Why is the understanding of the external labor market important in human resources planning? Give an example?

In HR planning, the understanding of the external labor market is so important because the external labor market is where HR draws labor from and the place HR can lose labor to. Without understanding the external labor market, HR departments cannot understand how to attract and recruit the best talent that is always floating in the external labor market. If a company wants to hire labor with a certain skill-set, for example, that company needs to know what other companies are offering in terms of compensation and benefits to people with that specific skill-set. Otherwise, the company may end up paying far too much above its competitors, or the company may offer too little, causing people with the skill-set to sign up with a competitor. Perhaps most importantly, HR departments have to understand that the external labor market is always changing as markets become more competitive and globalization opens up new markets and labor pools. This means that understanding the external labor market is so important because falling behind in understanding is just as bad as not understanding at all.