The Job Sector’s Dirty Little Secret: Sky-high Cost-Per-Hire

The hourly job sector is the backbone of the U.S. labor force. There are 77 million hourly workers, 44 million of whom are service employees earning less than $14.30 an hour—and costing $2,000 each to recruit, screen, select, and train, according to the Institute for Research on Labor and Employment at U.C. Berkeley. The dirty little secret is that businesses burn billions each year just to keep these positions filled, due to high attrition and seasonality churn. Simply maintaining 27 million retail, hospitality, and general labor (janitorial, security, distribution centers) positions costs over $20 billion.

Obviously, there’s a big problem with hiring. It’s rife with inefficiencies. Companies hurt themselves by using outdated systems centered around resumes and manual pre-screening. They’re hurt by flawed advertising models priced as cost-per-click (CPC), cost-per-post, or cost-per-view.

Most importantly, hiring has not caught up to the mobile device. Some 70 percent of low-wage workers prefer to access the internet via mobile devices. Yet most mobile recruitment solutions, and the applicant tracking systems (ATS’s) behind them, are crude and produce application-completion rates below 10 percent. Rates for Hispanics and African Americans, groups, who are predominantly mobile-first when accessing the internet, are even lower.

We also have malpractices in the online job advertising industry where candidates report that their contact information is sold to third parties without their explicit consent, resulting in job seekers being inundated with marketing calls and solicitations instead of a real job. Not only is this a negative experience for the candidate, but it also damages the brand of large employers, and ultimately leaves a detrimental financial impact.

No one seems to challenge the sad state of hiring because the true costs are hidden from analysis. Few executives truly have a handle on the cost of hiring.

Costs are fragmented across many cost centers. The ad budget devoted to paying per unqualified clicks or views is carried by the marketing department or an outside ad agency that focuses on media spending but lacks analytics to measure total cost per hire. The cost of ATS software is part of IT spending. The cost of creating and maintaining a mobile career page is a marketing cost. And human resources bears the cost of making thousands of pre-screening calls and reviewing non-local or unfit candidates because “it’s always been done that way.”

And where to account for the litigation costs resulting from processes that aren’t Equal Employment Opportunity Commission-compliant? Where to account for the cost of negative brand impact when candidates are misled?

Fortunately for some corporations, they’re discovering new technologies spawned by the venture capital firms investing $1.4 billion in 100 companies during the first two quarters of 2015 and close to $3 billion by year end. A lot of startups are driving positive, cost-conscious change in the 300-year-old “human capital management” industry. The leading staffing firms, RPOs, retailers, hospitality groups and the fast food companies of the future are embracing the new processes and tools and using it as a competitive advantage as the rest remain affected by this dirty and not so little little secret: Cost-per-hire inflation.