CASE STUDIES FROM THE WALL STREET JOURNAL
Chapter Five
To Know You Is To Love You? Maybe, Or Maybe Not So Much
Chapter five of Modern Labor Economics discussed the challenges firms face in finding the best match when taking on new employees, where what makes a good match has many dimensions that vary from employer to employer. The fundamental problem firms are struggling with is imperfect information about the job candidates they are considering. How firms are going about trying to overcome this problem was nicely illustrated in several recent articles in The Wall Street Journal. The strategies discussed there offer a guide, both to firms looking to improve their success in hiring, and to prospective employees looking to be hired.
One of the mechanisms discussed in Modern Labor Economics is the use of an internal labor market, in which firms hire low-level employees from outside the company, but try to fill many higher-level vacancies from within, establishing long-term relationships with many employees. But hiring from within and long-term employment with a single company may be losing some of their attractiveness to employers. Joann Lublin reports that internal candidates are finding it increasingly difficult to move to different jobs within the same company. It is not so much that the theoretical benefits of the internal labor market are not present, but that one of two factors hurt internal candidates. One is when internal candidates assume that they are a lock for the position and don’t put in the preparation necessary to clearly outshine other candidates. While being an organization insider may give one advantages over external candidates, it may also raise the expectations of those making the hiring decision, so it’s not good enough for internal candidates to merely look as good as external candidates—they need to stand out as clearly superior. The other potential drawback for internal applicants is that others in the organization may use their own inside information to help sabotage a candidate. One may face competition from another internal candidate, or get a bad recommendation from a former associate or supervisor.
Erin White reports on a different but related dimension to long-term employment relationships, particularly in technology-focused jobs. This concern relates primarily to firms looking at external candidates. Employers might be concerned about those who have remained at a single firm for too extensive a period, thinking that perhaps they have allowed their skills to stagnate and do not have sufficient breadth in their experience by spending so much time at only one firm. Those candidates might also be viewed as potentially having difficulty adapting to a new and different organizational culture after a long stint with a single firm. But short tenure at other firms isn’t necessarily desirable, either. Concerns about stability typically arise with candidates looking to leave jobs after less than two years with another company, or those with a series of relatively short stays.
So, if increased job tenure that results from an internal labor market isn’t always valued, either internally or externally, what about the value of the improved information internal labor markets are supposed to provide to employers?
Two additional articles in The Wall Street Journal provide some important clues for today’s job seekers in an internet-driven world of information. Jessica Mintz reports that the explosion of internet-based job sites has left many recruiters swamped with hundreds or thousands of applications to sort through. One response has been for recruiters to use technology to narrow their applicant pools, by searching for keywords in an applicant’s file and discarding those without certain keywords, for example. But another response has been to rely more on formal and informal referrals from their current employees. Citing a study of 40 large companies’ 2004 hiring, Mintz reports that employee referrals rose from 23 percent of hires in 2001 to 32 percent of outside hires in 2004. Part of the advantage to the applicant with such a connection is that it helps them to bypass many of the screening mechanisms companies have put in place to deal with the high volume of applications. From the employers’ perspective, they can also gain to the extent that their employees do some informal screening for them if they recommend people who they would like to have as colleagues and who would likely fit into the organization.
But another Wall Street Journal article by Ms. Mintz raises a potential red flag for the internet-savvy. Employers are learning to use the web to seek information about applicants, and aren’t always enamored with what they find. A growing number of internet sites are now appealing to those typically 35 and under, offering ways to stay in touch with classmates and old friends, meet new people, and do business networking. But people often forget that the information they reveal about themselves, or that others reveal about them on more social sites might not be the kind of information they want a prospective employer to be digging up on them during the recruiting process. One recruiter indicated that she liked getting a glimpse into what applicants’ real personalities might be like, something that often doesn’t come through in the formality and caution of the recruiting process. But she also indicated that “…bad grammar or typos, even on candidates’ friends pages…” could cause her to reconsider an applicant.
Sources: “Winning New Position With Same Employer Requires Trying Harder,” by Joann S. Lublin, The Wall Street Journal, March 1, 2005 (p. B1); “Large Firms Increasingly Rely on Employees for Job Referrals,” by Jessica Mintz, The Wall Street Journal, March 1, 2005 (p. B4); “The Jungle: Focus on Recruitment, Pay and Getting Ahead,” by Erin White, The Wall Street Journal, March 22, 2005 (p. B6); and “The Jungle: Focus on Recruitment, Pay and Getting Ahead,” by Jessica Mintz, The Wall Street Journal, March 29, 2005 (p. B6).
5a. What advantages are there to an employer in using an internal labor market structure?
5b. Two of the articles suggested results contrary to the model of internal labor markets—one suggested it might be harder for internal candidates to get jobs, and another suggested high tech workers might be viewed more favorably if they had moved around some rather than stay with a single employer for an extended time. This suggests one or more potential down sides to using an internal labor market. What might they be? Is there anything particular about high tech workers that might make their experience different from other business professionals?