Given that their performance tends to mirror that of the economy, recruitment agencies are often seen as something of an economic barometer, as employment and recruitment businesses prosper when the economy is growing and demand for staff is strong.
The employment market has been through two years of faltering sales amid worldwide economic and political uncertainty within the recruitment market, but new research from Mintel shows that there are signs of recovery and the mood among agencies is one of cautious optimism.
The current labour pool is large, with 60 per cent of the adult population in work and unemployment figures at historically low levels. This has created a favourable climate for the employment and recruitment services industry. Although it has been suggested that agencies should look towards catering for the unemployed, it will still be very much the case that people will tend to use agencies to change jobs and move up the employment ladder rather than to get a job in the first place.
The number of people of working age has been rising and is set to increase further during the next five years. Women now make up 45 per cent of the workforce, dominating part-time employment and also taking a third of full-time jobs. The research also shows that by 2009, a third of the working population will be over 55 years old, which will present the employment agencies with new opportunities and challenges. These demographic shifts, completely out of the control of the supply structure, will have a significant impact on recruitment agencies over the next five years.
The market for job placements has grown consistently since the recession of the early Nineties; during 2003/2004 it saw a 6.6 per cent increase in turnover on the previous year to &£24.5bn. The number of employment agencies has also grown, reaching about 14,700 in the UK. Despite these positive rumblings, the heady days of rising sales and profit margins that the recruitment industry enjoyed between 1997 and 2001 are fading.
The market for temporary workers is valued at &£22.8m, with temporary recruitment generating more than 90 per cent of total agency turnover. Within the temporary market there has been a change in the mix of sales. Although a higher percentage of workers were placed, the positions they filled were in lower-paid secretarial/clerical and nursing/ medical sectors as opposed to IT and finance.
At the same time, the permanent recruitment sector saw an increase in sales over the same period of &£1.7m, accompanied by an increase in volumes. However, there has been a decrease in the average value of a placement brought about by lower commission rates and a tighter market, as well as the drop in the number of executive appointments that attract higher fees.
The report shows that job seekers continue to use a range of media, intermediary and direct methods when hunting for work. The most popular means of seeking employment is newspaper job sections, with 77 per cent of respondents citing them. The internet is adding value to all forms of recruitment, whether it is through traditional or online agencies or companies using their websites for recruitment and selection. The increased penetration of home PCs and internet access also means that online services are now accessible to a greater number of people.
The number of placements via employment agencies is set to grow by 15 per cent, reaching 2.4 million by 2009. The changing structure of the job market will see the number of temporary positions offered continue to exceed the number of permanent positions. A more flexible job market will see outsourcing become a common feature among employers, contributing to considerable growth in the number of temporary placements, while permanent placements will remain relatively constant through to 2010.
The employment agency market in the UK is highly fragmented, with low barriers to entry and relatively low start-up costs. The top 15 companies control just over 25 per cent of the market, whereas in other European countries the largest companies control a significant share of the total market. Data from the government-owned Employment Service, which carries out research into the market, shows that 50 per cent of people looking for work use one of the Government’s Job Centres, although Adecco is the private agency with the largest market share.
The number of agencies is forecast to increase by a further ten per cent over the next five years. This is significantly slower growth than was achieved over the previous five years, but reflects the fact that it will be harder for new entrants to break into the market. In the long term, this means that the number of agencies will level off and eventually start to decline, although there are opportunities for agencies to form partnerships with Jobcentre Plus.
As with the number of agencies, total revenue will also increase but at a slower rate. By 2009, the total turnover of employment agencies is expected to reach &£28.4bn, a 16 per cent increase. However, there is potential for further growth in the market if the industry can tap into potential new target markets and cater for those in lower skilled occupations and unemployed people who at present tend not to use agencies.