Labour market PEST analysis

This is a free article you might find interesting. It’s also a sample of our knowledge and how we can help you get a bit better at your job, and/or how we can help you fix a problem. If you’re interested in our consultation services, contact us.

This should go without saying but disclaimer: The information provided below is for general informational purposes only and does not constitute legal, financial, medical, or other professional advice. You should consult with a qualified professional for specific advice tailored to your circumstances. 

If you’re interested learning more about this topic, we have courses: running smart recruitment processes covers this, or you can find all of our courses here.

What’s going on out there?

You’ve probably heard of SWOT. If you’ve heard of it, you might also know it’s less-known counterpart, PEST. SWOT (strengths, weaknesses, opportunities, threats) is simplistic strategy tool for internal analysis- what are we good at, what we aren’t, what could get better, what could get worse.

PEST (political, economic, social, technology) is the same, but a tool for external analysis. What is ongoing on outside of the organisation that might affect you- who you employ, and how they work. PEST, or PESTLE, (or a number of other similar acronyms) are, primarily guides, to point in certain directions and get you thinking.  The PEST categories are broad, more relevant to some circumstances than others, pointing to external forces outside of the organisation that influence the world in which the organisation occupies.  It’s a way of looking at the world in which the company lives and asking, what might change in the future.

Most of the time doing PEST analysis is a waste of good paper (if you still write things down).  That’s not to say don’t do it, but the likelihood you’ll ever pull it out and use it is negligible- the point is the thinking, not the paperwork.  I’m going to quickly describe the PEST elements, and how they may or may not affect your part of the organisation, the HR processes, the labour market.  This is just a quick skim- you should do your own, you could even write it down.

Yeah, yeah, yeah, but so what?

Forewarned is forearmed.

It’s very very easy for me to list all these categories, and just as easy for you to ignore. But you’re still reading, so we’re stilling talking. The categories (P, E, S, T, etc) are just prompts to the larger question; what’s happening outside that might change things for you. Change you didn’t see coming can be both personally embarassing and a real speedbump to the business.

You need to know: how next year might be different from this year.

Political

Political factors isn’t about the politics of left, right, liberal, conservative.  It’s about how the government intervenes in the economy, constraining or supporting the actions of organisations to promote its policy interests.  It’s why we can’t fire people at will, have to provide them with leave, safe workplaces and so forth.  Unless you’re a strict market libertarian, you likely accept some form of legal constraint on the actions of employers, it’s just a question of what and how much.

There are two main ways that the political factors affect our HR practices.  Firstly, how we engage with people- what terms of the contract must have and can’t have, as well how they can be ended and can’t be ended.  Secondly, through policy that effects the labour market; a good example is immigration policy, i.e. who can and cannot be in the labour market for us to employ from.  Other examples can be the regulation of certain roles and professions; a recent example in New Zealand was the requirement for qualifications to work in early childhood providers.

Economic

Economic is the current situation- this can either be a national, local, or even international, if your organisation is particularly internationally focused.  Other than the clear and significant implications of a growing or shrinking economy to the wider organisation, there are a number key implications for HR.

Firstly inflation is a key factor in employee expectations for pay, and pay rises.  Secondly, the wider economy influences people’s decisions, and future plans.  During economic recession, employees are more focused security of employment, are less likely to leave employment, more likely to prefer larger and more stable employers. 

Social

The social category is a very large group (almost a catch-all group), which is a conglomeration of demographic shifts in the wider community that the organisation exists in, and as well its culture.  Demographic shifts influence both the labour market that we draw from, but also the make-up of the workforce that results.  With few exceptions, most organisation’s workforces are representative of the demographics they draw from, so organisational culture will change, or may need to change.

Regarding culture, it is helpful to think of the term zeitgeist.  Zeitgeist is mood, spirit and ideas of a time, so it’s helpful to think about what the current zeitgeist is- what are we worried, preoccupied and valuing in the here and now.  By comparison, in the zeitgeist of the 1980s, people were worried satanic cults, D & D, and watching too much television. 

For HR, focusing on social factors, we need to think about the differences between the internal culture of the organisation and the external- what will new employees find odd, or jarring?  What values do we have that people will find engaging?

Technology

Technological changes are bigger concerns for other departments than HR, but we do need to keep up.  Technological shifts do influence how people work, how they interact with each other, and structure their work.  A big chunk of my training the last couple of years has been in upskilling managers on how to manage remote teams through online platforms. 

An interesting current area of technological change (that we are yet to know if this is an evolution or a revolution) is automation and AI.  At the time of writing, AI tools are changing how people write, plan, schedule and organize.  Whether these are tools for people enhancement, or people replacement, is yet to be borne out.

If you have 10 seconds, please complete this survey. It helps us know what people want to know.