Insight into how the labor market affects our lives on Main Street sometimes comes from surprising places. And what sometimes might seem like a surprising place is where we should have been looking all along.
This week, we found labor market insight hidden in one such place: the HR department. Specifically, HR staffing ratios, the share of a company’s employees who work in HR.
New research from ADP Research Institute principal data scientist Jeff Nezaj found a connection between HR staffing ratios and recent labor market dynamics. It also revealed a possible relationship between a company’s HR staffing ratio and its employee turnover.
HR’s growing footprint
Since 2018, HR staffing ratios have risen more than 10 percent.
Most of that growth happened since 2020, as the labor market heated up. Coming out of the pandemic, job openings, hires, and quits accelerated at breakneck speed. No wonder employers beefed up their HR staffing.
The rise – and fall – of recruitment staffing growth
The share of HR personnel who are recruiters has grown by more than 26 percent since 2018, with year-over-year growth peaking at 11 percent in 2022. The U.S. job openings rate peaked that year, too, reaching 7.4 percent in March.
By April 2023, year-over-year growth in recruiters as a share of HR personnel had dropped to less than 1 percent, as U.S. job openings, hires, and quits all receded toward pre-pandemic levels.
These signs all point to a cooling labor market. But the job openings rate, quits rate, and hiring rate are all about as high as they’ve been in two decades. So while the labor market is cooling, it remains strong.
A sweet spot for HR staffing?
Companies with the highest turnover have the lowest HR staffing ratios. Turnover is lowest for companies with mid-range HR staffing. At companies with the highest HR staffing ratios, however, turnover creeps upward again.
As demand for workers heats up, companies will boost HR staffing. But as labor demand cools, HR staffing cools with it. With 863,000 people working full-time in HR in the U.S. in 2022, that link affects the livelihoods of many households.
The relationship between HR staffing and employee turnover begs for additional research to confirm the existence of an HR staffing sweet spot. Yes, turnover rates and HR staffing vary. But that doesn’t necessarily mean changing your company’s HR staffing will change your turnover rates. Stay tuned for more research from us on that subject.