Lower Your Expectations or Raise Your Budget: 1 Professor's Take on the Slow Pace of Hiring

Sophie Quinton

February's robust employment report might come as a surprise to Americans who, after searching for months, can't seem to find work. Although hiring is picking up, more than 40 percent of unemployed Americans have been out of work for 27 weeks or more.

Some of the problem is, during the recession companies cut back on training and got rid of recruiters. But evidence suggests that firms are taking an unusually long time to fill open positions, and the long-term unemployed are still struggling. I called professor Peter Cappelli, director of the Center for Human Resources at the University of Pennsylvania’s Wharton School, to get his thoughts on what's different about this economic recovery. Edited excerpts follow.

We seem to be embarking on a jobless recovery. Why aren’t employers hiring?

The most important and obvious thing is, the level of demand isn’t high enough yet. Part of what’s holding back the economy is the financial sector; banks aren’t lending, even though interest rates are low.

Past that, there has been this debate about whether we should expect more hiring at this rate of unemployment. There have been a couple of studies that show that there is something funny going on, and what’s funny is that vacancies aren’t being filled very quickly. That seems to be the question worth pondering.  

Is the problem a lack of skilled workers? Or have hiring practices changed?

One thing is that hiring managers have an incentive not to hire, to keep their costs down while business is going up.

The other thing I think that’s happening is that expectations have gotten out of whack. After years of low wage growth, everybody looking for jobs and wanting to jump through any hoops to get a job—[managers] kind of got used to it. So their expectations of what they can get are pretty high.

At the beginning of the recession, you could find somebody who just got laid off a week ago from some competitor doing exactly the job that needs to be filled. Now, people who’ve been out of work for a long time—they don’t want to hire them. They can’t find people with recent experience, and the ones they want are currently working for somebody else. Nobody wants to quit their current job, especially if [the new company doesn't] want to pay them a lot of money. And they don’t.  

Some of it also is, during the recession they gutted the human-resources function. They got rid of recruiters. Recruiters were the people who used to manage this for companies; they knew what the market was like outside. Recruiters were always pushing back, saying you don’t need a Ph.D. to do this job, you don’t need five years’ experience, and you’re going to have to raise your pay if you want to get these guys.

The second thing that happened is they also cut back on training. Maybe in the past you could have hired somebody who was close to being up to speed, and you could just hire them and train them a little bit, and off you go. But without your trainers, you can’t train them anymore, and you’ve got to have perfect candidates.

We’re seeing big corporate profits, but hiring remains slow. Does that surprise you?

It’s not surprising that they would get their costs under control faster than the economy would pick up. One of the reasons, though, that it’s relatively easy for them to get profits up is because they’re squeezing their employees after business picks up. And this also happens after every recession—business picks up, but you don’t want to start hiring yet because maybe you’re not sure where business is going to be. That’s pretty typical.

More and more companies require online applications. Has technology helped or hindered the process of matching employer to employee?

That’s another aspect of getting rid of the recruiters. This started in the '90s, when companies were desperate for workers and they were trying to make it easier for you to apply. So they made it easier and easier to apply, and when the downturn comes, you get lots and lots of people applying—thousands of people applying.

The idea was, the recruiters would go through the pile and they’d narrow it down. Now, effectively, you’re relying on the software to pick the candidate. They just bake into the software the crazy requirements of the hiring managers.

I think what slows things down, and makes it more difficult to hire—it’s not the tracking software per se; it’s the way it’s used.

For hiring to pick up, do employers need to shift away from this model? Or will hiring pick up naturally as the economy includes?

At some point, employers will get more realistic about who they want to hire. The problem is, it could take quite a while, because the way the systems work that they’ve got in place now—it’s hard for them to know why they’re not hiring and why they can’t find these folks. It’s hard to go into the software and say, what’s tripping people up? You can do it, but you have to have programmers who have time to go in and do it. Structurally, it’s kind of hard to do, and the incentives aren’t really there to do it.

If you’re measuring everything by your profits—it’s awfully hard to see what the costs are of low morale, low productivity. It takes a long time to figure that out, as opposed to the cost of raising your wages. They see that instantly. It all has to do with the way companies are set up internally.

You’ve said that employers looking for the perfect employee are a bit like a family on an HGTV show, looking for the perfect home. Could you lay out that analogy for me?

On those TV shows, [participants] never initially find what they want. And they don’t conclude that the problem is that there’s a housing shortage. The host says, you’ve got to lower your expectations or you’ve got to raise your budget. And that’s the story here too.