There is no Hidden Job Market!
Otherwise, there is no Free Market for Labor
A completely free market for labor cannot co-exist with a hidden job market. In other words, both of these conditions cannot be true at the same time.
You have probably heard this by now, “70% of jobs are never advertised, they make up the hidden job market”. These jobs are quietly filled by internal referrals, networking, and headhunters. The jobs are either never posted on the open market or are only posted as a formality, firms already have their chosen candidate. A typical illustration of this is the Iceberg.
The existence of the hidden job market is widely believed to be true even though some claim that the original research was done in the 80s when there was no internet and the dynamics have changed over time. The high rejection rates in the internet era (due to high application rates) somehow seem to reinforce the validity of the claim at a personal level. The candidate looking for a job, facing an avalanche of rejection responses, is highly likely going to believe that the hidden job market exists and that it is that big.
In my opinion, the hidden job market exists but not in the iceberg form that we are led to believe. The contentious aspect is the quantum of the so-called hidden job market. I think it is small and insignificant.
If I am wrong, then it follows that the labor market is not an entirely free market. Whilst this might be true for economies with high unemployment rates, this will be hard to validate in economies with low unemployment rates. For instance, take the US economy, the unemployment rate is at 3.5%. At this level it it only makes sense that employers are more desperate to find labor. The dynamics favor the sellers of labor, and as such the open job market would be the dominant feature rather than the hidden portion.
Thus, from a purely macro-economic point of view, we cannot have a free labor market characterized by a hidden job market. We cannot sustain both of these conditions in the long run. We can have one but not the other. It's either there is no hidden job market or there is no free market for labor. If the recruitment specialist is correct, then the economics professor is wrong.
Under what temporary conditions would both be right?
The discipline of economics tends to separate short-run disequilibrium from the long-run. In this case, we can assume that a hidden job market can possibly exist in short-run equilibrium, whilst the free market goes through some adjustments, whereby the long-run equilibrium will always be reflective of a truly free labor market.
Such a scenario would mean that the current recruitment system is broken and dysfunctional. This is a plausible scenario.
If the recruitment system is temporarily inefficient, the size of the hidden job market would be reflective of the gross inefficiencies embedded in the current open market recruitment systems. The hidden job market, instead of disproving free market assumptions, would then serve to indicate open market recruitment system shortfalls.
What does all of this mean? This means that the current open-market recruitment systems are failing to get the right (and best) candidates in front of the employers. Employers are better off trusting candidates from a smaller pool they know (internals, referrals, relatives, etc.) than the ‘best’ candidates offered by the wider open market. Things were not supposed to be that way. The wider open market, being a larger pool, with more talent, was supposed to be the better go-to market for employers.
The so-called open market recruitment system has a lot of bottlenecks, gatekeepers, redundancies, and pointless processes.
A few examples:
- ATS systems are broken — They are not so intelligent. The parameters are often set too tight and actually filter out a lot of best-fit candidates who have not optimized their resumes to be 80% consistent with the nomenclature of the job description whilst allowing poor-fit candidates who have optimized their resumes to go through.
- Unknowledgeable recruitment agents — Even the ones who specialize in a specific industry tend to be not so knowledgeable of what makes a good candidate for a specific role. They resort to clerical box-ticking the typical requirements.
- Lengthy job application forms — they turn off some best-fit candidates. You upload your resume and cover letter (a big bother for many) and then have to basically retype the whole resume again on the web forms, and click through 30 boxes before being able to submit the application.
- TMAAT questions — “Tell me about a time when” type of questions. These ones take out a lot of best-fit candidates who simply fail to practice a lot on how to answer these questions. They fail not because they don't have STAR stories to tell, but because they are simply not so good at storytelling and regurgitating preconceived answers.
- Too many interview processes — three interviews (1st round, 2nd round, final round), case study, presentation, psychometric tests, situational judgment tests, and behavioral tests, before getting an offer.
- etc
Oftentimes, the candidates who manage to get through all of this are typically the candidates who have studied the processes and mastered how to game these processes. Some best-fit candidates manage to do that as well, but most fall short along the way. Candidates that are best prepared to skip these hurdles are oftentimes NOT necessarily the best candidates.
For example, for most jobs, there is no correlation whatsoever between answering TMAAT questions so well and job performance. It is actually often the case that if you are very good at answering TMAAT questions, it follows that you are very good at talking and “making it look like” rather than actually executing tasks and roles. In other words, those who a very good at role-playing are often not so good at doing the actual thing.
A good parent is the one that does not memorise and keep a record of all the things that they have done for their children to an extent of being able to actually talk about it. In other words, if you, as a parent, can recall and narrate about a time when you bought a couple of bubble gums for your child, and the time you showed up at your kid’s sports day at school, and that time you had to navigate complaints from the neighbours, and how much you sacrificed for your child’s tuition, it automatically follows that you are not a good parent at all.
The internet broke the recruitment systems
These systems are struggling with handling the sheer quantity of applicants. Systems that are set up in an attempt to filter out bad-fit candidates end up filtering the best-fit candidates, literally throwing out the baby and the bathwater. The not-so-good-fit candidates end up getting hired.
Thus, the open labor market becomes an inferior source of candidates when viewed in comparison with the so-called hidden job market.
In the long run, recruitment systems for the open market will evolve and rise to the occasion. The dislocation is temporary.
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