Hiring the Right People in a Labor Market Flush with Talent: The Importance of Valid Selection Practices

It’s about supply and demand, human-resource style. Remember when the unemployment rate in the United States was less than 5%? According to the U.S. Department of Labor’s Bureau of Labor Statistics, that describes about five of the past 10 years. That also describes times when employers spent much of their energy on recruiting talent, or wooing top performers to apply for jobs.But times have changed. The unemployment rate now sits at 8.9%, which means employers everywhere are coping with huge numbers of job applicants for a small number of job openings. Recruiting is still important, and valid selection is always important. In a labor market flush with talent, however, figuring out whom to hire from the crowd is all the more crucial—and tricky.

So what really has changed? It’s something called the “selection ratio.” Simply put, the selection ratio is the number of people you can hire divided by the number of job applicants (read more). In a tough economy, lots of people are vying for a small number of jobs. Companies that used to have 40 applicants for 20 jobs (a selection ratio of 0.5) now may have 400 applicants for 10 jobs (a selection ratio of 0.025).

In other words, the labor supply is increasing, but the labor demand is shrinking. Therefore, many employers have the opportunity, theoretically, to make huge gains in terms of human capital. This assumption depends upon a crucial, often-overlooked and taken-for-granted part of the hiring process: that the procedures organizations are using to make hiring decisions must actually work. Namely, the methods used to choose new employees must adequately distinguish people who have what it takes to succeed from those who don’t.

Industrial psychologists have investigated personnel selection for decades. Although describing the nuances of designing a valid selection system is beyond the scope of this article, a number of general guidelines hold true across most industries and job types.

  1. Conduct a proper job analysis. This involves figuring out what exactly constitutes performance regarding the job position in question, helping the hiring manager to know what types of knowledge, skills, abilities, and other characteristics (KSAOs) a successful job applicant should embody.
  2. Understand the legal aspects of hiring. For example, employers should pay attention only to those aspects of applicants that are relevant to the job, or “bona fide occupational qualifications.” Consult an attorney well-versed in employment law to clarify any other concerns, including compliance with the Uniform Guidelines on Employee Selection Procedures (read more).
  3. Conduct structured interviews. Many hiring managers assume that they can gauge the quality of job applicants through an informal conversation and a handshake. Quite simply, this is a big myth. And thousands of pages of rigorous research provide evidence to this effect. Structured interviews should function like any test: They should have specific questions designed to assess specific KSAOs, and hiring managers should conduct them in the same way for all job applicants who pass initial résumé screening. Here’s a decent guide for conducting structured interviews from the U.S. Office of Personnel Management.
  4. Consider the use of psychological tests and other selection hurdles. The decision to use these types of selection procedures depend on a variety of factors, and most organizations should consult an expert for further guidance.

Overall, a labor market with large numbers of qualified job seekers can be a very good situation for employers. It gives organizations the opportunity to build their human capital with less of a need for recruiting. But to truly capitalize on the current nature of human-resource supply and demand, employers must understand and implement valid selection procedures. Otherwise, it’s just a shot in the dark—resulting in random selection that is unfair, potentially illegal, and bad for both organizations and employees.