This research examines the incidence and persistence of reported hiring difficulties at the firm level. It investigates the characteristics of firms that are more likely to report hiring difficulties, the extent to which those difficulties persist (so that the same firms report difficulties in consecutive years) and the impacts of national and local labour market conditions on recruitment difficulties.
The data source is the Business Operations Survey (BOS), and the period of study is 2005 to 2011. Each year, the BOS surveys a representative sample of private sector firms with employment of at least six persons and collects a wide range of information on business characteristics, strategies and performance.
Hiring difficulties are measured through a question on the extent to which the business experienced difficulties recruiting new staff in the last 12 months. Firms are asked: ‘Over the last financial year, to what extent did this business experience difficulty in recruiting new staff for any of the following occupational groups?’
Responses are recorded for four broad occupational groups: ‘managers and professionals’, ‘technicians and associate professionals’, tradespersons and related workers’ and ‘all other occupations’.
Key Results
Prevalence of recruitment difficulties before and after the recession
In 2005, approximately 75 percent of firms that had posted a vacancy in the past 12 months reported difficulty in filling vacancies in at least one of the four occupational groups. This proportion fell to around 60 percent in 2009, after the onset of the Global Financial Crisis (GFC). It increased slightly in 2011 but remained much lower than before the GFC. The proportion of firms that reported severe difficulties for at least one occupational group was around 30 percent prior to the GFC and 15 percent from 2009 to 2011.
Persistence
Firms that reported recruitment difficulties in one year were likely to do so again. For example, before the GFC, 87 percent of firms that reported a recruitment difficulty (of any type or level) in one year also did so in the next year. In comparison, 36 percent of firms that did not report a recruitment difficulty in one year did so in the following year.
This high level of persistence is partly a consequence of the fact that the majority of firms reported some level of difficulty in recruiting staff in at least one occupational group in each year.
From 2010 to 2011, the level of persistence in reporting a recruitment difficulty (of any type or level) was 77 percent, down from 87 percent before the GFC.
Recruitment difficulties and firm characteristics – descriptive statistics
Univariate statistics indicate that the types of firms that were more likely than average to report recruitment difficulties were:
- larger firms (those with higher employment)
- older firms
- foreign-owned firms
- firms with a relatively high proportion of technical or trades occupations in their workforce
- firms that paid relatively higher wages (after adjusting for the direct effects of workforce characteristics on wages)
- firms with a lower proportion of long-tenure employees.
There was considerable variation across industries in reported hiring difficulties. Problems were least evident in the ‘agriculture, forestry and fishing’ and ‘cultural and recreational services’ industries and most pronounced in ‘communication services’, ‘transport and storage’ and ‘accommodation, cafés and restaurants’. With the exception of ‘accommodation, café and restaurants’, firms in low-wage industries were generally less likely to report hiring difficulties than firms in high-wage industries.
Firm performance and recruitment difficulties
Better-performing firms were more likely to report recruitment difficulties than poorerperforming firms. Descriptive statistics indicate that firms that:
- performed R&D
- made a major technological change
- had overseas direct investments
- exported
- innovated
- invested in expansion.
were more likely than the ‘average’ firm to report hiring difficulties.
Firms that rated their level of employee satisfaction more highly than average were less likely to have hiring difficulties.
Regression estimates: role of firm characteristics
Regression models were estimated to explore the effects of the key explanatory variables while controlling for the influence of other factors. Firm size, the firm-level wage premium and the proportion of high-tenure employees in the firm’s workforce are among the firm characteristics that were included in the regression models.
The results indicate that:
- larger firms are more likely to report recruitment difficulties
- firms with higher wage premiums are more likely to report recruitment difficulties
- firms with a relatively high proportion of long-tenure employees are less likely to report recruitment difficulties.
These statistical relationships suggest that recruitment difficulties are not primarily caused by poor firm performance or by firms’ inability to pay the market wage. The pattern could be due to higher-paying firms having higher recruitment standards than lower-paying firms or needing to fill more specialised or more technically advanced positions, which are likely to be inherently more difficult to fill.
Regression estimates: impact of the economic environment
The state of the national labour market appears to be very important. Multivariate regression models show large and significant ‘year’ effects, with recruitment difficulties declining significantly after the onset of the GFC.
Three indicators of local labour market conditions were used to investigate the relationship between local labour market conditions and reported hiring difficulties:
- Total employment in the local labour market area, which captures any recruitment benefits that may be associated with larger labour markets.
- Net employment growth in the local labour market area, which is intended to capture the level of the external demand for labour (i.e. whether other local firms are expanding or contracting).
- Excess turnover in the local labour market area, which is intended to measure liquidity in the labour market (e.g. the level of voluntary quits).
In the regression results, variations in local labour market conditions did not have a significant influence on firms’ recruitment difficulties, after the impact of national conditions was taken into account. It is possible that the effective labour market catchment for many hard-to-fill vacancies is national or international rather than local.