Why Hiring is Harder in a Downturn

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Auren Hoffman, a serial tech entrepreneur, has an interesting and rather frank post on "why hiring is paradoxically harder in a downturn."

He begins by slicing the theoretical applicant pool into three slices.

Great people - the A-Players - are a very different breed from the good (B-Players) and mediocre (C-Players).  Great people are more likely to be employed with a company since a great person is often over 3 times as productive as a good person.  Joel Spolsky argues in Smart & Gets Things Done that an A-player is anywhere from 5-10 times as productive. Joel looked at coursework data from a Yale computer science class and found that the fastest students finished their workload as much as ten times faster than the slowest students (average was 3-4 times faster).

Suffice to say, B-Players and C-Players are less productive. So what happens to Hoffman's A-Players in a downturn?

Some A-players are less likely to be looking to jump ship during tough times due to a risk adverse profile, security, financial reasons, or other reasons.  They are happy where they are and more likely to hunker-down in tough times.  On the flipside there are A-players that are MORE likely to leave.  Tough times often paint companies into a corner and force them into maintenance mode rather than continuing to innovate.  Great players love to innovate and usually NEED to innovate.  It's usually very hard to keep these type of A-players caged-up and thus this presents a big opportunity for recruiting.

And in an interesting wrinkle, Hoffman alludes to a development that will have lasting consequences for the financial sector.

In the past it was really hard to hire great software engineers out of financial behemoths like Goldman Sachs, Morgan Stanley, and JP Morgan Chase.  These companies have outstanding people and pay these people really well (often 50% above the salary at a tech company).  Nowadays, even if these people have not been laid off, the great people are going to be leaving in droves.  Why?  Because in the next two years, it is really doubtful they will be doing anything remotely innovative.  Instead they will be maintaining current systems due to the understaffed and underfunded technology departments.  No fun there so expect a big exodus out of these companies.

As Hoffman knows, talented employees tend to cluster together. And so a mass exodus of A-Players from the financial sector will make it harder to retain and recruit A-Players in the future. In theory, this could mean that talent will gravitate toward more innovative sectors and firms that will have a powerful effect on economy-wide productivity. Or, depending on risk profiles, more talent could cluster in the public sector, which could increase the quality of governance and, over a longer time horizon, also raise productivity. Then again, the talented tenth of a tenth could also embrace crude rent-seeking, leaving the economy in ruins. Who can say?

Hoffman's discussion of A-Players reminded me of the debate last year over Senator Jim Webb's successful push for more generation educational benefits for veterans. There was a great deal of concern within the military leadership that the measure would undermine retention efforts. Re-up bonuses are designed to make staying in the military at least as attractive as leaving. If higher educational benefits made it far more attractive to leave, it stands to reason that re-up bonuses would have to increase in turn, further burdening a military budget that is increasingly dedicated to the cost of personnel, and indeed to medical care for servicemembers and other social services. Yet as a number of observers argued at the time, including ex-blogger and current Obama administration official Phil Carter, the benefits could in practice draw a cadre of talented recruits who would otherwise not have chosen military service, and this clustering effect would itself strengthen retention, particularly among the most capable officers. Or so the theory goes. We won't know for sure for years.

I was particularly struck by Hoffman's observation that A-Players are diverse in their motivations and risk profiles. One also wonders about the extent to which A-Players are "made" or "born," i.e., to what extent can organizations cultivate A-Playerness in B-Players, and so on down the line. It is easy to imagine that there is some kind of logarithmic scale of intrinsic productivity. But it goes without saying that there is a learning curve, and that peer effects play a role, e.g., a competitive corporate culture could motivate a step increase in productivity firm-wide, as employees vie to keep up, or to surpass rivals. Something like this played a key role in the plot of the recent comedy smash I Love You, Man, but I'm reluctant to give too much away because, well, I love you, man.  

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Reihan Salam is a policy advisor at Economics 21, a columnist for The Daily, and a blogger for National Review Online.

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