Apr 01, 2013

Temp Growth vs. Long-Term Economy Growth: Is it in Sync?

The temporary worker population has been growing at a very rapid rate, showing an upward movement over the past few years.  Engaging this type of worker has become an increasingly viable choice for employers as they can recruit workers as required and minimize costs associated with workforce benefits. However, how does this trend affect the macro environment in terms of long-term economic growth, as we drift away from traditional permanent jobs? In this article, we examine the historic shift away from the kind of long-term employment that fueled the rise of the American middle class. 

A stable and reliable job usually gives security and strength to employees, enabling the middle-class population to remain a part of the long-term economic state, which in turn reinforces the economy due to the consistent source of investment. But this model is changing with the rise of the temp economy. Job search company CareerBuilder reported recently that 40% of employees surveyed plan to hire temporary workers in 2013 in several job categories. Of that number, 42% of those employers say they hope to make some of these workers permanent, full-time employees. Another study by consulting firm Challenger Gray & Christmas found that U.S.-based employers in February planned to cut 55,356 jobs (up 37% from January). Of these 21,000 are expected from the financial services industry and a large portion from both retail and aerospace and defense. 

Less traditional positions and more contingent workers can lead to problems for freelance workers and society – temporary 1099 jobs often means lower wages (as compared to permanent positions) and no health care or retirement benefits. This leads to a reduction in purchasing power and limits on personal consumption, thus slowing economic growth.

“[Temp work arrangements] can be useful to both employers and employees, but as we know it has been linked to exploitation. The fact that temporary workers make less and have no benefits is really problematic” ~Erin Hatton, an author and assistant professor of sociology at the State University of New York, Buffalo

Uncertainty in economic growth gives rise to the contingent workforce, and an increasing contingent workforce without a consistent income does not contribute to economic growth.  Also associated with the surge of temporary workers is a decline in union membership and collective bargaining agreement coverage.

However, it seems that the model has shifted with employers clearly indicating a preference for flexible employment practices allowing them to adjust staffing levels as competitive forces change. Companies are focusing on maximized corporate flexibility in managing workers in a fluid workplace as opposed to providing employee stability and financial security. CEOs claim that this new model allows for elasticity in increasing the bottom line and drives greater innovation.

Temp vs. Full-Time Employment Indexes

Temp vs. Full-Time Employment Indexes

As the chart above shows, the temp help employment almost overlaps with the permanent employment index. This is a clear reflection of employer preferences and that the contingent workforce model is becoming the new normal

“The perception has shifted. You see that with younger people who are entering the workforce. There’s a change in employee expectations of what the labor market has to offer them.” ~Katherine Stone, law professor at the University of California, Los Angeles, and labor specialist.