Technology is transforming many industries at an unprecedented pace. At first glance, the human resources (HR) sector, which fills temporary and other vacancies for companies, looks ripe for re-invention by digital platforms. The role of agencies is essentially to match candidates to employers’ needs, facilitate a transaction and take a fee in the middle – exactly the kind of business model that has proliferated in the online world.
Moreover, the sector is a highly attractive target having expanded rapidly in recent years in the Netherlands and elsewhere, according to Marieke Blom, chief economist at ING Economics Department and one of the authors of a new report called Man and machine, which looks at the future of HR agencies in the Netherlands. “Companies have increasingly sought to gain access to a wider range of potential employees. In response, they’ve outsourced hiring to HR agencies, which also offers protection from regulatory risks.”
Conventional wisdom is therefore that HR companies face a perfect storm, notes Blom. “Not only are these businesses facing a potential existential threat from the entrance of low cost digital platforms into their market but the labour market, which provides their raw materials, is shrinking due to demographic changes such as an aging population as well as the introduction of new technology that could replace human workers,” she adds.
In researching the report, ING's economics team spoke both to HR companies and their clients. “We found that many of the common assumptions about changes in the labour market are not shared by the companies that actually recruit workers,” says Blom. “While the market for labour will become more transparent, it will also become more complex. Employers anticipate that they will need to hire workers with a wider variety of competencies and skills in the future as their products and services change faster to adapt to market conditions.”
The demand for workers with many different types of skills is likely to result in increased, rather than decreased, demand for employment agency services. “Digital technology and skills will certainly play a role in helping to select suitable candidates for positions,” says Blom. “However, human skills will become more important to matching candidates to positions given the variety and mix of skills they will require. HR firms will need to understand their customers and candidates more than in the past and technology won’t be able to do that.”
The report notes that the impact of digital technologies on the HR agency sector will vary according to segment. Put simply, the higher end of the recruitment market, which recruits professional and specialist candidates, is likely to continue to be dominated by firms that depend on human skills (because of the need to know more about individual candidates). In addition, in sectors where there is rapid change and a constant requirement for new competences, algorithms designed to select candidates could rapidly become obsolete and human sorting skills (provided by HR agencies) may be necessary. In contrast to these higher end or fast changing segments, the generalist, more commoditised, end of recruitment is likely to shift to newer digital platforms.
Man and machine ultimately paints a broadly positive picture for at least part of the HR agency sector in the Netherlands (and, by implication, in northern Europe and other similar developed countries worldwide). “Recruitment firms will have to deal with more complexity and take advantage of both digital and human capabilities more effectively,” says Blom. “However, reports of their demise are greatly exaggerated.”
Perhaps more importantly, the report also predicts a tentatively optimistic future for human skills in terms of their competitiveness with automation. This is in contrast to many recent studies and public opinion. Dutch consumers expect 37% of jobs to be done by robots in 30 years’ time while business owners see robots taking 22% of jobs. However, the report emphasises OECD figures that show just 10% of people in the Netherlands face a high risk of losing their job as a result of automation. It also predicts that technology will create many new types of jobs. “Who knew ‘social media manager’ would be a job 10 years ago?,” asks Blom.
The key to future success for individuals is likely to be skill levels. “The Netherlands has a high standard of education and also plays an advanced role in the digital revolution, with sophisticated e-commerce capabilities, for example,” says Blom. “Workforces in many other developed countries with similar skills and employment opportunities are likely to be able to fend off the impact of automation in the near term. The greatest impact with regard to automation is likely to be where simple repetitive tasks are still carried on on a large scale, such with factory production in China and other emerging markets.”
What does this mean for me?
The Man and machine report focuses on one specific industry in the Netherlands but raises questions that are relevant for all businesses, including:
- How can digital technology be combined with human skills effectively?
- How will new technology affect finance and treasury jobs?
- Could certain types of tasks be replaced by digitisation and automation?
- Where can workers be redeployed to create added value and make better use of their uniquely human skills?