Recruitment is one of the most important decisions businesses face. To ensure productivity and profitability remains high it is crucial that the right people are in the right roles within the company. However, there is an important decision to make when recruiting new personnel: Should you recruit internally from existing company talent, or look for an injection of new ideas and skills from external candidates?
Jed DeVaro writes—in his new IZA World of Labor article Internal hiring or external recruitment?—that “Internal hiring should be preferred to external hiring when knowledge and skills specific to the firm are important, when promotions are crucial for motivating current workers, and when the costs of a hiring mistake are particularly large.”
However, internal hiring decisions should be made carefully and consider the implications for employees elsewhere in the job ladder, particularly at the lower levels. This chance to rise within the ranks of a company may have positive effects on the motivation of more junior employees, but promoting from within can then create a chain of job vacancies to fill, with the added costs of recruiting for multiple positions.
External hiring is beneficial as it increases the pool of applicants which may increase firm success in the long run by bringing someone with a different perspective and skill-set into the team. The option of recruiting someone from outside of the business could also discourage employee complacency due to the expectation of promotion once jobs become available up the ladder.
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