Perspective - June 1, 2004

John Henning

Avoiding the Next Bubble

Unemployment figures are trending downwards. New job creation is on the rebound. Consumer confidence is up. Employers are starting to increase staffing budgets. Corporations are making capital investments, and ramping up technology projects. The number of internet job postings is up dramatically. The Dow Jones is up over 10,000 and holding. The FED is even hinting that they will increase interest rates to slow inflation.

Just about every economic indicator is telling us that we are well on our way to recovery in the job market, and that the jobless recovery is at its end. It's time to get excited, right? Yes, things are looking up, and compensation rates are edging higher as candidates have more choices in the job market.

So what's wrong with this picture? Nothing — for now. The late 1990s and the first part of 2000 taught us all some important lessons when it comes to the labor market. The "Bubble" (as it has come to be known since it burst) was an anomaly that most of us knew deep down inside couldn't last forever, but most of us behaved as if it would — we just thought that bubble would get bigger and float higher.

The biggest mistake everyone made was in managing expectations — their own and those of their employers. As companies were hungry for talent, candidates started demanding ever-increasing rates of compensation — it was not unusual for a manager to pay $145/hour for a web developer with 3-5 years experience. Now that same individual costs about 1/3 of that, or around $50/hour.

As a recruiting firm, one might expect that Granite Solutions Groupe would want to see compensation rates go as high as possible so that our profits can grow accordingly — not the case. We're of the belief that if we can hold rates steady as long as possible, we can all enjoy a much longer stretch of healthy prosperity.

So why does a bubble burst? Let's look at a balloon to illustrate. Every balloon starts out as an empty container made of plastic. As you blow more air into the balloon, the balloon expands and grows larger and more beautiful, the color changing as the plastic stretches out. At some point, the plastic reaches it's point of maximum elasticity and the balloon pops — all the energy is released at once and all you have is a bunch of tattered plastic.

The job market is much like a balloon. But the plastic in this case are employers. All have different strengths, shapes and sizes. And every one still has it's breaking point. When employees start making d emands for ever-higher compensation, employers' staffing budgets become bloated, and eventually can't take on any more air. If the employer is lucky, they will see it coming and start to let out some air (layoffs), releasing some of the pressure. But if they're not so lucky, some of them will burst, and all we'll be left with is a bunch of tattered candidates looking for work!

So our message is this: Breathe deep, work hard, and don't forget to exhale! If we all keep our heads and don't let our egos get in the way of healthy growth, we can maintain the proper balance between labor costs and employment opportunities, and we'll all be able to enjoy a beautiful bouquet of balloons for a much, much longer time!

About Granite Solutions Groupe

Granite Solutions Groupe (Granite) is a San Francisco based recruiting firm that specializes in recruiting and placing highly-skilled senior-level Project Managers, Business Analysts and IT Managers at global firms throughout the financial services and IT Market. Contact them online at www.granitesolutionsgroupe.com.