December 11, 2023

How High Interest Rates Tanked Recruiting


Episode Highlights

Less VC Money Means Less Hiring (And “Easier” Hiring.)


Expensive Loans = Less Hiring


How Do Recruiters Succeed In High Interest Rate Environments?


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For most of Hirewell’s existence, internal recruiter positions were the #2 most commonly filled roles on a yearly basis. Right after software engineers.

In 2023? Not even on the heat map. Almost no demand. And lots of A+ recruiters have struggled to find work.

Why? Rising interest rates. 

Jeff Smith and James Hornick put on their nerd hats and explained how the macroeconomic environment affects hiring in a very real way in episode 79 of The 10 Minute Talent Rant, “How High Interest Rates Tanked Recruiting”

Episode Transcript

The 10 Minute Talent Rant is live. I’m James Hornick joined by Jeff Smith and we are on the clock. The 10 Minute Talent Rant is our ongoing series where we break down things that are broken in the talent acquisition and hiring space, maybe even pitch a solution or two. Before we dig in, all of our content can be found on

This week’s episode, you ready Jeff? I think so. Episode 79, went super nerdy this time, How High Interest Rates Tanked Recruiting. So… yeah, I’m going to-

I’m hanging on by the thread for you, you know, this is your baby. So I will add salient points as necessary. Give it a shot.

Give it a shot. Okay. All right. The effect of rising interest rates explained is, I wrote a post on this on LinkedIn. I had to leave a lot of details out just because I ran out of character count. But, long story short, in case you’ve been living under a rock, this has been a big driver for things in the economy, but also our industry for the past year.

So interest rates have just ballooned. They’ve skyrocketed, first time in forever. At the same time, hiring fell off a cliff. At least for people in our tech centric office, nerd office, dork circles, and whatnot. And, you know, for the past year, especially maybe 9 months ago, there are lots of blog posts and hot takes and tweets. Everyone talking about the end of zero interest rates, and the end of free money, and all this kind of stuff. But, not a whole lot past that.

Yeah, I mean, I personify the, so, like, what does this all mean question? I’m interested, like, can you dig into, like, how this translated into a boatload of unemployed folks, at least again, in these circles that you had referenced. And then also in, like, the bucket of these really super talented A+ internal recruiters. And then secondarily, a lot of, you know, the agency side recruiters, like, maybe this will explain why some of your commissions have tanked too.

Yeah, we’ll give it a shot. So I’m going to try to give a primer that Jeff’s going to help out with. We have to kind of start small, the basics of interest rates and whatnot. So kind of in layman’s terms, and then I want to kind of apply it to kind of our industry and whatnot. High level, higher interest rates are good for savers and they’re bad for borrowers. Pretty straightforward. If you have money, you’re probably like, cool, I’m actually making something in my savings account for the first time in my life.

If you don’t have money, because if you don’t have money, the only thing interest rates good for is borrowing, and then it sucks. People like people with money, they can park it in risk free investments. Like if you ever hear the term risk free rates, they’re talking about treasury bills. Treasury bills are the safest investment you can possibly make.

Or then tangentially like high yield savings account, which are kind of based on that. They’re all paying about 5%. You know, two years ago, they’re all paying nothing. Like you could get basically nothing out of these. So for the first time ever, you’re able to collect, not ever, but first time in recent history, 5% just for having money with taking no risk whatsoever.

So it’s great. For all you Gen X millennials, like, this is what our boomer parents, like, went out and, they were buying bonds and stuff like that. Like, that’s what we’re talking about here. Exactly. Now, if you don’t have money, that just means you’re borrowing at higher rates.

So like mortgages, if you have a mortgage, or if you’re just trying to get a mortgage now, we’ll talk about that more in a minute. 7-8% percent last I checked, which is a kick in the teeth compared to the 2% or 3% it was just a couple of years ago. I don’t know about you, but I refinanced back in 2020 and mine was like a two and a half or something like that.

So, I mean, this is why no one’s going to move from their house, that has a 30 year fixed, at two and a half to three and a half percent. Okay. So that’s basics. Interest rates. If you have money, great. If you don’t have money, it sucks. We’ll continue on. Jeff, the next kind of point in the building block here, if you want to take it.

Yeah, so, just this idea that rich people, they’ve got to put their money-

they got to put their money somewhere. So the persona of a high net-worth individual and institution, so like things like investment banks you know, Supreme Court decided that companies are people too, by the way. These entities don’t just put their money into the regular places like I do, or you do. You know, stocks, you know, their home, you know, home equity. Those are the two big two, right? These people diversify and try to make money regardless of the economic conditions. And frankly, that’s how they get more wealthy is they take advantage of these downturns. So many of these products, these investment strategies, have this high barrier to entry, for reasons that you just outlined. Like buying businesses, art, large real estate transactions, et cetera. For the purposes of this piece, those are what constitute venture capital and private equity. A lot of times, it’s just a family office, with a fancy name. People, I think, people misunderstand venture, it’s not, venture capital, it’s not just one guy with a ton of cash.

Like it’s actually, they’re collecting money from investors. It’s ultimately what is happening. And it’s not people like you and I, it’s typically, you know, people who are super rich and just collection of those people putting in multiple different funds and whatnot. Anyways, the next thing. You need a higher rate of return to justify an investment when rates aren’t zero.

So, average-

We’ll take the stock market as an example, the average S&P 500 return for the past, like several decades has been 8-10% a year, right? Now, that’s a super easy call when risk free rates are 0. You know, you’re willing to take on stocks and go up and down. Everyone knows that if it’s hold on to it, you’ll make it to 10% per year.

And when the alternative is 0, it’s like, great, that’s easy investment. But not when risk free is 5%. If you can get five lock stock guarantee with no volatility, eight doesn’t sound nearly as good, right? It’s higher, but like you’re still taking some risk whereas, like, you’re taking no risk with five.

Case in point, S&P 500 in the last two years. Last year was down 18%, which was huge. This year, as of last week, it was up 19%. So really it’s gone like nowhere. Had you been able to park your money in a 5% investment, you’d be ahead compared to just riding the stock market the last few years. Unquestionably. Right.

Yeah. So the same,

The exact same thing applies to venture capital. So investors know they’re taking moon shots. They know that most startups fail, but they’re going to strike it big and strike it rich, just one or two of these that actually pan out. And when risk free rates are zero, when there’s no free money, easy call alternative, like, yeah, fuck it, sure. Let’s throw some money at this. One of these is going to work, and I’m going to make money off it, right? But when it’s 5%, like rich people, they’ll still invest in startups, but not as much. And that’s really what this is about. Like, they’re not going to throw like a large pile of cash into venture capital.

They’re going to throw a smaller pile of cash because they’re going to use the rest of that to just collect free money because there’s zero risk involved. And what’s actually happened there, so year over year stats, actually, luckily this actually came out in October. Q1 to Q3, 2023 compared to the same Q1 to Q3 in 2022 venture capital investments down 46%.

I mean, it’s a huge, you know, you don’t have to know anything about-

Half. It’s basically half. There’s half as much investment in venture capital. And then also in terms of number of firms, the exact same Q3, 2023 versus Q3, 2022. There were 2,716 deals in the third quarter, which is 31% fewer than the same quarter last year.

So, there is a third less companies getting invested in. And in total, it’s half as much money. So they’re investing in less places in the place that they are putting their money into. They’re putting less cash into. Yep. So how does this all parlay into what we do? Right? Like, how does this affect recruiting?

Less money, i.e, less capital investments means less hiring. Duh. Raising money means you can hire to grow, less money inhibits that. So, maybe a viewer out there saying like, “Hey, Jeff, but, you know, this isn’t my first rodeo as a startup, you know, we’re not spending, all of this on recruiting.” You know, like-

or there might be someone out there who works at a company that isn’t a startup, they’re like, we’re still struggling, we’re not hiring, or I’m applying to a firm that isn’t startup, you know, it’s not-


Yeah. So the point here is, labor has its own supply and demand curve. Like, the supply of workers, you know, more or less, it’s fairly fixed. And it’s sort of generational, but you get what I’m saying. Hiring demand, however, it fluctuates dramatically. So when there’s, for example, a ton of tech hiring and limited tech workers, it creates scarcity, you know, the labor market swells, etc.

And in that scenario, every firm needs to spend more money to recruit. So you’re like doubling down on the problem. The whole war for talent that just happened, this is what we’re talking about. Yeah. The scarcity makes it harder. And then the entry point to that makes it more expensive. Two years ago, people had to hire twice as many internal recruiters just to fill the exact same number of internal tech roles because it took that much more effort to find software engineers.

That cost more money per transaction. Because the engineers were commanding more money, as were the recruiters. So, when the hiring dips, companies may hire less and have an easier time doing it with less recruiting, as you said, because there’s less competition. So we’ve worked with a ton of companies and like clockwork, when investment came in, they needed to hire more and it kind of became our bread and butter for this three to four year period.

Because to your point, money was cheap. It was easy to take that borrow and you could grow. The problem is, is it prob- it didn’t probably, it definitely contributed to the problem that we have now. And finally, for this point, those who aren’t getting funded, aren’t hiring as much because they need to preserve that runway. And they have no idea if, and when they’re going to get additional funding.

So when that funding comes in, so did the job, so the corollary is right there. Yeah. So I think that’s the point you just said there too. It’s like, just because, funding used to mean like 100% hiring, we’re going to add a ton of head count. Now it doesn’t. Now it means, you might not get another round of funding for ever.

And you have to make this money last and you have to do more with less, which is a complete kind of flip of what it used to mean, but. Yeah, you’re going to, we’re, going to invest in change management or ops. There’s like-

yeah, there’s a lot of different things to put the money into, for sure. I remember when I first realized this was going to be a problem. I was talking to a CEO at a smaller startup, and smart guy thinks he knows everything like all, you know, smart CEOs do.

He decided, he told me he was going to put their tech hiring on pause for a minute just because he wants to see if he can get some of these, he’s like, I have a good feeling there’s going to be a lot of like unemployed, like, software devs coming out of like Google or Meta. At the time, I thought he was out of his mind.

But then like three months later, when he’s actually hiring these people, like through a referral, like, not even needing like extra tech help. I’m like, oh, crap, like this market. Yeah. Suddenly it’s a bad time to be a recruiter, anyways. Yeah. Next thing I want to say too, because it’s not all about venture capital and private equity.

We’re going way over in this rant, I don’t care. The other aspect too, is business loans. Which is another huge contributor to it. So, as I said before, debt is more expensive now. People have a hard time affording loans to start a business or financing growth. And anyone trying to get small business loans now, compared to two years ago, is going to get raked over the coals.

It’s exactly like getting a mortgage. So, I mean, I know from an mortgage, as an example, I know a lot of people who are six figure earners who are struggling to buy a home right now. And it’s not just because there’s not a whole lot of homes being built, but it’s also because like, if they can find a place, like the rates are that much higher than they used to be.

Exactly. Here’s, I just ran some quick numbers. So I’ll make a comparison of mortgages first. So if you are just getting a mortgage, you know, the difference between a 3% mortgage and a 7% mortgage. We’ll take 100k mortgage, which everyone in Chicago is going to have way higher than that. But just to give you an idea what the difference is, 3% mortgage will be, on 100k, will be $422 a month and 8% mortgage on 100k will be $734 a month.

Like that 5% spread is not quite double, but pretty, it’s significantly more. To change that to like an SBA loan, like a small business loan, right? So like there’s different tiers of like what these things are. So at a $350,000 loan, the prime rate is 8.5%. Prime rate of, just to give you an idea, the prime rate in the pandemic.

So right now, 8.5% plus whatever points the bank’s going to tack on to it. Prime rate in March 2022 was 3.25%. So the same 5% increase is the last example I just gave you, which makes your monthly payments go up, not quite double, but like pretty significantly. And just to give you an idea, for the past 10 years, the prime rate was always in that 3-5% range.

So like money is way more expensive now, even just to get a loan on your own, if you’re going to try to sell finance. So less business financing, less companies growing, less companies hiring, need less recruiters. Imagine the like 50X the investment with double the exposure. Like the amount that this like intensifies, the higher the number goes up the worst.

So, what do you think is going to happen? So, my belief, there may never be a quote unquote time as easy for recruiters. I’m talking about the agency and internal recruiters, as there was in the last 10 years. Until rates go back down, which may never happen. I don’t know when it’s going to happen.

That 2021, 2022 demand, isn’t coming back anytime soon. Salary inflation is going to happen like it was. If you don’t think that time period was easy, this is probably the wrong business for you. Yeah. Agree. And I think that,

and there’s kind of 2 last points we have. That does not mean the end of the world.

That does not mean you can’t be a recruiter. That does not mean you can’t be successful, but you have to reset your expectations of what it takes to want to do this job. Agreed. You were going to talk a little bit about agency. Yeah, agency recruiter. So, first, I will kind of, I’ll talk about agency recruiters.

Jeff will talk about internal. Agency recruiters are going to have to elevate their game. You’re going to have to be better at selling, better at delivering, better at providing a solid experience for your client. I think that agency recruiters could have fallen in the trap of, there was so much demand out there, that everything came their way so easily. That’s just not going to work anymore.

You have to kind of reset your expectations. The firms that do everything better will still outperforms the one who don’t. But you have to commit to being great at what you do in all aspects. Or you’re going to have to find something else to do. Agreed. You’ll drive yourself crazy.

For those of you on the internal side, we feel for you very viscerally, by the way. There has to be a commitment, I personally think, James thinks, to being a hired gun. Look at the tried and trues, create your career, and center it around banking, insurance, financial services, healthcare. Like, these are insulated industries that have predictable growth patterns that, you know, have-

they have a liquid to hold larger teams.

You know, if you don’t go that route and you recruit as a founding recruiter, you have to be ready to kind of be a two to four year specialist. And bounce in and out of different firms, industries, et cetera. The second piece and thing, something that we’ve refined here at Hirewell is you must build a personal brand.

People need to know who you are and understand your market fit. Otherwise you’re just going to be kind of thrown into this contractor recruiter heap, if and when the time comes, when you do have to pivot out of whatever internal seat that you have. Yeah. On that first point that you said, I was actually connected with a guy I know who’s an independent recruiter working entirely in healthcare, very niche specialty, crushed it this year.

He’s not having these problems. There’s certain industries that are just insulated. So, that’s why I kind of started out by saying everything we’re talking about was kind of office dork kind of specific, but. So yeah, that’s your other play, is specializing an area that’s going to be a little more resistant to any of these downturns, so.

Absolutely. We are, we’re way over, not just short on clock. That’s a wrap for this week. Thanks for tuning in the 10 Minute Talent Rant, part of the Talent Insight series. Which is always available for replay on as well as YouTube, Apple Podcasts, Google Podcasts Spotify, and Amazon.

Jeff, thanks again as always. We broke a record today in terms of podcast length. Hey, we killed it. I like it. Everyone out there, we’ll see you soon.

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