companies providing permanent recruitment services.

With that said, fasten your seatbelt because things are about to get bumpy.

Statistics can be twisted to prove anything

When you have a mass of data to look at, it’s always possible to cherry-pick the parts that make your point.

Remember the Brexit bus? The statistic was technically correct, but without context is was massively misleading.

I got a similar feeling when reading the REC report

On the whole it seemed positive, but something about it didn’t quite feel right. And when I looked closer I realised there was a huge problem hiding in the numbers.

I’ve been meaning to write about this for a while and I was reminded when I read a new article by Greg Savage (if you’re not familiar with this Aussie legend, I urge you to subscribe to his blog – if you work in the recruitment industry you should consider Greg to be required reading).

In the article Greg talks about a survey of recruitment firms based in the Asia Pacific region. The data indicates that only 5% of recruitment firms made a loss in 2018 and 51% improved their year-on-year profits.

This sounds positive and, indeed, it’s reportedly the best result in 7 years.

However, Greg points out that 30% of firms recorded a decline in profits. That’s almost a third. More significantly, this took place during a period of time when the economy is doing well.
Greg asks the unsettling question…

“If 30% of recruitment companies went backwards in profit in what is universally considered a great year, what will happen when demand falters and conditions become more challenging?”

Hmm…

Interesting how a slightly different angle can change “this is the best result in 7 years” to “it looks like we’re heading for trouble”.

I won’t go into Greg’s conclusions here (you can read them for yourself), but it’s interesting that we see a similar phenomenon in the UK statistics produce by REC.

The Recruitment Trends Industry 2017-18 report says the sector is growing.
In fact, let me quote directly from the introduction.

“…we can shout loudly about a sector that is growing by increasing the value it provides to clients and the opportunities it provides to candidates. And we should all celebrate that success…”
Absolutely! I’m all for celebrating the successes of the recruitment industry. There’s plenty of good things happening.

But it helps no one to ignore the problems lying behind the numbers.
Let’s look a little closer.

If everything grows, then nothing grows.

During the period studied in this report (March 2017 – March 2018), permanent placements increased by 14% over the previous period.

“As a whole, the recruitment industry, including associated HR services, made 1,142,000 permanent placements in 2017/18. This was an increase of 14 per cent on the previous year.” – Page 7

On the face of it, this sounds mightily impressive. An average 14% increase in placements means an average of 14% more fees collected. Bonuses all round, right?
But then you see this…

“The enterprise growth was largely driven by a sizeable increase in the number of employment placement agencies – those enterprises who drive the majority of their turnover from permanent recruitment activities. These increased by 2,025 (13.8 per cent).” – Page 8

Think about that for a moment.

If the average placements increased by 14%, but the number of recruitment firms increased by almost the same amount, then that means on average…

Growth was virtually nil.

If that sounds a bit sketchy, let’s look at the actual figures.

According to REC, in 2016-2017 there were approximately 999,946 permanent placements made by recruitment firms, and in 2017-2018 there were 1,142,289.

In March 2017 there were 14,625 permanent recruitment firms and in March 2018 there were 16,550.

Okay so far?

Now let’s average those numbers out.

Between 2016-2017, 999,946 placements were made by 14,625 firms. So, on average, each firm made 68 placements.

Between 2017-2018, 1,142,289 placements were made by 16,650 firms. So, on average, each firm made 69 placements.

Read those numbers a few times because I really want them to sink in.

During a period of booming recruitment, the average recruitment firm made just ONE more placement than in the previous period.

What happened to that impressive 14% growth?

Well… that’s statistics for you.

It’s like harvesting 14% more corn in a village that increased in population by 14%.
No one is getting fat this year.

I’ve looked hard – and if I’ve missed it, please write and tell me – but I can’t see any chart in REC’s report that is similar to the one in the Asia Pacific report, indicating the percentage of recruitment firms that have experienced an increase or decrease in business.

If there were I wouldn’t be all surprised to see something similar. A good number of firms experiencing a growth in business, balanced out by a sizeable number of firms that are still profitable, but seeing a slowdown in business.

The possible reasons for this are the subject for another article (probably my next one). But for now, let’s consider this a warning sign. The industry is still strong, but that doesn’t mean it will always be this way.

Now is the time to get our heads up and plan for a future when things might not be so rosy.

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