Pandemic has “wiped out” a decade of recruitment industry growth


From Shortlist, Thursday 03 September 2020 

Captain’s Table Guest Speaker – Jason Aravanis, IBISWorld Australia

Revenue has decreased by 11% across the Australian staffing sector in the past financial year, according to new research that also forecasts the rate of growth until FY26.

Figures from IBISWorld Australia show the revenue drop represents $4.4 billion in sales, says senior industry analyst Jason Aravanis.

And revenue is expected to decline by a further 19.7% (from FY18 figures) in FY21, he told  Navigator Consulting’s Captain’s Table recruitment owners forum this week.

Meanwhile the forecast average industry profit margin has collapsed from 4.2% of revenue in FY19 to 2.2% in FY21, IBISWorld Australia’s analysis shows.

Recruitment jobs down 20%

Employment within the industry has decreased by 20% since FY19, representing the loss of some 36,000 jobs, Aravanis says.

And the number of industry enterprises dropped by 16%, equivalent to 1,200 companies. (According to ABS data, in Australia there are 7,581 recruitment companies, and of those, 7,069 companies are SMES with revenue of $10m or less.)

The pandemic has “effectively wiped out a decade’s worth of growth” and sent employment and revenue back to levels similar to those in 2010, Aravanis says.

Further, IBISWorld is predicting national unemployment will rise to 8.4% during FY21, with peak unemployment not yet reached due to extensions to the JobKeeper subsidy.

JobKeeper’s benefits for recruitment service providers have been limited, as “potential industry clients are reverting to their existing employees during any recovery out of lockdown restrictions”.

“Very few are engaging in investment in any new productive capacity and expanding their labour forces,” and organisations that are actively recruiting are “bringing recruitment in-house to minimise operating expenses, amid unprecedented economic uncertainty”, says Aravanis.

“We don’t expect real growth to return to the industry until 2021-22,” he says.

Aside from COVID-19’s direct and severe impact, worsening trade relations with China are also a major factor in negative business confidence through to 2021, he says.

“Any further escalation of trade barriers outside of the agriculture sector could be a big threat for recruiters.”

Five-year industry outlook

Recruitment industry revenue is expected to grow at an annualised 3.8% over the next five years (reaching $14bn), outperforming the overall economy, which is expected to rebound at a rate of 2.7%, Aravanis says.

Profit margins will recover, but remain limited. And growth is projected to be stronger in the first two-to-three years, “but it’s going to slow down again in the second half of the outlook period, as the industry continues to mature”.

Positive economic drivers, such as the growing size of the total labour force, are likely to support industry revenue over the next five years, but with unemployment expected to remain elevated, fewer employers will require external recruitment services to fill vacancies, says Aravanis.

“Recruitment firms are likely to expand their service ranges over the next five years to retain a competitive edge over online competitors,” including in administration, payroll support, and even areas such as WorkCover claims, he adds.

Areas marked for future growth

The top three sectors expected to provide “significant sources of growth” for the industry are healthcare, construction and professional services, Aravanis says.

Healthcare employment is set to rise by an annualised 2% per year by 2025-26, with extensive growth of temporary and part-time staffing an opportunity for recruiters in this space, he says.

Construction employment, while severely hit by the pandemic, will grow by an annualised 0.9% to 2025-26, due to a range of large projects in transport, mining, renewables, and 5G rollouts.

In professional services, increasing capital expenditure over the next five years will drive employment demand by an annualised 2.9% for research and development, the public sector, and “private non-residential construction”, he says.

A transition towards offshoring services will drive away “low-value work” such as bookkeeping, therefore increasing focus on highly skilled and specialised talent locally, and wages.

IBISWorld Australia bases its industry analyses on the Australian and New Zealand Standard Classification of Occupations, so technology is not included as a discrete sector in this research, Aravanis adds.

Reported By Shortlist who are invited to attend Navigator Consulting’s Captain’s Table monthly owner’s forum.