Opinion: Why employment agencies have more cons than pros for regular job seekers

By Infometrics economist Gareth Kiernan Recently released figures showed the unemployment rate surging to 7.3% in the December 2009 quarter, the highest level in over ten years. The number of unemployed people has risen by 88,000 since December 2007, more than doubling over that two-year period. Three years ago the number of applicants for vacancies was low and the average quality of those applicants was even lower. The balance of power in the labour market has now definitely shifted in the employer's favour, so for those people who've been made redundant over the last 24 months, finding a new job is currently a tough slog. Some people see enrolling with an employment agency as a good way of boosting their chances of getting back into work. And in a developed society, experts and intermediaries play an important role in many facets of everyday life. Real estate agents have wider networks and greater marketing skills to help sell your house. Mortgage brokers know the ins and outs of the banking sector and can potentially get you discounted interest rates. And given that it's the job of investment advisers and money managers to monitor financial markets, they should have the expertise to provide good financial advice "“ at least, that's the theory!

However, one of the oldest economic maxims is that "there is no free lunch". In the above examples, the costs have varying degrees of transparency. Real estate agents obviously charge a commission. It's well-known that mortgage brokers receive a commission from the lender, a cost that must be recouped by the banks somehow "“ most likely through charging slightly higher rates across the board than would otherwise be the case. Financial managers charge fees or commissions, while investment advisers have come under fire over the last couple of years for not adequately disclosing their interests or what payments they were receiving. In the case of the latter, the lack of transparency and tainted advice has seen many investors discover that the "lunch" turned out to be very expensive indeed. From a candidate's perspective, employment agencies may appear costless at first glance. They help tart up your CV, they reduce the time and effort you have to spend searching for jobs, and they can help set your expectations about what vacancies are suitable and what is an appropriate salary level. But someone still has to pay the employment agency. If a firm chooses to hire you, your new employer will have to cough up the equivalent of around 10% of your first year's salary to the agency. As an employer, if I'm faced with two candidates of more-or-less equal stature, I'll pick the one who hasn't come through an employment agency, on the simple basis that the cost to my business is less. If I do hire someone who's come through an agency, I'll be looking to recover that extra up-front cost where I can, possibly through paying a lower salary over the first couple of years than might otherwise have been the case. Choosing to job hunt through an agency can also raise questions in an employer's mind. If you're keen to get a job, why aren't you doing the searching yourself? Don't you have the initiative to search out vacancies and prepare applications? Have you turned to an agency in desperation because you've already been turned down by numerous other employers "“ and if so, why? Given that the interview and hiring process is fraught with uncertainty, employers are looking for any clues that may help their decision-making in choosing the best person for their business. On that basis, the small benefits offered by using an employment agency may easily be outweighed by the negative effects on your perceived employability. I say "perceived employability", because in reality, whether you use an agency or not has no effect on your ability to actually do a job. But first impressions, and the perceptions created in an employer's mind, are important. Employment agencies have a role to play, but usually in a process initiated by an employer. Agencies can act as a useful intermediary when a business is "headhunting" or looking to fill a high-level executive position. Specialist fixed contract positions can potentially be filled easily if an agency has a range of appropriate candidates on its books. And agencies specialising in temporary staff cover have a clear market niche that they are filling. If you're after a run-of-the-mill full-time position, I'd suggest keeping your head up and your eyes open for opportunities, and doing the searching yourself. The advent of online advertising has made the search process a lot less arduous than in the past. And in times when jobs are hard to come by, employers are more likely to take notice of an applicant who shows both perseverance and innovation in their approach to finding a job. * Infometrics is an economic information and forecasting company based in Wellington. To find out more, see its website here. This piece first appeared in the Dominion Post.