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Reducing Inefficiencies in the Labor Market with Internal Mobility

When I was growing up, my mom was (and still is) a prolific piano teacher. I vividly remember one particular student, Wy-Quon, who was a couple years wiser than my 9-year-old self. He arrived prior to a lesson showing off a new propulsion system for his bicycle, touting it as a more efficient way to travel. A compressed air canister was mounted to the bike frame and a miniature rocket-engine nozzle emitted air behind him—complete with a handlebar valve to control the flow.

He was adamant that his system shaved three or four minutes off his commute time. But as I put my hand behind the nozzle and felt the meager wisp of blown air, I knew it was useless. Though Wy-Quon’s effort was valiant, he had essentially added complexity and tons of effort with little to show in efficiency gains. In other words, he took a long bike ride for a ham sandwich.

The Inefficient Labor Market

The labor market feels very much like the never-ending journey toward that seemingly tasty, yet ultimately unsatisfying snack. Despite the billions of dollars being invested in HR Tech right now, it’s one of the least efficient marketplaces in any category in the world—and that’s with the lowest sustained unemployment levels we’ve seen since the Vietnam War. But while we’re managing to keep people employed, workplace retention remains a chief concern for HR executives, and the cost of holding onto talent is rising. 

Let’s look at the average cost per hire inside an organization, which most sources agree hovers right around $4,000. Next, consider hire rates, the latest of which is 3.8%, meaning 5.8m workers in the U.S. took a new job in October. And that’s in a single month. If you multiply the figures on an annualized basis you get a look at what I call total Labor Market Inefficiency, which today stands at $277 billion. That’s the cost to fill all those open positions in the U.S. each year.

Calculating the labor market inefficiencies

You can look at this at the organizational level, too. Let’s do a conservative estimate. 2017 data estimates most companies lose a combined 18% of people each year, considering quit rates and involuntary churn. If your cost per hire is $4,000 and you have 50,000 employees, that means you might be spending $36m to keep your talent pool full (4k x 50k x .18). We say might because those figures are scarcely believable, even if cut by half.  

Internal Mobility is the Next Frontier

Why is this system broken? Simply put, companies have no idea what skills their people have and no structure to match open positions with people inside their companies. And employees have no way to showcase their skills and goals within the internal marketplace or see the opportunities matching their skillsets. The result: there is less friction for external recruiting than there is for internal mobility, so companies hire externally instead of internally. And the most ambitious employees look to outside job boards where they can apply new skills, grow them, and make more money. 

Why don't companies build internal mobility structures? Because they don't have visibility into their people's skills.

The cost of shuffling millions of people from one organization to another is astounding. It’s not surprising then that, based on Degreed data, “recruiter onboarding” was one of the most popular search terms in 2019, increasing by 870% from just the previous year. Companies are desperate to fill these skill gaps, but they’re relying on external recruiting to do so.

Reducing these inefficiencies requires time and effort applied to solving the problem of internal mobility. Here’s how:

  1. Gain visibility into your skill supply. Understand the skills your employees and contingent workers have—every skill, at every level. 
  2. Take inventory of job demand. List all the jobs your company needs to fill, including projects, open positions, and major initiatives. 
  3. Mix and match in the internal marketplace. Employees can assert their skills and goals, and leaders and hiring managers can first try to match them with open internal positions.
How to foster internal mobility at your company.

To achieve this, historically siloed HR teams must work more closely together. Talent should be tightly connected to Learning & Development to ensure critical skill gaps are being closed and the talent pipeline is rich. Recruiting should be working more closely with Talent to expose opportunities to employees based on skills. And HR leadership should be working with the COO to show the financial savings of creating an efficient internal marketplace.

Every company is essentially its own labor market. A healthy one features more mobility happening internally rather than externally, with internal hires responsible for filling 85% of roles rather than the 15% it is today. As we head into the next decade, the companies who solve this will be the ones with the durability to adapt to change, drive better retention, and out-innovate the competition.

It’s time we push for more efficiency and treat talent mobility as a core operational opportunity rather than a sideline benefit. Want to learn how Degreed can help you gain visibility into your workforce’s skills? Contact a Degreed representative today or download our latest Buyer’s Guide to Talent Development Technology to get started.

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