Updated: Apr 1, 2019
The market for entry level jobs is broken. Two thirds of first jobs after college will end within two years, and the cost of attrition, particularly for growth companies, is high. Learn how Nlyst aims to solve this challenge.
Meet Anne. Anne is a senior at an Ivy League university who plans to someday become a doctor. Anne is also the winner of a lottery, of sorts, in that she has a full-time offer to join McKinsey and Company as an Analyst following graduation. I first spoke to Anne in October 2018 and found it striking that despite her enviable position, she seemed torn over the decision around whether to accept the offer from McKinsey. Anne was considering two offers—one with McKinsey, where she would get to travel the world and work extraordinarily hard on some of industry’s most challenging decisions, the other in a rotational program with a leading healthcare company. Two offers, both providing the ability to explore different careers in a short period of time.
Jason, a senior, is pursuing an engineering degree at a large southeastern state school. He has an internship working in the Finance department of a global logistics firm. He expects that he will receive an offer upon graduation, but he isn’t sure that it’s the right career for him. To land his internship, Jason submitted his resume to over one hundred jobs posted online. He interviewed for at least a dozen of them and accepted his only offer. After an extensive job search, I expected Jason would have a clearer picture of what he wants to do in his career, but the reality is that Jason, like so many other college students today, isn’t familiar with all the available private sector jobs, let alone which one is right for him.
Both Anne and Jason have found success in the system, yet both found the process of selecting a job challenging.
The market for entry-level jobs is broken.
Of the nearly two million individuals receiving bachelors’ degrees in the United States last year (National Center for Education Statistics 2018), most will enter private sector employment upon graduation. Over two thirds of those individuals will leave their first job within two years (Gallo 2015). Many individuals who stay in their first job for a full two years only do so because of a recruiting industry taboo that penalizes “job-hoppers”. This means that only a fraction of one-third of entry level hires stays in their first job for two years because it is a good fit.
Despite a lot of negative press following the Great Recession, the archetypal job-hopping millennial is a myth—this generation is no more likely to leave jobs than earlier generations, but young people launching their careers (i.e. recent college grads) have a higher attrition rate than the rest of the labor force. (Fry 2017)
Entry level attrition also places a high burden on companies. The cost to recruit, train, manage, and ultimately exit entry-level candidates (particularly relative to their direct headcount costs) is high, costing as much as 50-60% of salary in separation costs and up to 200% when considering the indirect costs (e.g. productivity loss, management burden) associated with those who leave (David G. Allen 2008).
We have also heard from many companies that they struggle to backfill roles requiring experience of less than three years. For instance, the head of talent acquisition at one New York based growth company simply cannot backfill for junior sales roles requiring prior experience. Open headcount often goes unfilled until the next entry level class is brought in. A sales executive at a leading e-commerce site has open headcount that she has not been able to fill for over eighteen months and finds herself personally private messaging candidates on LinkedIN during her free time to identify leads. This points to a unique market problem where high levels of demand are unmet due to a lack of liquidity of supply.
The market for entry-level talent is characterized by three common issues faced by inefficient markets:
(1) High transaction costs—poorly functioning markets encounter high transaction costs relative to the value of a successful transaction. The cost to recruit, train, and ultimately exit entry-level professional staff is relatively high compared to other areas of the labor market.
(2) Asymmetric information—the market for entry level jobs poses a unique challenge for company recruiters in that candidates lack extensive experience that can help inform companies of their likelihood for success.
(3) Widely different outcomes—entry level hiring can be particularly frustrating because every company can point to massive success stories where an entry-level hire turned into a valuable leader in the company, however, this is the exception and not the rule.
Companies are spending on the wrong things
In the war for talent, companies are building open-concept offices, providing meal services, and work from home policies to help attract and retain millennial talent; they are also investing in curated job posting services to better advertise company culture. However in our own research, we find that the 2019 graduating class is more focused on the desirability of the work itself, the company mission, and their teammates, than any of these more superficial benefits.
Talk to any recruiter, and they will tell you about a proliferation of HR Tech to help build data-driven approaches to recruiting and talent management (Biswas 2018). Despite an increase in SaaS options, the rate of separations and quits across the private sector labor force as a whole has increased since 2013 from 3.6% per month to 4.1%, and 1.9% per month to 2.6% (Bureau of Labor Statistics 2019).
Our position is that the proliferation of HR Tech is only serving to drive more dollars through a fundamentally poorly functioning system.
Continuing to invest in a broken system is costly
We see companies doubling down on an inefficient system in a number of ways, particularly in the way they recruit, onboard, and exit entry-level staff.
We spoke with a recruiter at one of the fastest growing e-commerce companies in the world, where they hire over five hundred recent college graduates per year. Their growth has been so explosive, it’s difficult to predict headcount demand, and recruiters over-hire for entry-level positions. Entry level hires often find themselves working for managers who don’t have a specific role in mind, and for their first several weeks (and sometimes months) after their hire date they continue settle into a role.
Another recruiter at a professional services growth company found that after they closed a recent round of funding, their senior sales leaders were forced to host multiple monthly trainings (creating multiple days of distraction per month) as they onboarded a new class of sales development representatives each month. This same recruiter had been hired to focus exclusively on entry-level roles, however found that he had successfully hired for all of their open headcount needs in less than six months.
The head of recruiting at another mid-sized professional services firm found that he ended up spending as much as 25-30% of his budget on search firms because his permanent recruiters were overburdened with so-called “distraction hiring”. By removing the entry-level distraction from his team, he thought he could displace a material portion of his external search firm spend, and better position his recruiters for more lucrative executive and technical hiring roles in the future.
Can a flexible hiring model improve entry-level labor force liquidity?
Instead, what companies need is a more effective system for reducing the costs of high turnover. We look at the transition many companies have made to cloud-computing as a model for how companies will engage talent in the future. Instead of purchasing servers, hiring IT professionals, and resourcing a computing network to serve peak demand, companies shifted much of their computing horsepower to the cloud, where they could better access security and performance at scale, and only pay for the service they need.
Similarly, companies can vastly improve the return on investment by cutting the greatest inefficiencies of the market and only buying the access to talent they need. This shift to a flexible model can help drive entry-level hires more rapidly into a durable career, by eliminating the “job-hopper” taboo, and relieving some of the productivity loss, retraining and separation costs by achieving economies of scale through a marketplace that benefits from the network effect.
CFOs also place a premium on variable costs over fixed headcount costs—with the possibility of rapidly staffing up or down based on company and market performance. By increasing the liquidity of headcount opex, companies can better match labor supply with demand, and maintain flexibility in how they allocate discretionary budget.
We also find that this model is preferred by most current college students. Over 85% of current college students say that they will be either Somewhat Likely or Highly Likely to consider a model that placed them on projects with different companies for several months at a time. There is appetite to explore and have diverse experiences before selecting a long-term career.
At Nlyst, we envision a shift in how companies access talent, and in particular, entry-level talent.
Nlyst is building a marketplace for entry-level talent on-demand. Rather than take measures to reduce attrition, we help companies reduce the cost and frustrations commonly associated with turnover by offering elite talent on-demand, where companies only pay for productive work. We also can help improve company performance through:
(1) Shorter time to fill roles—Nlyst will have efficiencies of scale in recruiting, and can maintain a pipeline of candidates to backfill roles that otherwise see attrition during first year, many of which often go unfilled.
(2) Increased productivity per seat—not only do entry level roles face high turnover, but individuals who leave typically dip in productivity around months 6-12 and stay on for many months throughout their job search; the Nlyst model is built to quickly transition and backfill these individuals to maximize productivity
(3) Lower attrition—companies that shift entry level roles to a flexible model will reduce their overall attrition rates, and can refocus retention efforts on the individuals (those with 3+ years of experience) who are most likely to stay
(4) Better prepared candidates—we set a high bar on quality, provide coaching and training so that our analysts show up for interviews and day one of their careers more prepared
(5) Reduced costs—by shifting the cost burden for the percentage of teammates who leave before reaching two year mark to third party
As we further break down the taboos of entry-level turnover, together with Nlyst, companies can help better prepare entry-level talent for the leadership jobs of tomorrow.
Explore www.nlyst.com to learn more, and follow us on Social Media.
Biswas, Sushman. 2018. HR Technologist: Top Trends Driving the Demand for HR Analytics. April 24. https://www.hrtechnologist.com/articles/hr-analytics/top-trends-driving-the-demand-for-hr-analytics/.
David G. Allen, Ph.D., SPHR. 2008. Retaining Talent: A guide to analyzing and managing employee turnover. https://www.shrm.org/hr-today/trends-and-forecasting/special-reports-and-expert-views/Documents/Retaining-Talent.pdf.
Fry, Richard. 2017. Millennials aren't job-hopping any faster than Generation X did. April 19. http://www.pewresearch.org/fact-tank/2017/04/19/millennials-arent-job-hopping-any-faster-than-generation-x-did/.
Gallo, Amy. 2015. "Setting the Record Straight on Switching Jobs." Harvard Business Review, October.
Statistics, Bureau of Labor. 2019. Job Openings and Labor Turnover. February 12. https://www.bls.gov/bls/news-release/jolts.htm#2018.
Statistics, National Center for Education. 2018. https://nces.ed.gov/fastfacts/display.asp?id=372.