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How to Hire in a Tight Labor Market

It seems that almost every week there’s another article in the news about how tight the labor market is. With so many opportunities for job seekers, recruiting and hiring pose new challenges for employers. How is it possible to attract great candidates when the labor market is so tight?

Before getting to specific strategies, let’s take a closer look at the current context and what it reveals about the future. How tight is the job market really? Are the headlines giving us the full story? As we’ll see, the picture is more complex and uneven — even within a booming market. So what does this mean for hiring, both now and in the years to come?

The state of the job market: is it as tight as we hear?

The current unemployment rate is less than 4 percent, hovering near the lowest we’ve seen since the late 1960s. What’s more, there are now more job openings than unemployed job seekers — a huge shift from last decade’s recession, when there were more than six unemployed people per job opening.

The situation is not as simple as it seems, however, and the unemployment rate isn’t that low everywhere. The labor market is tighter in some parts of the country than others. The unemployment rate in February was less than 2% in Ames IA and Burlington VT, but more than 10% in parts of inland California. The hiring and recruiting experiences for employers depend on their locations.

But why is it that some places have higher unemployment, which potentially gives employers more leverage, while others have workers in the driver’s seat and employers really scrambling to find talent? Geography and history offer a partial explanation. Some former powerhouses struggle after their leading industries or natural advantages declined. In contrast, places blessed with a diversity of growing industries, highly educated populations, or desirable amenities attract people and jobs.  

People fare unevenly in the labor market, too. Although joblessness has fallen dramatically across the board, the unemployment rate remains much higher for African-Americans and Hispanics than for Asians and Whites, and higher for people with less education.  

In addition, the historically low unemployment rate isn’t the whole story. People who have given up looking for work are not counted as unemployed since they’re out of the labor force. Looking across all working-age adults — including those out of the labor force — the share with a job is much improved relative to the recession but still below its peak in 2000. So the labor market doesn’t look quite as tight when we count all the working-age adults as the unemployment rate suggests.

Four strategies for recruiting in a tight labor market

Though labor market conditions are more nuanced than the headlines suggest, employers still face a tight labor market. If you’re looking to hire, you already are — or will soon be — adjusting to this reality.

  1. Pay people more: It’s what you’d expect an economist to say, right? When employers want to hire scarce workers, they’ll need to bid up the price sooner or later — which means higher wages. This is already…

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