Talent shortages create candidate-driven markets, where employers must compete for employees or workers, who can negotiate better pay and benefits.
In a candidate-driven market, there are more jobs than workers – which means organisations must compete for the best talent. While candidate-driven markets can occur after major events, such as the Covid-19 pandemic, they usually take place in industries where skills have not caught up with the emerging technology or pace of growth.
History of candidate-driven markets
While the idea of a candidate-driven market is a relatively recent phenomenon, the principle is as old as paid labour itself. In fact, a candidate driven market occurred following the Plague in the mid-1300s, which killed an estimated one-third of Europe’s population alone. As there were more jobs than workers, the surviving English agricultural labourers were able to seek out better pay and working conditions – which many argue directly contributed to the emergence of the middle class in England.
Recent trends in candidate-driven markets
While the Covid-19 pandemic was not as deadly as the Plague, labour shortages sprung up around the world in its aftermath. An OECD survey of companies across all industries in 40 economies found 54% reporting talent shortages in 2019, by 2022 it had risen to 75%.
Some of this talent shortage is attributable to the pandemic itself, with more than 6 million people killed globally and millions more suffering with long-term health effects. Migrant workforces were also dented by border closures and the desire to head home. Other workers simply reassessed their priorities and decided to change jobs or careers, contributing to the Great Resignation. It also led to a reduced tolerance for low quality or insecure jobs.
The resulting candidate-driven market, which spanned multiple sectors, resulted in workers demanding more from their employers and seeking a better work-life-balance during the recruitment process. Increased focus on wellbeing and flexible working conditions followed as well.
However, the trend towards talent shortages and therefore candidate-driven markets began long before Covid-19 entered our lexicon. A multitude of long-term factors are at play here, from growing ageing populations to the digital and green transformations.
The technology sector was a microcosm of these trends during the pandemic. Digital transformation, which had been happening gradually for some time, suddenly accelerated as organisations deployed technology to remain productive while physical contact was limited.
As technology became essential to the functioning of many businesses, the lines between tech and other sectors began to blur. Tech talent was therefore in high demand, giving rise to a candidate-driven market that saw battle lines drawn around pay, flexible working and benefits. While the boom was followed by extensive lays-offs in 2022, the long-term trend towards increased demand for technology skills, and skills shortages in specific areas, continues.
Advantages of a candidate-driven market
A candidate-driven market results in employees’ and contractors’ skills becoming more valuable. With multiple job offers on the table, potential employees have a strong negotiating position, from which they can push for higher pay, better benefits, flexible working, training, career development and more. If employers are not able to meet these terms, the candidate may be snapped up by another organisation that can.
For employers, a candidate-driven market can make for a stressful hiring process. However, it is also an opportunity to explore what employees really value and what benefits, or the lack thereof, are deal breakers. Ultimately, this makes HR departments more effective and helps them hone their employer value proposition.
Disadvantages of a candidate-driven market
There is a risk that a short-lived candidate-driven market may over inflate wages and cause problems down the line when the skills shortage ends. In such cases, employees may later find their wage expectations outstrip what the market is willing to pay.
Meanwhile, employers in a candidate-driven market need to have deep pockets and a top-flight benefits package or be able to sell their company effectively to potential recruits. Their recruitment processes must also be efficient, or they will lose out to faster moving competitors. Employee retention also becomes more difficult in a candidate-driven market, as talented workers see the opportunity to improve their working terms, either in-house or by looking elsewhere.
Use case
Candidate-driven markets are often localised, as is seen with the acute shortfall of STEM workers in the UK, which was estimated at 173,000 in 2021. The skills gap in engineering professions is proving a drag on progress as the country strives to meet net zero and economic growth targets. This candidate-driven market is not only the result of the Covid-19 pandemic, but of Brexit pushing away European talent and the new IR35 regulations, as well as long-term issues with vocational education and an ageing workforce.