Efficacy of Search & Recruitment Behavior of firms.

AuthorMurti, Ashutosh Bishnu

Introduction

There has been a growing number of theoretical and quantitative experiments on how workers (job seekers) are searching for job opportunities. Nevertheless, developments in science in this area do not match the gains achieved in the firm's recruiting behavior. There is also good justification for carrying out studies on businesses' decisions to recruit employees. Knowledge of different business search behaviors is of considerable importance since it allows for the allocation of vacancies between different classes of unemployed and job seekers (Gorter et al., 1996). The recruitment behavior of a firm has different implications for labor market policy and educational policy to some extent.

The literature on firm search and recruiting spanned more than six decades, after Malm's analytical paper (1955). But studies in this area did not really start until the mid-1960s and early 1970s, with the pioneering work by Rees (1966), Rees and Shultz (1970), and Granovetter (1974). More specifically, Stigler (1962) set the stage in economic literature in which he argued over the role of knowledge in the labor market. Rees (1966) explained the value of recruiting as information-generating tool. More recently, Montgomery (1991) underlined the use of social networks in an adverse selection model to describe the impact of social networks on labor market outcomes.

Essentially, organizational evaluations of the usage of various search channels and perceptions about job-seekers suitability contribute to asymmetric information (1) issues; job-seekers have better knowledge about their abilities than potential employers do. By making choices, firms are looking to optimize the expected present value of earnings (Behrenz, 2001). Such options are then used in operations which affect the expected productivity of the people employed. Akerlof (1970) concluded that the search channel option and applicant selection should be made with a view to the likelihood of recruiting 'lemons' (2).

Decisions requiring the use of various search channels may also lead to asymmetric information. One search channel can provide information on applicants' history which varies from information provided by another channel. When systematically leveraging many different search channels, firms have a greater chance of seeking viable jobseekers early. The likelihood of a job seeker and a firm considering each other depends on the attribute behavior of all agents.

Data Sources & Methodology

This study focuses on Indian firms that use search facilities to select employees for jobs. An uneven distribution of firms across the country led us to select the location for the study. Indian firms are distributed unevenly across a particular location. They are concentrated in a few geographical units such as major urban agglomerations like Mumbai, Delhi, Bangalore and Hyderabad. The total number of firms present in the database was around 23,535 out of which 6,887 firms were present in multiple locations. We selected two global cities, namely, Mumbai and Hyderabad for our study and used the two cities as a separate group to have a proportional representation of firms across industries. Followed by randomly selected firms within the group to avoid researcher biases in the selection.

This research had six major phases:

(1) development of the research design, (2) pilot testing, (3) data collection, (4) validation, (5) data entry and (6) analysis. The research design was descriptive in nature. Conforming to the basic cannons and protocols of research, the personal identities such as firm name are treated strictly confidential. The acceptable sample size was determined based on Daniel (1999) (3). The sample size of 96 firms would suffice for estimation with a 10% error margin. We randomly chose firms from the list and subsequently completed 101 interview schedules. The survey was carried out in 2017-18.

Empirical Results

Rees (1966) found that collecting knowledge on job-seeker skills and qualifications (intensive information) usually involves considerable costs. Additional risks are associated with vacancies, since the company's costs are not fully utilized. A business that advertises a vacancy screening process is as follows: The company first contacts job-seekers who have obtained vacancy details (e.g., wage and other terms of employment). The aim of the interview is to provide a structure for evaluating the possible quality or value of job seekers to the company. More notably, the organization aims to hire job-seekers with the highest marginal product compared to the cost of employment. Table 1 (Panel A) shows that over the previous year > 90 per cent of firms agree that they had vacancies for managerial and nonmanagerial workforce. In comparison, 93 firms (92 percent) said that they had a vacancy for non-managers and 91 firms (90 percent) confirmed they had a vacancy for managers. The firms said they did not have any vacancy for only 10 per cent of the managerial workforce and 8 per cent of non-managerial workforce.

Table 1(Panel B) demonstrates how vacancy knowledge is transmitted to jobseekers. The extensive use of indirect search platforms, such as those through 'employee referrals' and 'internal recruiting program,' are due to low channel access expense. These informal channels of searching will yield positive results when interviewing potential job seekers. So, this confirms that firms have hardly used 'temporary employment agencies' and 'walk-ins' in the case of managerial vacancies. It also confirms that companies did not use 'private employment agencies' for recruiting job seekers in the case of non-managerial vacancies.

The latter findings are consistent with those of an American study by Barron and Mellow (1982). American studies also researched how job-seekers get jobrelated knowledge and found that about 50% of all workers pursue their jobs by friends and family (Rees & Gray, 1982).

This type of search channel is cheap and yields decent results (Holzer, 1988). It has been noted, more precisely, that businesses tend to recruit staff on the basis of employee references (Montgomery, 1991). Thus, the search strategy of the firm or the use of a search channel is based on the knowledge acquired from prior recruitment, as Russo et al. (1997) pointed out that local factors are important in the recruitment process. Similar types and differing job-seeker numbers appear to have access to various search channels. In addition, the potential gains of a special search process have to be compared to the costs expected.

Firms recruit job seekers primarily for two reasons: first, because some employees have decided to quit and, second, because firms may want to increase their workforce or, in other words, they may want to expand their business. The explanations for the vacancies occurring are given in Table 1 (Panel C). One can note that when firms wish to increase their labor force they have somewhat less specific requirements than when their intention is to replace former employees. "Former employee leaves the organization" is the most common reason for the occurrence of a vacancy; "Employer wants to expand a certain activity", "Retirement of an employee" and "Employee changed position" are also common reasons behind vacancies. The table also indicates that firms have more than just one reason for the vacancy. Most of the vacancies caused by "other reasons" are for jobs of a limited duration or because of contractual jobs.

Russo et al. (1997) concluded that favorable labor market dynamics contribute to the use of multiple search channels, though a few search channels are used to attract job-seekers in places of high unemployment. In reality, they have concluded that the informal network results in the quickest recruitment process, although it takes a few weeks for ads and job office use. Quite importantly, Mortensen and Vishwanath (1994) reported that the use of informal search channels often results in recruitment with high wages.

Table 2 (Panel A) gives the duration of the search process in Indian firms. Twelve per cent of the firms took <2 weeks' time to fill the positions of managerial jobs, because open positions have a high impact on business. The search duration for most of the firms ranges from 2 weeks to a month, for recruitment of both managerial staff (56 per cent) and non-managerial staff (64 per cent). The search duration for firms may also extend to 1-3 months; close to 17 per cent managerial and 21 per cent non-managerial staff were searched and recruited during this period. Further, close to 15 per cent of the firms took 3-6 months to search for managerial and non-managerial staff.

Those in charge of recruitment tend to select a search channel based on the...

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