Six rounds of interviews for one job? It’s the aggregate demand, stupid

Catherine Rampell has a good piece in Thursday's New York Times, documenting how employers are dragging their feet on filling open positions. She dubs this “hiring paralysis,” and shows how it sometimes goes to absurd lengths – job candidates being called back for sixth- or even ninth-round interviews at the same company.

The story is filled with horrifying anecdotes, but it’s this sentence, midway through, that really hints at what “hiring paralysis” tells us about the state of the economy:

“The hiring delays are part of the vicious cycle the economy has yet to escape: jobless and financially stretched Americans are reluctant to spend, which holds back demand, which in turn frays employers’ confidence that sales will firm up and justify committing to a new hire.”

What a hypothetical food truck has to do with delays in hiring. (Tim Carman/The Washington Post)
What a hypothetical food truck has to do with delays in hiring. (Tim Carman/The Washington Post)

Put more simply: There’s still not enough aggregate demand in the economy.

Say you own a food truck, and I own a food truck, and we operate on the same block. Now say the number of food truck customers is growing every day at lunch, so much that we both have more customers than we can handle. If either of us hired someone to help out, we could dish out more artisan hot dogs, or North Dakota Barbecue, or whatever we cook; if the potential new customer revenue exceeds the cost of another worker, we’d be able to make more money.

Now say you hire someone right away, but I conduct a grueling six-interview process to find the perfect candidate. I’m missing out on profit. Your lines get shorter, so you capture more customers. Maybe they grow loyal to your hot dogs. My paralysis has cost me money.

That’s why, in an economy where demand is rising steadily, you wouldn’t expect to see firms drag their feet on hiring workers to meet the demand. Time is money, so to speak. But the fact that firms are broadly, across the economy, still dragging their feet is probably a sign that they’re not too worried about missing out on new sales. Because – for any number of reasons – they don’t see those sales materializing right now.

Alternately, it could also possibly be a sign that companies are worried demand is fragile, and that they could be stuck with the cost of a new worker, whom they can’t easily fire, even if sales fall. But that’s probably a more likely case in Europe, where it’s much harder to let go of workers for economic reasons than it is in the United States.

Jim Tankersley is the editor of Storyline, where he explains complex public policies and illuminates their human impact.
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