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The rise and fall of the recruitment industry

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The recruitment industry grew by 4.3% (to £25.7billion) in the financial year 2011/12 and is predicted to surpass its pre-recession peak of £27 billion by the end of 2013/14, according to research published today by the Recruitment and Employment Confederation (REC).

But the report published yesterday also found despite an increase in industry turnover the number of recruitment businesses actually fell by 11% between 2010 and 2011 (from 8,395 to 7,435), just one indication of the significant changes ahead for the maturing recruitment market.

The REC's research suggests growth was driven by the flexible labour market as temporary placements increased by 5.4% while the volume of permanent placements fell by 8.9%.

Lack of skilled candidates and pressure on margins were amongst consultants' top concerns.

The majority (43%) of agencies reported earning margins of 10 to 14% and the proportion of agencies stating they earned over 25% halved for the second year in a row, to 1.7%.

The recruitment industry workforce also grew by 1.8% during the period.

Analysis in an accompanying paper, Back to the Future, identifies key trends that the REC believes will shape the market in the years to 2020 and beyond. This suggests the industry will continue to consolidate with larger firms seeking to grow through the acquisition of smaller, niche players.

The increasing use of new technologies and social media will mean that recruiters won't be the high street presence they are today in a few years' time. And, as procurement teams in large public and private employers become more focused on simplifying processes, reducing cost and managing risk the use of intermediaries will increase as will the downward pressure on margins.

REC chief executive Kevin Green said: "The recruitment industry won't be able to piggyback on strong economic growth in the wider economy as it has done in the past and running a successful agency is only going to get harder and demand more of recruiters. The ones who survive and thrive will be those who stay ahead of these trends and become expert providers of talent within their particular niche sectors. The future is all about being an inch wide and a mile deep in terms of focus and knowledge.

"We're publishing this analysis now - when agencies are conducting their business planning for 2013 - because we believe these are the key trends that recruiters need to be taking into consideration so they can be successful in the new emerging landscape."