History of HR and Recruitment: Industrial Revolution to the Gig Economy

by | Mar 6, 2023 | Insights

The “HR function” is not new to the world of work. From the Egyptians logging worker attendance to the introduction of ping pong tables to office spaces – people management has existed in various iterations for thousands of years.

However, it was not until the mid to late 1800s that the modern practice of “human resources” really started to take shape. HR has played both the roles of employee villain and hero, at times looking to curtail employee rights but also rallying to safeguard them.

So, how did the idea of a department to manage “human resources” start? How has it changed? But most importantly, where is it headed?

Below, the innovative ALSP (Alternative Legal Service Provider) LawFlex explores the colourful history of HR and professional recruitment companies since their early emergence – to today. Join us for this fascinating journey.

1850s – Industrial Revolution

The Industrial Revolution revolutionised the world as we knew it. However, it also revolutionised an unexpected and previously non-existent industry – “human resources”.

When families abandoned farm life seeking more reliable industrial alternatives in factories, the reality was in fact deadly.

Low pay, hazardous working conditions, and child labour were all commonplace during the Industrial Revolution. In response to such dire and desperate working conditions, workers started to collaborate and organise amongst themselves.

These early iterations of “unions” quickly realised that they could improve their working conditions by threatening to walk off the job or go on strike.

This same period saw the introduction of management consultants who helped factories and businesses adapt to the demands of scale and the changing business landscape. Placement companies evolved from the recurring need of management consulting firms to recruit the right people who could implement a recommended strategy and solve a client’s problem.

1880s – Curbing the Union Threat

In the late 1880s, whilst many businesses started experimenting with ways to navigate what was deemed “the union threat”, some, perhaps more forward-looking companies, started looking for ways to improve relations with their workforce.

Around the same time, Illinois Central Railroad Company invented the role of paymaster, an employee whose sole responsibility was to ensure workers were paid timely and accurately.

Whilst there was no agreed-upon name for this type of work, “labour relations” gradually emerged as a popular choice. It was a broad term that also encompassed recruiting. Some railroad companies and factories started instituting eye exams and reading tests for new hires.

Like the HR departments of today, they often outsourced interviewing to third-party recruiters during busy seasons or when a labour shortage required them to hire quickly.

While “labour relations” emerged as a business function in the 1800s, it was not yet a fully-fledged profession. Hiring and firing was generally left to the discretion of the shop floor managers, and company executives still routinely read employee payroll records. It was not until the turn of the century when these responsibilities took shape as a full-time profession.

1900s – First HR Department

In 1901, when employee grievances became untenable after a series of disastrous strikes, the first-ever personnel department was born. National Cash Register Co. is attributed to the creation of the first proto-type HR department.

The department was charged with managing employee grievances and safety issues, discharges, and training supervisors on new laws, regulations, and company policies.

1940s – The Birth of Placement Companies

Staffing and placements services handle both the recruitment and hiring of temporary and permanent employees.

The very first placement company was started by Henry Robinson in 1653, he made a proposal that there should be an “Office of Addresses and Encounters” to help link workers with employers.

Although Henry Robinson’s business idea was rejected by the British Parliament, the idea of a staffing agency survived. “Gabbitas and Thring” was established in 1873 and recruited schoolmasters for public schools in England. In 1890, the Mrs A.E. Johnson Employment Agency was formed to hire lady’s maids, parlour maids, and footmen for the upper class.

The largest development in the history of placement companies was not until the 1940s, when men vacated their positions to fight in World War II, that the widespread formation and development of staffing agencies and placement companies first began.

They were there to fill the gaps in the workplace left by soldiers being called to war. The importance of agencies continued to grow at the end of the war with the need to carry on filling the gaps of those who had unfortunately not returned and reintroduce returning servicemen and women back into the workplace.

Agencies started to thrive as they were the ones connecting the candidates to the right industries. Recruitment agencies and placement companies encouraged soldiers to write resumes, making it easier to send them to find the best people for vacant positions.

1960s – A (HR) Change is Going to Come

As attitudes towards discrimination and harassment based on sex, race, religion, disability, and later sexual orientation, changed, the public relations fallout from such behaviours became significant – and potentially damaging for those companies that failed to comply.

The social changes of the 1960s and 1970s, says Ruhal Dooley, Society for Human Resource Management’s HR Knowledge Advisor, “created a need for ‘personnel’ to evolve into ‘human resources’.” These same forces, he says, continue to impact the field today.

From a more administrative and clerical job, by 1980, personnel had become more concerned with legal ramifications and overall consequences of the formerly clerical functions of personnel and payroll, including how people were paid, record keeping, and helping organisations to strategise when it came to the leveraging of human capital,” Dooley says.

As technology grew more efficient, far-reaching, and accessible by more groups, and as the nation grappled with social change in terms of demands for divestiture in the 1980s, companies leaned a lot more on the evolving profession to help fix its “people problems.

1980s – Information Age

By the early 1980s, personal computers had started to enter the workplace in increasing numbers. The arrival of the Human Resources Information System (HRIS) provided an affordable solution for teams whose employee records were manually recorded. For the first time, employee and payroll data could be electronically stored in one place and easily referenced at a moment’s notice.

Placement companies took advantage of this by using computers for applicant tracking systems and candidate databases were used for CV storage.

The introduction of the internet further revolutionised the recruiting process. Previously, recruitment was localised however, the introduction of the internet allowed placement companies to look for candidates on a national or even global scale. The emerging technologies transformed recruitment agencies into the tech-savvy placement companies that we know today.

Today, modern placement companies – including NewLaw companies (like LawFlex) rely on the latest technology to recruit the best candidate for any position in a company. Thanks to their expansive databases, placement companies can find people for vacant positions, faster and with more accuracy than ever before.

2000s – HR Rebrands

The 21st century marked a shift in sentiment and a rebrand for human resources. Compliance with laws and regulations, addressing employee grievances, and the hiring process are now widely perceived as the bare minimum for HR professionals.

HR departments have now by and large embraced the connection between employee wellbeing and company profitability.

Much of this shift can be attributed to economic changes. Long gone are the days where organisations only need to put bums on seats. HR in the 21st century is less about manual labour and more about talent and ideas. In the information-based economy, innovation and the employees who have it, are what differentiates organisations.

Today, placement companies are a far cry from Henry Robinson’s envisioned “Office of Addresses and Encounters”. There are over 20, 000 placement companies in the United States alone and the global staffing revenue for 2023 is projected to reach $761 billion. The European staffing market is valued at $206 billion and is one of the fastest-growing industries in B2B services.

2010s – Gig Economy

The “Gig Economy” is one of those new age phrases that we now use, but often too afraid to ask what it means. For those in the know, it conjures up images of 4.5 Uber ratings and late-night pizza deliveries. However, the Gig Economy is the latest addition to the ever-evolving “History of HR” and – in an increasing number of sectors, may well be the future of the workforce.

So, what really is the Gig Economy – and how do HR teams prepare for it?

The Gig Economy allows workers to opt into project and task-based work – usually through a technology-enabled talent platform.

According to UpWork, 36% of the US workforce have done freelance work in the past 12 months – that is approximately 68 million workers. Statista projects the population of US-based freelance workers is projected to reach 90.1 million by 2028. According to the ADP Research Institute, the Gig Economy accounts for a third of the world’s working population. It is no wonder that this industry is set to cross the $500 billion mark in gross volume within a five-year period.

In fact, very few industries have been untouched by the Gig Economy. According to the ADP Research Institute, professional services account for the majority of part-time (14.9%) and full-time (17%) gig workers, with the legal profession included.

What is driving this uptake in the legal sector?

COVID-19 has prompted a major exodus from BigLaw, lawyers with an increased desire to work remote or with significant burnout are opting to join the Gig Economy.

To facilitate this shift to freelance, on-demand legal talent platforms and placement companies are acting as the modern day “human resource function” and go-between the freelance lawyer and the client. Many lawyers on these platforms have work almost immediately, are paid competitively, and are able to generate a steady stream of income. The satisfaction is twofold. For clients, the cost is significantly less, while delivering equivalent work, speed and quality.

The digital disruption of the Gig Economy is what poses the greatest challenge to modern HR departments for whom having a workforce of contracted, full-time and exclusive employees has not changed all that much since the Industrial Revolution.

The modern workforce wants to work wherever and whenever they want. The Gig Economy does just this – giving people unlimited flexibility whilst also allowing them to plan their own development with each project, rather than following a conventional career path.

Looking to the future

This is the opportunity as much as the challenge for HR teams and placement companies in 2023. As the relationship with these kinds of workers will be different, HR departments will also have to establish new ways of working, adapting company policies and benefits to make the job worth taking.

Placement companies will have to continue to understand trends in the marketplace to maintain their grasp on the most expert, competitive talent.

The urgency of these changes will inevitably increase as Generation Z, perhaps the first to value flexibility over job security, comes to dominate the workforce. That will require a change of mindset in how managers measure performance. Businesses fighting against the freelance concept simply disadvantage themselves against more progressive competitors.