Since the pandemic took hold, panic buying has become something of a national sport. First it was rice and pasta; then toilet roll; then petrol. Almost two years down the line, are workers the new short-term stockpiling target? Or is the tight labour market here to stay?
Recruitment companies are having a bumper season. In a trading update, Robert Walters (RWA) reported a record December performance, with fourth-quarter net fee income a third higher than last year. Omicron proved less damaging than feared, and the group said permanent and interim recruitment activity were the strongest drivers of growth, pointing towards greater long-term confidence.
Meanwhile, 2021 proved to be a “record year” at PageGroup (PAGE), whose results were also bolstered by a strong final quarter. PageGroup’s fee earner headcount is now the same as before the pandemic and full-year operating profit is expected to be marginally ahead of its previous (boosted) guidance of £165m.
The upbeat announcements follow a dire period for recruiters. Profits crashed in the first half of 2020 when companies abandoned hiring plans and thousands of fee earners lost their jobs. Dividends were subsequently suspended and shares in PageGroup and Robert Walters fell by 42 per cent and 56 per cent, respectively, before starting to climb again.
Their recovery has been turbocharged by a booming job market. In the UK, the number of vacancies in September to November 2021 reached a record 1.22m – 434,500 more than in January to March 2020. The end of the furlough scheme also defied fears of widespread redundancies. As of October 2021, the UK unemployment rate was 4.2 per cent: lower than the previous quarter and only 0.2 percentage points higher than before the pandemic struck.
The picture looks similar in the United States. According to the US Bureau of Labor Statistics, unemployment is closing in on pre-Covid levels and job openings are riding high, with 10.6m job positions unfilled at the end of November.
News of labour shortages has tended to focus on lorry drivers, care home workers and hospitality staff. However, Robert Walters said it is seeing candidate shortages “across all locations and disciplines”. London law firms, for example, are struggling to retain solicitors due to the “highly competitive” market, a study by data publisher VacancySoft found. Wage inflation is also kicking in, as businesses tussle for workers.
It’s a perfect storm for businesses, but ideal for recruiters. "Productivity is at record levels, up 25% on Q4 2019," said PageGroup chief executive Steve Ingham, citing improvements in fee rates as a result of the high demand and short supply of candidates. Video interviewing has also allowed businesses to recruit more quickly than before, further boosting recruiters’ productivity.
The question is, will the job market keep booming? According to Robert Walters’ chief financial officer, Alan Bannatyne, it will.
“We are probably just at the beginning of the great reshuffle”, he said, citing growing candidate confidence and rising salaries. The pandemic has also sown restlessness among workers, with many – particularly in the US – switching jobs. “It’s possible that people are less attached to their corporate brands because they can’t work in the office,” Bannatyne suggests.
However, tight labour markets are a mysterious thing. Commenting on PageGroup's half-year results in the summer, Ingham said that “at this stage of the recovery, it is not clear whether the improved performance is still the result of pent-up supply and demand, or a sustainable trend”. This sentiment still rings true. It remains uncertain whether economic growth in 2022 will be able to sustain high levels of profit growth among recruiters. The “great reshuffle” could simply be a Covid bounceback.
To return to panic buying, pressure from competitors could also have kicked companies into action, prompting them to hire now before the shelves are empty, so to speak. As we have seen before, such behaviour is usually short-lived.
Looking further ahead, prolonged wage inflation could prevent businesses from expanding – however much they want to. A study of the aerospace industry by broker Jefferies found that companies want to grow their workforces by 3 per cent in 2022 to match the expected demand recovery.
However, given the higher wages needed to attract talented employees, labour costs are expected to outpace workforce growth, leading to labour cost inflation of 7 per cent year on year. Whether the costs can be absorbed elsewhere is far from guaranteed.
The job market is a strange beast, shaped by a plethora of forces. Recruitment companies, which are cyclical by nature, are largely at the mercy of these. For the time being, they seem like a sensible hedge against inflation, and the global reach of Robert Walters and PageGroup means they have diversified their exposure. If the labour market cools however, recruiters might start to feel like they've overstocked once again.
