The unemployment rate is the lowest it has been since the 1960s. This has made it extremely challenging for companies to find talent—with the needed skills and experience—for the their open roles. There is another wave that’s hit the job market, which nobody is talking about. It could be due to the subtle nature of this surge. It’s been slowly and steadily rippling and hasn’t yet caught the attention of the media and corporate executives.
Last week, it was reported that Deutsche Bank, the large German-based bank, will move a large number of accountants from their Jacksonville, Florida office complex to India. Deutsche Bank previously nearshored thousands of jobs from its Manhattan U.S. headquarters to Jacksonville in a cost-cutting move. Deutsche Bank is not the only investment bank that has aggressively moved employees to less expensive cities and foreign countries. Most, if not all the banks, have covertly been doing this over the years—and it’s not just the banks. Companies in a wide variety of industries are doing the exact same thing.
Here is where it’s going to get tougher for companies to hire. Let’s use Wall Street banks and New York as an example. After Sept.11, banks moved their headquarters from their downtown New York City Wall Street locations to Midtown Manhattan. Bank executives recognized the harsh realization that it wasn’t too smart—and poor risk management—to keep all the banks so closely together in case of another catastrophe. When they noticed that clients didn’t care that the banks no longer had a prestigious Wall Street address, they took space in Jersey City and moved people there. The companies saved on real estate costs, took advantage of tax breaks offered by the revenue-hungry city and state politicians and paid lower salaries compared to New York. Once again, clients didn’t balk at the new address. Jersey residents were glad that they didn’t have to commute into New York City. The shrewd banks figured, let’s move outside of the expensive New York tri-state area and establish corporate hubs in lower cost states all over the country. Bankers are notoriously good negotiators and struck deals with municipalities where they could get the best tax incentives, pay the least amount in salaries and find the cheapest real estate—and more jobs were relocated. Not satisfied with the savings squeezed out in the U.S., the banks relocated jobs to an array of foreign countries without inviting the current employees to go there. They could easily replace a mid-level manager earning $125k to 200k with a person earning a minuscule fraction of that amount in India.
Now, here’s the problem: when a bank in New York City looks to hire, many of the usual candidates are no longer around. They’ve either been pressured into relocating, found work in a different area of the business or left the industry to do something else. The relocations, both domestically and abroad, have wiped out entire swaths of potential candidates. When hiring managers—unfamiliar with the job market—look to hire, they assume that things are the same as before. Surprised by the scarcity of suitable job seekers, they’re bewildered and angrily question their human resources staff why they’re not finding appropriate applicants. The executives don’t realize that the suitable candidates are no longer living here. If they are, they know they’re in high demand and want a big premium to move.
The locations where the banks moved people will have similar problems. Places like Salt Lake City or Jacksonville, Florida don’t have a robust banking culture. When a job is available in these locations, there are little or no other competing firms to poach people from. They’ll have a hard, if not impossible, time filing specialized positions.
Company executives will not immediately grasp the enormity of the transformative change. I predict they will over time. Corporate recruiting is similar to searching for a new home. For instance, if you’ve ever looked to purchase a home or rent an apartment in a nice, safe location with good schools (and are unfamiliar with the housing market), you’ll initially be shocked with disbelief over the costs. At first, you’ll think that the real estate agent was trying to push you into an expensive place to make a fat commission. Then, you move on to the next agent and you get the same huge price tags. Distrusting the real estate salespeople, you branch out on your own and search for your new home with purpose. Gradually, the realization sets in that if you want to live in a five-bedroom home, with fireplaces, all the new shiny amenities, easy commute into work and a good school system, it will cost significantly more than you thought.
It’s the same process when a job search is initiated by a company. Not fully aware of the rapid change, they’ll act as they always have and assume that there are hordes of applicants lining up and begging to be considered for an interview. When that doesn’t happen, they are astounded, shocked and flummoxed.
“This can’t be right! Something is wrong here. We are So-and-So company. There has to be dozens of people who will gladly give their left arm to work here!”
They’ll blame their internal recruiters for not doing their jobs, criticize staffing agencies for their inability to find talent and blame LinkedIn and job sites for not working right. Over time, they’ll come to the realization that they themselves changed the game. By moving everyone away, there’s not enough people when they need them.
When you factor in low unemployment where there are far fewer active job seekers, coupled with the loss of appropriately skilled potential candidates, companies will have an incredibly difficult time finding people. Companies will be left with a few choices.
- Pay large premiums to attract the few suitable and available candidates.
- Lavish their current staff with lots of money and goodies to keep them happy.
- Relocate people back to New York—or from New York to the other locations.
On the positive side, this new evolving and escalating scenario could be amazingly good news for employees. Once the companies begrudgingly realize the new paradigm shift, they will have no other choice than to offer more money and benefits to attract, maintain and keep employees happy.