Aaron Haskins & Hugo Malan, Kelly Science, Engineering, Technology & Telecom
We recently examined the surprising and counterintuitive weakness in US temporary staffing demand, a trend that defies common wisdom in the industry about what conditions drive growth.
Our analysis pointed to a number of factors which led hiring managers to shift their labor preferences away from temps to full-time hires: heightened near-term risk perceptions, increased labor leverage, and the rising relative cost of temps in recent years. But while these forces may well explain the shift from temps to permanent hiring, they don’t explain another—equally perplexing—mystery in the staffing market: why have companies also massively reduced their use of staffing firms to help with all this permanent hiring activity?
SIA has published annual estimates of the US staffing industry’s direct hire recruitment revenue since 1996. The direction of those growth estimates match the Bureau of Labor Statistics (BLS) estimates of nonfarm employment growth in every year through 2022.
But suddenly, in 2023, things changed: the number of total jobs grew, but direct hire revenue for staffing firms fell by 16.7%. And this strange divergence seems to have continued into 2024—while full-year estimates aren’t yet available, SIA’s most recent forecast suggests a year-on-year decline in direct hire revenue by a further 10%, despite total employment growth of over 2 million jobs.
Conventional wisdom would suggest that this simply cannot happen; in a labor market with low unemployment and strong hiring, direct hire demand should logically increase as hiring managers turn to external recruiting assistance to source qualified candidates. Yet it clearly has happened anyway, which suggests that the relationship between labor demand and direct hire recruitment demand is more complex than previously understood.
A Rising Job Seekers-to-Openings Ratio
There is a major gap in the “conventional wisdom” logic about direct hire demand. It assumes hiring managers will turn to external recruiters because low unemployment combined with strong hiring suggests increasing difficulty in finding qualified candidates.
But it turns out that the simple combination of low total unemployment rates and positive total employment growth trends aren’t the best measure of how difficult it is to find qualified candidates for a given position. Even if unemployment remains low and hiring remains positive, a decrease in hiring activity could make it relatively easier to find candidates.
Thus the measure which matters is the ratio of job seekers to available openings. This measure, which we call the S/O ratio, has an extremely strong inverse relationship with changes in direct hire revenue: 
This makes intuitive sense: the more job seekers there are per open position, the more easily hiring managers can find suitable candidates, reducing their need for external recruiting assistance. So what happened with the S/O ratio in 2023 and 2024?
There are two components to this ratio: the average number of job seekers per month, and the average number of job openings per month. Openings can be measured directly from the BLS’s Job Openings and Labor Turnover Survey (JOLTS) report, but estimating job seekers is a bit more complicated.
Job seekers take two forms: those without a job who are looking for work, and those who currently have a job and looking for a new one. The former are called unemployed; the latter we’ll refer to as job switchers. And both increased over the past two years, possibly by more than official numbers reflect.
Increasing Job Switchers: The two biggest limiting factors in job switching are geographic restrictions and compensation expectations. Few currently employed candidates are willing to consider a job that may offer offers less pay than they currently receive, and the costs and hassles of relocation tend to limit searches to those that wouldn’t require a move.
But with the rise of remote work, along with recent changes in the norms and laws around pay transparency, noncompete rules, and so forth, employed workers have been better able to consider and apply for a larger set of open jobs than they would have attempted in years past. Such job switchers show up in the “quits” level, which reflects the number of individuals voluntarily leaving their jobs without retiring or filing for unemployment, typically because they have another job lined up.
The massive increase in quits following the pandemic was a major driver of the so-called “Great Resignation,” and while quits have slowed from their record levels in 2021-22, they remain elevated from historic norms.
These job switchers didn’t put significant pressure on the S/O ratio in 2021-22 because openings rose even more in that period and unemployment declined. But then labor demand began to cool faster than the quits rate, and suddenly all those job seekers who missed the peak of the post-pandemic hiring boom found themselves competing for fewer available positions.
Increased Unemployment Levels: The official unemployment level rose in 2023 by 1.4% from the previous year, then rose again in 2024 by 11.3%. Combined, that represents over 750,000 additional job seekers in the labor market, competing with all those job switchers for the same job openings.
Decreased Openings: And finally, the total number of job openings remained historically elevated in 2023-24, averaging around 9.4 million unfilled positions per month in 2023 and 8.1 million in 2024, both well above pre-pandemic norms, but these represented significant year-on-year declines from the 11.2 million openings per month in 2022, an all-time peak.
An Increasing Ratio: When we calculate it from official numbers, the S/O ratio averaged 2.51 seekers per job opening in 2020—the highest mark since 2014, and the first annual increase since 2009. But as employers returned to hiring in the post-pandemic recovery, the ratio dropped by almost half in 2021 to 1.26, fueling a massive demand for the staffing industry’s direct hire services.
This decline continued into 2022 as the ratio hit 0.91, meaning there were fewer job seekers than openings, the only time that’s happened since BLS began publishing monthly JOLTS numbers in 2001. But then the trend reversed: average job openings declined faster than the number of job seekers in 2023, pushing the ratio up by 14.6%.
Then the number of job seekers began to increase in 2024 and openings continued to decline, causing another 19% increase in the S/O ratio. These increases represent a decrease in the difficulty of sourcing candidates, so hiring managers no longer felt the same pressure which had driven up direct hire revenues in 2021-2022.
Finishing the Story: Excess Immigration and Hidden Job Seekers
Interestingly, however, the official numbers appear to underestimate the actual S/O ratio. When we compared the 2023 numbers to the historical correlation, it suggested a smaller decline in direct hire revenue than SIA’s actual estimate from survey data. In fact, plugging this “official” S/O ratio into our model only accounts for about 35% of the 2023 decline. This, in turn, implies the S/O ratio for 2023 may well have been higher than BLS and Census Bureau numbers indicate:
The answer to this mystery appears to come from recent analysis of the 2022-24 surge in border crossings and the resulting impact on the US labor force.
According to research from the US Congressional Budget Office, the Brookings Institution, and economists at Goldman Sachs, the official estimates for the labor force—and thus unemployed job seekers—likely fail to account for this immigration surge, which has probably resulted in somewhere between one and two million extra job seekers from new arrivals receiving legal work authorization.
Given the total size of the US labor force, these additional have had a minimal impact on unemployment rates—Goldman Sachs estimates it at around 10 basis points—but a massive effect on the S/O ratio, increasing it by 10-20%.
When we adjust the number of job seekers in our model of 2023 and 2024 to account for this excess immigration impact, our estimate for 2023 direct hire revenue perfectly matches SIA’s numbers. It also forecasts a further decline of 5-10% in 2024, aligning with the SIA’s most recent forecast for the year.
Looking Ahead: the S/O Ratio and Direct Hire Demand
Even without the theorized impact of excess immigration—which should begin to moderate as immigration levels decline and those with legal authorization get jobs, reducing the pressure of new entrants to the labor force—the S/O ratio has continued to increase through 2024 with little sign of an impending reversal. 
This suggests that the ratio is likely to remain elevated for some time, continuing to pose a challenge for permanent placement growth in the staffing industry through 2025. The industry is navigating uncharted waters, dealing with a potential “new normal” in complex US labor market dynamics. Understanding the forces driving these trends will be crucial for staffing leaders as they seek to adapt during this unprecedented period and emerge stronger.
Looking for more insight?
Check out ReSETTing Tomorrow, the podcast that's your gateway to the thrilling world of STEM! Join Hugo Malan, President of Kelly Science, Engineering, Technology & Telecom, as he speaks and geeks out with leaders who are at the forefront of innovation.
See our previous article from Aaron Haskins & Hugo Malan, examining a surprising and counterintuitive weakness in US temporary staffing demand: Has Staffing Decoupled from Labor Markets?
Or, see our Kelly Re:work Report page for a video where Hugo addresses the key challenges and opportunities within today's talent landscape, among other focused reports from the survey results.