Criteria's Employee Testing Blog

Pre-Employment Testing Activity and Unemployment Claims

Last Thursday morning there was a bump in the futures markets as the latest weekly numbers for initial unemployment insurance claims were released. The numbers were apparently better than expected, and the futures markets reacted positively. Jobs data are, now more than ever, an important economic indicator driving investor sentiment.

In previous blogs here and here we’ve discussed whether the utilization rates of our software tools for employers to test prospective employees could serve as an advance indicator of the national jobs picture. A usage metric we track called the Hiring Activity Index represents the percentage of our clients who are actively testing prospective employees in a given month. Earlier this year we focused on the upticks we saw in the HAI in February and March, which we thought were harbingers of better (or at least “less bad”) jobs data to come.

Turns out we were right about that, and we thought we would share what the trends look like with 21 months worth of data. We’ve plotted the initial unemployment claims data (weekly numbers, smoothed over a month) with the monthly Criteria Corp Hiring Activity Index. The trends look similar, and indeed they correlate very well. The correlation is -.79, showing excellent correspondence between the rise and fall of the jobs data and the HIA. Furthermore, when predicting the jobless claims on the basis of the concurrent HAI and the HAI from the two previous months – using a lagged regression model – the multiple R is .93 (Adjusted R2 = .85).

The point is that real time utilization data for an employee assessment service with a modest client base of small and medium sized businesses can provide very good prediction of national trends. We see this as similar to reports earlier this year that Google searches for flu related topics mapped on closely to CDC data for the spread of influenza. That was also an example where a real-time indirect indicator predicted definitive data that would be available later.

We mostly see this finding as validation of our earlier interpretation of the HAI. There are a number of caveats, including that the time series are short, and that we have used the non-seasonally adjusted UI numbers. Presumably our client base operates on a similar seasonality as the initial claims data, and that inflates the correlation. Furthermore, the time series for the HAI also represents the growth and development of our company (our client base grows by a factor of 5 across the time span), so the data change meaning somewhat across time.

We don’t expect to move the financial markets with these data. But we do take them as an indication that our services and our clients are moving with the times.

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More Signs of Life for Hiring?

Back in March we noted in a post that garnered some attention from other bloggers that our metric for measuring the level of hiring activity among our customer base (called, unimaginatively, the Hiring Activity index) had edged upwards in the spring, after reaching its nadir in December and January.  Although the national employment picture remains ugly, in June we saw the HAI recover to its highest level since before the stock market crash of the fall. In June the HAI was 65.9, and July it was 66.3, levels not seen since the summer of 08. August saw it dip a little to 62.9.  The uptick in hiring activity among our customers, we hope, is another sign of stabilization in the employment picture, at least as far as small and medium-sized businesses are concerned.

Among professional economists there is a virtual consensus that unemployment will continue to climb well into 2010, and peak at a rate well past 10% some time next year.  My opinion, for what its worth, is that the unemployment picture, while still bleak, will not get much worse before it begins to stabilize and, eventually recover. In fact, if the HAI is any indication, small and medium-sized businesses are already beginning to pick up the pace of hiring–let’s hope we see more companies following this example soon.

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How does this Rorschach debate make you feel?

Yesterday’s NY Times reports on a dispute concerning the posting of the Rorschach Inkblots on Wikipedia. With all 10 inkblots posted, along with common answers, many psychologists argue the test has been compromised. Free information advocates argue that the test no longer had copyright protection, and therefore posting it is perfectly acceptable. It’s fitting that a debate about the grand-daddy of all projective tests — tests in which ambiguous stimuli provoke reactions that reveal aspects of a person’s mental state — should elicit this kind of polarized reaction.

I think most practicing professional psychologists would feel some degree of concern, knowing full well that they would not want their measures to be gamed, or to become so culturally exposed as to become irrelevant and invalid. However the advocates for posting the inkblots sound indifferent — one is quoted as laughing at the idea that a German publisher might be considering legal action, while the person who posted the Rorschach says he doesn’t care what experts think, he wants to be shown the actual damage caused by his actions.

At one point the article says that those opposed to the posting of the test feel that it is akin to posting a future version of the SAT. This is an iteresting point. Suppose we were discussing someone attempting to post next October’s SAT on Wikipedia. There would be no more laughing at the prospect of Educational Testing Services pressing legal action — Wikipedia would be doing everything in their power to absolve themselves. Presumably it would be an absolutely clear cut situation. However, there would be very little empirical evidence of the degree to which the SAT was compromised — the “no brainer” status would all be about the legal copyright. It seems like the free information advocates are failing to recognize that the hypothetical case of the compromised SAT and the actual case of the Rorschach are both worrisome to testing professionals because of the potential to undermine the integrity of the tests.

We at Criteria are also concerned about test security, as is the testing industry as a whole (Click here for a Wall Street Journal article related to test security). For some of our tests, like our neurocognitive tests, exposure isn’t really an issue. These are performance tests that show real time processing and responses. Other tests, such as our employment personality tests, are more like the Rorschach in that they do not have absolute correct and incorrect answers, although it is true that certain response profiles are considered more or less appropriate for certain jobs.

For special cases there is an interesting compromise between free information advocates and testing professionals. In some cases, it might be possible for the full range of testing materials to be freely available. Consider what ETS has done with the writing prompts for the GRE taken annually by half a million applicants to graduate schools. The prompts for which the students must write a short essay are posted online here. There are hundreds of prompts, although on test day an applicant will only encounter one. If they have prepared answers to each and every one — well more power to them; they have shown a remarkable degree of perseverance which ought to count for something. If they have memorized answers from a website, their work will easily be recognized as generic (think about that the next time you play the lottery numbers from your fortune cookie, and you have to share the Powerball prize with 110 other people).

We at Criteria think that open source testing might also have a place in undergraduate education. As of now, multiple choice tests in college classes are difficult to keep secure. Too many sororities and fraternities have files with pirated versions of tests. One solution to this is to build out a universe of potential test items. Students could have access to the open source version with all the possible testing materials, and come the time for the final exam, the instructor could use a subset of the items for the test. We’re working on ways to make this possible…..we’ll keep you posted. We’re just saying that if there were 2000 Rorschach inkblots, having them up on Wikipedia wouldn’t be such a compromising event. And that guy from Saskatoon probably wouldn’t have bothered posting them in the first place, making it even less of an issue.

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Microsoft Skills Tests Now Live on HireSelect

Well, we’ve now put the Microsoft skills tests live on HireSelect (read about it in the press release.)  The integration of these tests took longer than we expected, and right now they are in beta release, because we are still gathering customer feedback and making sure they are bug-free.

One of the great things about delivering software over the web is that when we make changes we get immediate feedback from our customers. If a new feature isn’t intuitive, we hear about it right away and can immediately improve it; if there’s a bug that we didn’t catch in QA, we learn about it right away once a customer encounters it. While constantly upgrading our software does introduce the possibility of minor technical glitches, this is far outweighed, we believe, by the fact that our customers don’t have to wait six months for the next release to see new features they want, as is the case with companies that are still distributing their software in shrink-wrapped CDs.

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What is a Sales Aptitude Test?

In my last post I described our customer service test and the kinds of personality traits that it measures. People who have high levels of cooperativeness, patience, and personal diplomacy tend to be well suited for customer service roles.  The use of personality tests is even more widespread, however, in helping select salespeople, because there’s a lot of research that shows that people with certain personality traits tend to be successful in sales roles across a wide range of industries.  Most personality tests that are designed to help select salespeople look for outgoing, fairly aggressive people that tend to be competitve and highly motivated. This general profile of a stereotypical sales professional is probably not all that surprising. But what kinds of research underlies this type of “sales profiling?”

The sales aptitude test featured in HireSelect is called the Sales Achievement Predictor. The professors who created the test validated it in part by comparing the 15 personality traits it measures to job performance data for various samples of salespeople.  The highest performing salespeople tended to be competitive, outgoing, highly motivated, assertive individuals.  For example, in a sample of 156 real estate sales professionals whose test scores were compared to their job performance, the highest correlations were observed in the following traits: Achievement, Motivation, Initiative, Assertiveness, Competitveness, Goal-Orientation, and Extraversion (the correlations were .53, .43, .42, .38, .38, and .36, respectively.)  Interestingly, low or even negative correlations were observed for Cooperativeness and Patience, suggesting that when it comes to sales being too patient or too cooperative can sometimes be a liability rather than an asset.  We’ve conducted numerous case studies with our customers that essentially confirm these findings: the most successful salespeople tend to be competitive, assertive, and relatively impatient individuals–in short, nearly the opposite of the type of people who are best suited to customer service.  To be sure, the type of personality that is best suited for a particular sales role can vary from one organziation to another, and from one industry to another, depending on the nature of the sales process and the sales culture in a given environment. But the basic building blocks of what personality traits you should look for in selecting sales people are remarkably consistent across all industries.

Click here to read more about our sales aptitude test.

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What does a Customer Service Test Measure?

In a series of blog posts last year I discussed the evolution of employment personality testing, from the Myers-Briggs to the “Big Five” to more job-specific personality inventories. The last of these continue to grow in popularity, especially in the fields of customer service and sales.

Our customer service test is now one of the most widely used tests in HireSelect. One reason for this is that customer service representative positions tend to have higher than average turnover, and so HR managers are constantly looking for tools that can help remedy this problem. But another reason we’re seeing these tests grow in popularity is that many organizations seem to be placing a heavy emphasis on cultivating a “culture of customer service” across an entire organization. We hear this regularly from customers as diverse as medical care providers, banks, and non-profits.  The result is that applicants for managerial and administrative positions may be asked to take these tests if their jobs will involve frequent interactions with customers and/or the public.  So these tests are not just used for Customer Service representatives anymore.

So what does a customer service personality test measure?  Our customer service test is called the Customer Service Aptitude Profile (CSAP), and it measures a series of personality traits that are widely regarded as important for successful interactions with customers.  These traits include such things as patience, cooperativeness, and personal diplomacy.  Because customer service personnel are foot soldiers on the front lines of an organization’s efforts to build and mantain its reputation and brand, companies look for individuals who will be able to answer questions and resolve customer complaints in a helpful, compassionate way. Impatience, competitiveness, and uncooperativeness may be traits that can lead to success in some fields (such as sales, actually–more on that in my next post), but they are not traits you’d look for in customer service representatives.

Click here to see a sample score report for the CSAP.

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Hiring Activity Index Ticks Higher Again in March

There was significant interest in my post about the Hiring Activity Index last month, so I thought I’d follow up. The post was even picked up by the widely read blog of Columbia University statistician Andrew Gelman, who made a chart out of the horrible table I posted (mea culpa). There were some great comments on Dr Gelman’s blog about the possible utility and limitations of the HAI as an economic indicator, some of which I’ll address in a second. After Dr Gelman featured our post it was subsequently picked up in a widely read economics blog written by a University of Oregon economist and then again here too.

It’s cool to see that smart people find our data interesting, and so we wanted to provide an update and some more information on the HAI. First, the update. With the final March numbers now in, the Hiring Activity Index nudged upwards very slightly again this month, to 62.3% from 61.4% in February. To me this is an encouraging sign that the February jump in hiring activity by small businesses was not just a blip. If the data we’re seeing means anything, the hiring situation for small and medium-sized businesses has begun to rebound.

There were some interesting comments and questions about the HAI and its potential utility as a leading economic indicator. We do sell our software on a subscription basis, and someone pointed out that if non-active subscribers didn’t renew because of the downturn, this could artifically inflate the HAI because it is based on the percentage of our customer base that is actively doing pre-employment testing in a given month. This is a legitimate point, but I will say that while low levels of use are a reason that customers sometimes do not renew, we haven’t see non-renewal rates climb much since November, when the HAI dropped by 10 points. It was also suggested that higher numbers of job-seekers may result in applicants for positions that may not have been desirable previously–this is theoretically possible, but I don’t see much evidence for it. What is most certainly true is that companies are getting far more applicants per open positon, as I previously blogged about here. However, since the HAI is based on the percentage of companies testing in a month, not the overall volume of tests, this shouldn’t influence the HAI unduly, and wouldn’t in any case explain the plunge in November and (partial) rebound in February.

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Computer Skills Tests Coming

Yesterday we announced a partnership with another test publisher, Skillsarena, that will allow us to add Skillsarena’s Microsoft skills tests to HireSelect.  You can read the press release here.

Many of our customers have been asking us about computer skills tests for a while now, and we believe we’ve found the right partner to fulfill this need. We think the tests will add significant value to HireSelect, and we expect that we will finalize integration of the tests in late May.

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Are Small Businesses Starting to Hire Again?

A recent Department of Labor Report noted that mass layoffs at large companies surged in January. Not surprising, really, since we already knew the unemployment rate for January rose to 7.6% and job losses seem to be increasing by the day. But how is the job picture with respect to small and medium-sized businesses (SMBs)?

In my last blog post I mentioned a statistic that we track internally here, the Hiring Activity Index. The HAI is essentially a measure of how actively our customers (made up mostly of SMBs of between 10 and 500 employees) are administering pre-employment tests through our system (and presumably, therefore, hiring).  It is useful to us because it provides an overview of the breadth of usage of our pre-employment testing software.  It is calculated in a very simple way: the HAI is the percentage of our customers who are actively hiring (administering tests) in a given month.  From January 2008 (when we began tracking the HAI) to October 2008 the HAI remained very steady, within a few points of 65%. (If this seems low, consider that even in the best of times many 30 or 40 person companies will not be hiring every month.)

But as the financial markets plummeted and the unemployment rate surged in November, the HAI sunk about ten points, and by January reached its lowest level since we started tracking it, 53.28%. (The monthly readings for the HAI since January 2008 are listed below.)  Small companies, like their larger counterparts, had severely curtailed their hiring.  The financial news has not gotten much better since then; mass layoffs are continuing, we learned that the US GDP shrank 6.2% in Q4,and the stock market’s descent shows no signs of abating.

So I was very pleasantly surprised to see a fairly strong uptick in the HAI in February, to 61.41%. It is only one data point, to be sure, but it suggests that for SMBs the hiring picture improved somewhat in February. Could it be an upwards blip in a downward trend? Of course, but the eight point jump in the HAI is the biggest we’ve seen since we started tracking the index. For those, like me, inclined to think that the current recession, although brutal and severe, will not be as long-lasting as some suppose, the February HAI reading is cause for hope. I don’t expect that January’s 7.6% figure for the overall unemployment rate is the end of it–we’ll almost certainly see it get north of 8% soon. But as big public companies in the worst hit industries (financial services, construction, etc) continue to shed jobs the February HAI reading offers a glimmer of hope for the job market. Small and medium-sized businesses did not lead us into this recession, but they may just lead us out of it–and don’t look now, but it may have already started.

Hiring Activity Index

February-09 61.41%
January-09 53.28%
December-08 58.90%
November-08 55.56%
October-08 64.97%
September-08 62.98%
August-08 64.81%
July-08 69.54%
June-08 65.67%
May-08 63.87%
April-08 66.97%
March-08 64.71%
February-08 61.11%
January-08 67.21%
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The Hiring Opportunity of a Lifetime?

At Criteria we develop and deliver pre-employment testing software that our customers use to help enhance their hiring process. Because our service is web-based we can track our customers’ usage patterns pretty closely, and this provides us with great insights into hiring trends across the U.S. (we currently have hundreds of customers in 46 different states.)

One of the metrics we track is a monthly “Hiring Activity Index” that essentially measures the percentage of our customers who are actively administering pre-employment tests, and therefore, presumably, hiring. From January to October of 2008, the Hiring Activity Index was remarkably consistent, always hovering around 65%. When the turmoil in the financial markets caused the unemployment rate to surge in November, however, the Hiring Index dropped a full ten points, and by January it was down to 53%. In the past few weeks, however, we’ve seen pre-employment testing activity surge to the highest level we’ve ever seen: it looks like the total number of tests delivered through HireSelect in the month of February will be 25-30% higher than in any previous month.

What gives? If significantly fewer companies are hiring now than were three months ago, why is the total level of applicant testing on our site surging? There’s no question that some companies in certain industries (construction, financial services) have stopped hiring for the moment, but the data shows that companies that are hiring are screening far more applicants for each position than they were previously. Companies that had 6 applicants for a position now often have 20; where 25 applicants for a position was normal, some companies are now getting 60 resumes.

The silver lining for employers in this giant economic mess, therefore, is that there is a glut of job seekers on the market right now. Those companies that are hiring have their pick from candidate pools that are stocked with talent. The upside of the downturn, it seems, is a real opportunity for HR managers to land great employees.

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