Skills Shortages, the Demographic Deficit and the Rise of AI in Recruitment

BBJ: What differentiates recruitment agencies from Temp Agencies?

Tibor Bányai: The fundamental difference is that the client will employ the selected candidates from recruitment agencies, whereas temporary agencies lease their own workers to the client. Moreover, there are significant differences in their operations. Recruitment agencies primarily recruit and place intellectual professionals for the client, while temporary agencies typically recruit, employ, and exercise employer rights for physical workers. From the above, it follows that there are differences in the organizational structure of the two types as well.

Zsolt Beck: Temp agencies also engage in recruitment. Then again, headhunter firms do not deal with temporary staffing. For recruitment optimization, the same recruitment staff typically hires both the manual laborer and the engineer at temp agencies. In headhunter firms, however, the roles are clearly distinguished, and the recruiters have significantly more market knowledge and, importantly, a network of contacts in their respective fields, which can impact the quality of their work.

Tímea Bíró: Search and selection for permanent positions require different sourcing techniques, channels and a higher level of proficiency.

József Illés: Recruitment and temp agencies differ primarily in the nature of their services, although larger agencies provide both. Temp services are regulated more strictly and nationally. This staffing solution is more common at large corporates and international companies without Hungarian subsidiaries, especially for blue-collar positions.

György Palásti

Tammy Nagy-Stellini: Both types of agencies serve as intermediaries between employers and job seekers; their primary focus and the duration of placements differentiate them. While recruitment agencies concentrate on permanent or long-term placements, temp agencies specialize in providing non-permanent staffing solutions.

Having flexible services allows us to offer comprehensive staffing to our clientele. Especially in this market climate, companies need alternative, fast solutions, often in the form of temporary workers, to fill immediate gaps while also looking for permanent staff to build their long-term team. By offering both services, we can ensure tailored solutions to meet these diverse needs efficiently.

On top of that, clients benefit from working with a single agency for their entire staffing requirements, saving time and resources. For candidates, having access to temporary and permanent positions through the same agency expands their job opportunities.

György Palásti: Consultancies whose main profile is permanent recruitment will typically have more profound knowledge and dedicated resources to fill specific, niche, white- and blue-collar jobs. In contrast, the strength of firms with a temporary recruitment core profile lies in their up-to-date knowledge of the legislative environment and administrative capacity.

Sándor Baja

BBJ: What is the greatest challenge on the recruitment agency market in Hungary right now?

TBá: Due to demographic reasons, a decades-long declining population, significant emigration, and the hundreds of thousands of Hungarian citizens working in Western Europe, fewer people are entering the labor market. As a result, it is becoming increasingly challenging for recruitment agencies to find intellectual professionals of the expected quality. For temporary agencies, the biggest challenge is finding third countries whose labor market can provide sufficient numbers of workers socialized in modern technology and efficient organizational culture.

ZsB: One is the wage-price spiral, which seems to be settling down, but not all companies have been able to compete with the current wages. Another is the varying degree of labor shortages in different segments, which are present to some extent everywhere. Adding to this is the backwardness of the educational system; the situation is challenging, to put it mildly.

TBí: The shortage of talents at specialist levels has been an ongoing issue for years. This is exacerbated by a robust candidate-driven labor market that is forcing agencies to screen a far broader talent pool of candidates. Therefore, sourcing capacity is a challenge.

Tímea Bíró

JI: As there has been a noticeable decrease in investment in Hungary in the past years, there has been a relapse in recruitment and opening positions. Therefore, there is even bigger competition between agencies. Although the market has turned less candidate-driven, the talent shortage and finding skilled candidates in certain sectors or with specific qualifications is the same or even more challenging, especially in competitive industries. Agencies receive more complex and only mid-level and senior assignments; there are very few junior openings. The recruitment processes are prolonged as companies want the best candidates, resulting in an even more extended return on investment for agencies.

Gábor Krivánik: The biggest challenge in the recruitment market in our country is finding a good recruitment agency! We believe (especially with our experience in the IT market) that there are good candidates and there are open positions, but there are only a few agencies that understand the job and have a recruitment team that can search and select the best candidates.

TNS: Probably a combination of the ongoing skill shortage, a less predictable economy and fewer investments compared to previous years. 2023 was a year of tighter budgets, so clients, candidates, and businesses in general have been much more cautious and slower with their decision-making. Luckily, there are signs of a rising shift: as we stepped over into 2024, we already saw the market picking up on activity.

GyP: Perhaps the biggest challenge for most companies now is constantly adapting to the opportunities and risks of a changing environment. The recruitment and employment of third-country nationals, the significant drop in order intake in some areas, and the ever-increasing competition for skilled manual and experienced labor in certain back-office areas are all phenomena that many market players struggle to manage. This situation also calls for investments that can increase efficiency through solutions based on digitalization and artificial intelligence.

Zsolt Beck

BBJ: How supportive is the legal environment for the recruitment market? What changes would you like to see?

TBá: The recruitment of Hungarian workers in Hungary is not hindered by the legal environment. The new immigration law, in a certain sense, positively modifies the employment of intellectual workers from third countries with the introduction of the Magyar Kártya (Hungarian Card). However, government regulations on the registration and activities of qualified lending companies make it difficult or even impossible for talented and innovative businesses to engage third-country workers on a temporary basis. Employing these workers is becoming increasingly dominant in the market, but due to delays in processing, it can take four or five months for workers accepted for employment to start working in Hungary from countries not listed by the Ministry of Foreign Affairs. This situation is untenable, so there is a need to change the laws.

Tammy Nagy-Stellini

ZsB: I believe there are basically two ways to raise wages. One is the classic wage increase, where costs rise. Many companies are already at the limit of what they can afford, as they couldn’t fully pass on their total cost increases to their prices; thus, wage increases have been at the expense of profits, jeopardizing the survival of companies or reducing their investment appetite. The other way is to reduce the payroll taxes on wages. This latter would beneficially affect consumption, strengthen the economy, increase companies’ revenues, and not further burden companies’ costs.

TBí: Generally speaking, it is supportive. GDPR rules have rewritten specific search processes, but the market players have adapted to that. When contracting with multinational companies, one needs to collaborate with HR, sourcing and legal departments, which can be a complex and lengthy process.

GK: The Hungarian legal environment fundamentally supports the labor market, providing a clear and flexible framework for our work. In addition, more support for atypical forms of employment (such as part-time or teleworking), training and retraining programs, and support for integrating foreign workers would help to adapt to a rapidly changing economic and technological environment.

Tibor Bányai

BBJ: Has the labor shortage changed? Can you easily find all the candidates you need to serve the market?

Sándor Baja: The scarcity and mismatch of talents are long-term trends in every EU country. This is based upon a demographic fact: more people are retiring from the labor market than young people are entering it every year due to the decreasing population. There is a mismatch of skills as well. The schools do not “produce” the talents the market needs, which is quite natural considering the quickly changing demand for skill sets.

Now, in 2024, the biggest challenge in Hungary is that the economy is not improving in every industry. More than half of companies do not expect growth in their net sales for 2024. Thus, they face the challenge of being unable to increase salaries at the speed of last year’s 17% inflation, which is demotivating for employees. They look around to see where they could get a job that will maintain their previous level of standards of living.

The major recruitment firms had an average of 5,000-6,000 jobs advertised on their websites last year. Now, they have 3,500. It reflects the economic situation but also the fact that companies are finding employees themselves without any agency help.

JI: The time-to-hire hasn’t shortened due to more specific and complex demands, requiring a focus on quality and specialized knowledge. Even in a market that isn’t candidate-driven as before, finding and engaging the right talent remains challenging. Companies increasingly value their top professionals: retention is becoming a priority everywhere, and making counteroffers is becoming more common.

TBá: It’s clear that it hasn’t. Generally speaking, it’s difficult to find suitable labor.

ZsB: The situation is slightly better than last year, as the wage-price spiral seems to be calming down, but it’s nowhere near as easy as it was in the pre-COVID years, even though back then, we hoped it wouldn’t get worse.

TBí: The labor shortage has improved a little this year in certain areas due to the economic situation, but not significantly. The sourcing of candidates has moved from database searches to headhunting, so agencies without special communication skills and lacking market knowledge face hard times. Recruiters need to have substantial experience and in-depth knowledge.

Gábor Krivánik

GK: There is no shortage of good professionals, even in the IT market. As a boutique agency, it is our task to understand our clients’ needs as accurately as possible and to recommend candidates who will meet the expectations in a committed and sustainable way. In our experience, it is not the lack of candidates that causes vacancies but the fact that flaws in the selection process lead to good candidates being turned away. Examples include prolonged selection, unjustified interview rounds, and unprepared and inefficient recruitment.

TNS: The market has definitely changed as it is always in motion, but I wouldn’t say it has been turned inside out. Naturally, there are always factors arising that pose challenges in finding suitable candidates for the clients, so to make that match, sourcing is always critical. Currently, the ongoing demographic shifts, continuously changing work preferences, and the economic conditions are those main factors. As always, there is a high demand for complicated technical roles that can be tricky to fill. But we do what we always do: adapt, have a deep understanding of our clients’ needs, and have the right team and sourcing strategy in place, so I can say we continue to successfully find the best talent.

GyP: At most, the supply of suitable labor has changed slightly in one segment over the past year, but I think this is only a temporary phenomenon. However, there has been a noticeable change in employers’ perception of the situation. We often see that the surge in job applicants and the growing number of third-country workers is encouraging companies to be more selective, which, unfortunately, frequently backfires, and those open positions are not filled more quickly or even at all. Just because there are more horses in the field, it does not mean there are any unicorns among them.

József Illés

BBJ: What will be the most significant change in how recruitment agencies work in the next few years?

SB: Randstad’s vision is to become the most equitable, specialized talent company globally. We enlarge our scope to be more involved in fields like education. How can we put to work and make more happy those many tens of thousands of people who do not find the desired jobs today? We do not dream of making PE teachers into coders, but smaller steps, like electricians into CNC operators, a job that is more needed and pays a much higher salary. We need to find good cooperation between the government (who has the finance), the companies (who have the need) and us (who have the candidates).

We believe that by having a robust, equitable approach, we can find jobs for more people in disadvantaged groups. We think that the labor markets will be opening more, and we would like to contribute to supplying the needs of our talents and our clients regardless of geography.

Digitalization and AI will change our jobs a lot. We believe it will help accelerate our tasks and free our consultants to spend more time with talents. We are dedicating time and money to take a leading position in this race.

TBá: The rise of artificial intelligence in the operations of recruitment agencies; the emergence of further innovations in recruitment; fewer companies in the temporary staffing sector will have a larger market share over time; recruitment will become more time-consuming, challenging, and expensive year by year; and recruitment will expand in a more cross-continental manner.

ZsB: AI will transform our market, too, replacing many processes. However, there are elements of recruitment that cannot be replaced because the personal, human-to-human connection carries that extra something that IT cannot replace.

TBí: AI/Chat GPT will allow us to be quicker and more effective. Digitalization, online/video screening, and CRM/ATS systems are already in place in some agencies (not everywhere, though), which is clearly the first step on the way.

JI: The human touch remains paramount in recruitment despite technological advancements. AI-powered processes offer undeniable advantages, but companies that excel will strategically integrate these tools with personalized, consultative approaches. This combined effort allows for faster response times, deeper candidate relationships, and a more fulfilling recruitment experience for all stakeholders.

GK: We see that the recruitment profession has been diluted. It is our mission to set an example with our senior and mid-level staff as an ethical, partnering, thorough and reliable recruitment agency because we need to rebuild trust between clients and high-quality agencies.

In the next five years, only those recruiters who can source, understand the positions and know where the best candidates are will remain in the industry. AI will take over everything else (such as sourcing, profile-matching selection, pre-screening questions).

TNS: One significant change could be a greater emphasis on leveraging technology, data analytics and, of course, artificial intelligence in our sector. I am excited to see where the adoption of AI-driven tools will take the industry, hopefully in a carefully regulated way; there is a lot to look forward to. This technology era will probably bring tremendous opportunities for recruitment agencies to work smarter and have a more sophisticated insight into talent needs, hiring trends, or even sourcing. That said, I am expecting an even more competitive market ahead.

GyP: Companies that can integrate digitalization and AI solutions as deeply and widely as possible into their operations and thus deliver tangible added value to their partners will gain a competitive advantage. In the case of third-country workers, many service providers are already going all-in on this opportunity and neglecting their other traditional services and customer base that require continuous improvement. This, of course, creates an excellent opportunity for agencies that do not switch to Asia Express, so I expect further specialization and segmentation in the market.

Our Recruitment Market Talk Panel 2024

• Sándor Baja, managing director Czech, Hungary, Romania, Randstad Hungary

• Tibor Bányai, managing director, Bányai & Partners Consulting

• Zsolt Beck, executive director and owner, Beck & Partners International HR Consulting

• Tímea Bíró, managing director, Focus Consulting

• József Illés, CEO and founder, IDBC

• Gábor Krivánik, CEO and founder, BetterMore

• Tammy Nagy-Stellini, managing director, Hays Hungary

• György Palásti, country manager, Gi Group Holding Hungary

This article was first published in the Budapest Business Journal print issue of April 19, 2024.