Recruiters dodge jobs slump

With Australia having dodged the worst of the global financial crisis, the effect on the Australian employment placement services industry has been mild compared with its international counterparts. Australia’s rise in unemployment was relatively small and quick to begin reversing, with demand for employment placement services rebounding in 2009-10 and 2010-11.

In 2010-11, the industry is expected to generate $1.9 billion in revenue, up 2.2% on 2009-10. Profit will climb by 4.7% to $59.7 million on top of a 3.5% rise in 2009-10 as margin pressures eased. This followed a year of declines in 2008-09 as the worst of the economic downturn hit. Job vacancies tumbled as employers slashed hiring activity and in many cases reduced total employee numbers amid economic uncertainty. This flowed through to reduce use of employment placement services by employers. The drop-off in hiring combined with easing competition for quality employees also allowed employers to bring some recruiting activity in-house to save costs. Some mild offsetting effects came from continued government funding of activities such as training services and assistance to job seekers, however, these other activities represent only a small segment of total industry revenue.

Industry outlook

With the Australian economy holding up well amid the global financial crisis, and unemployment remaining relatively low, growth in the employment placement services industry will strengthen in 2011-12, with revenue forecast to rise by 4.5%. Although declines in unemployment tend to lag growth when an economy is emerging from a downturn, the composition of unemployment tends to move more towards people who are switching jobs; the proportion of people that have been laid off or are long-term unemployed actually falls.

This is expected to be the case in 2011-12, with increased activity driving a rise in recruitment and placements. The renewed confidence among workers to switch jobs, and employers to hire, will be triggered by a forecast return to strong economic growth from 2010-11 onwards. Continued solid growth is anticipated over the final four years of the five-year period through 2015-16, as unemployment gradually winds down. Job vacancies and new hiring will increase as the economy begins achieving relatively strong results once more. Businesses will again turn to employment placement service providers as their recruitment needs expand, and the right applicant becomes more difficult to find as competition for workers heats up.

Over the five years through 2015-16, industry revenue is forecast to increase at an average annual rate of 3.2%. Aside from the level of unemployment and general economic conditions, other factors driving growth once the recovery begins will include the expansion of major operators into new services such as employee process outsourcing; administering Workcover, superannuation and other compulsory and statutory payments to employees on behalf of clients.

Overall, outsourcing recruitment by business and government will continue. IBISWorld expects profit margins to remain low due to ongoing high levels of industry competition. After-tax profit is forecast to grow at an average 5.1% per annum to $76.5 million over the five years through 2015-16. Profit will be more volatile than revenue as it comes off a lower base following the downturn. A strong recovery in profit is then expected as margins recover, although overall this remains a relatively low-margin industry due to its highly competitive nature.