I bet if you can code and have a LinkedIn you have been contacted by someone who works at a third-party technical recruiting company. The thing is, not all third-party technical recruiters are created equally. Third-party technical recruiting companies – companies that find tech workers for companies that want to hire temporary or permanent employees as distinguished from an internal recruiter working at a company that is hiring a temporary or permanent worker for the company they work for.
Some third-party recruiters are great and some are less than great, but it can be hard to tell which is which. The issue is simple: you, the developer, lack all the relevant information about the third-party technical recruiting company and the position they are contacting you about to make a fully informed decision. This is a classic asymmetrical information problem. The third-party technical recruiter will always have more information than you, the developer. Here is a full definition of what an asymmetrical information problem is:
Asymmetrical Information Problem - This is a situation where there is imperfect knowledge. In particular, it occurs where one party has different information to another. Asymmetric information can lead to adverse selection, incomplete markets and is a type of market failure. Link to Definition here
It may surprise you how massive the recruiting and staffing industry is. According to a 2018 report by Statista the total size of the staffing and recruiting industry in 2018 was $148.1 billion in the United States. In Statista’s report, the Staffing and Recruiting industry is defined as including “companies which help other organizations find staff. This can be achieved through either assisting companies to recruit new internal staff (recruiting), or directly providing temporary staff to fill specific functions (temporary or agency staffing).” Link to Definition here Just for context, the size of Kuwait’s economy in 2018 according to the World Bank was $141.678 billion, or just slightly smaller than this industry. Link to World Bank Data here In other words, it is a BIG industry.
For the purposes of this article, I want to focus on the third-party technical recruiting companies that recruit technical people like us. If you can code, work with databases, or do anything technical and work in the tech industry you have likely been contacted by a third party technical recruiter, defined above. Now this is an attractive concept -- landing a job without having to do any searching yourself … someone finding you the perfect job with great pay. You would be crazy to say no.
The third-party recruiter uses several approaches:
Contract to hire – You are a contractor and may be hired by the end of the contract. During the duration of the contract, you will be paid a rate, typically hourly but it could also be a “professional day rate” or a flat amount per day. The third-party recruiting company will pay you and they will charge a fee to the company you are on-site working for. Of course, you will know what you are being paid, but it is unlikely that you will know the rate the third-party recruiting company receives for your hard work. The third-party recruiting company makes a margin but both you and the company you are working for will likely not know how much the third-party recruiting company is making – the classic middle man.
Contract – The same as above but without the chance of receiving a full-time job at the end.
Direct Hire – A third-party recruiter finds you a job and they charge a fee to the company that hires you. Or they might charge you a fee. This is the simplest in terms of knowing what is happening.
The asymmetrical information problem is present in all the above but it is most obvious when there is a contract element. If the third-party recruiting company is focused solely on maximizing their profit, they will try to get you to accept the lowest possible rate. They have no incentive to tell either the company you are on-site working for or you how much money they are making.
Of the three parties - involved you, the employer you are on-site working for, and third-party technical recruiting company - only the third-party recruiter benefits from not telling the other parties how much money they are making. They certainly deserve to make a profit from the work they are doing playing matchmaker and processing payroll, but it seems unnecessarily secretive that the amount of money they are making is a mystery and is not transparent.
While it seems like a stretch to ask or expect third-party recruiting firms to reveal how much money they are making on each individual contract to hire or contract role, we can tell others about our experiences working with third-party recruiting firms. In a prior article I discussed how I learned that a third-party recruiting firm was charging a 100% mark up on each hour I worked. Neither the company I was actually on-site working for or myself thought this was very fair and a bit shady.
Think about how many things you can read reviews about in order to make a more informed decision before making a purchase or agreement. Yelp offers reviews of restaurants, Amazon has reviews for a large number of the products listed on their site. Here is an example of over 10,000 reviews of Amazon brand toilet paper, I read reviews on Glassdoor of what it is like to work at a company but I had not been able to read reviews of what it is like to work with different third-party recruiters.
Third-party recruiting firms knowing exactly how much you are being paid while the employer you are working for does not is a clear lack of transparency. This is a textbook definition of an asymmetrical information problem. Ideally, you would be able to make an informed decision when accepting a job offer, and the employer would know how much money you are receiving of the money they are paying to the third-party recruiting company. But if we share our experiences of the different third-party technical recruiting firms we have worked with we can know more and make more informed decisions about who we choose to work with.
In a previous article HERE I discussed two very different experiences with two different third-party technical recruiting firms. Those two very different experiences motivated me to create TechRecruiterRatings.com, a review site for developers like you to write reviews of the third-party technical recruiting companies they have worked with.
We would love to hear from you on this topic. Sign up HERE and leave a review of a third-party recruiting firm you have worked with today! Signing up and leaving a review will take less than 5 minutes. Working together we all make more informed decisions about the third-party technical recruiting companies we choose to work with. Help tech workers around the world!
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