Contracting clients are choosing to hire contractors as their first choice as they grow post-recession, rather than automatically filling talent gaps with employees. This is not how recessions usually end for contractors. Does it signify a structural change in contractor demand?
For some months now, key labour market surveys such as the Recruitment and Employment Confederation’s (REC) JobsOutlook have been telling us that contractor hiring patterns are changing.
Anecdotal evidence from past downturns – and I include the dotcom crash as the start of the noughties here as I contracted through this – suggests that contractors do very well during recessions and immediately afterwards as a low risk option to support organisational growth until the recovery is certain.
At that point, clients become less risk averse and start to hire more employees when they would have hired contractors during an economic downturn. At that point, contractor demand can flatline, or even fall.
But that’s not happening now. Data from the REC’s Report on Jobs, the Bank of Scotland’s Report on Jobs and the Association of Professional Staffing Companies (APSCo) are all showing that demand for contractors is being sustained.
In fact, it is continuing to grow alongside all the signs that the recession is well and truly over and the economy is growing.
So, what’s happened to the usual trend? Why are contractors not being passed over in favour of permanent employees?
There appear to be two reasons behind this change in trends. Firstly, the JobsOutlook has made it very clear that skills shortages are forcing clients to hire contractors because they can’t find suitably skilled employees.
There is a structural element to this, but that’s more to do with the UK’s skills shortages in general. Short and long-term factors are at play here.
For example, the financial sector is suffering desperate skills shortage because so many skilled workers left the sector during the recession. Structural skills related issues mean we are acutely short of engineers, IT professionals and other science and technology related workers.
Secondly, and this is emerging as a fundamental structural shift, is that clients are recognising that contractors are not just low risk growth solutions or to cover maternity and long-term sickness.
Over several consecutive months, the JobsOutlook has highlighted that contractors are being hired because clients want short-term access to strategic skills. This is not because they need cover for sickness or to provide additional capacity for growth.
This is because clients are recognising that contractors can provide key skills on a contingent basis when an organisation needs them. If you need a risk specialist during the start-up phase of a new internal business unit, you don’t have to employ someone. You can hire a contractor.
This good news means that contracting clients are increasingly choosing to hire contractors by default, and not just as a short term solution. If this structural change continues, then contractors should continue to do very well even when the economy is out of recovery mode.