Aug 01, 2013

The Temp Workforce: Multiple Angles

Temp workers offer many benefits – they are available as and when required, they fill dynamic requirements during peak seasons, and often their wages and benefit costs are lower than those of permanent employees. On this basis, temp workers seem to be the perfect definition of a workforce from the perspective of employers. 

A Background

Temp workers are rapidly becoming the most desirable type of workforce for companies in the U.S.A. There are currently approximately 2.7 million temp workers in the country, and their engagement is growing at a pace 10 times faster than private-sector employment as a whole.

As the economy continues its slow recovery and manufacturing returns to America and its robots, temporary work is also growing rapidly. The majority of this growth is seen in blue-collar work in factories and warehouses. In 2012, more than one in every 20 blue-collar workers was a temp.

The Composition of the Temporary Workforce

Often temporary workers are equated with foreign workers without a legal status, with organized labor and other parties warning companies against engaging temp workers who are entering the country and taking away jobs from needy Americans. Others think of temp workers as those exploited workers who are forced to choose between either not having a job or taking a temp job that offers below-market wages and no benefits. Some employers view temporary workers as highly knowledgeable and skilled advisors with a keen understanding of their industry.

However, the reality is that there is no one particular sweeping generalization for the definition of a “temporary worker.” Temporary work assignments are filled by people of all age groups, with all skills, motivated by a variety of different reasons.  Younger workers often seek temporary work for the benefits it provides in terms of financial gains, flexibility and freedom. Older individuals often use temporary assignments to leverage their years of experience and knowledge to extend their working careers with less demanding positions. Some workers use temporary work as an in-between gap while looking for their next position. Students seek out temp jobs to help build their resumes and gain contacts.

Even the types of temporary assignments differ. Contract workers are engaged by staffing agencies for assignment with one of the agency’s clients. During their assignment duration, contract workers are W-2 employees of the staffing agencies. The staffing firms often offer healthcare and other benefits and as the employer of record, are bound by the same employment legislation as any other employer. Often contract workers offer hard-to-find skills that companies are seeking for a specific period, and command a premium wage rate. Independent contractors, meanwhile, are self-employed freelancers who find their own assignments and are responsible for paying all employment-related taxes and other statutory payments, along with providing their own benefits. Finally, Statement of Work (SOW)-based project teams are companies, often with less than five employees, who contract with a client to provide a service or specific deliverable.

Why are Companies Interested?

Often, uncertainties in economic conditions compel companies to find solutions that require little long-term obligation. Temporary workers help fulfill a need for talent without incurring a long-term cost liability.

Given the unstable market conditions and the increased competition in various industries, companies are looking to stay ahead of their competitors. The use of contingent labor can become an important strategy in a company’s arsenal by giving them access to specialized skills and talent on a flexible and scalable basis. 

In certain industries, employers are facing a global skills shortage that engaging temporary workers helps them to overcome. For example, in the utilities industry, the average U.S. worker is close to 50 years old and it is expected that 40% of U.S. energy workers will leave the industry by 2015. These workers require years of on-the-job training, and replacing them will cost companies a substantial amount of time, money and resources. However, temporary work structures allow retired utility workers to re-enter the workforce as agency contractors or 1099s, helping to provide needed talent in the moment and transition training to younger workers.

Why are Workers Interested?

During the recession of the past few years, skilled workers who were laid off responded by becoming independent contractors. Their highly sought after skills, still needed by employers despite cost concerns, brought them higher rates than they were receiving as permanent employees, allowing them to maintain their lifestyles or better them (even when paying for their own benefits).

Younger workers seek the flexibility and freedom that temporary assignments provide, allowing them to take on short-term assignments and pursue their desires for location and work-life balance.

Please read the article, entitled “What’s Driving the Temporary Workforce?” for a more detailed analysis of workers’ motivations.

The Path to Middle Class is Narrowing

Throughout history, technological changes and modernization have always caused some jobs to alter or be eliminated. When the American economy almost a century ago transitioned from agriculture to manufacturing, farmers became steel workers, and then salesmen and managers. These shifts in jobs have carried economic benefits and, in general, allowed unskilled workers to earn better wages and experience upward mobility. 

Over the last twenty years, there has been another fundamental shift. Mid-wage jobs have started disappearing and new jobs are found in service industries, such as restaurants, call centers, hospitals, or temporary worksites. While the United States has been at the forefront of technological innovations, they have not converted into job opportunities. While technological leaps in solar and wind energy, semiconductor and display technologies have created jobs; they happened outside the country. Companies have shut down facilities in the U.S. to reopen in China and India.

Many believe that companies prefer to utilize foreign worksites and workers, turning away from Americans. Executives say that while Americans are among the most educated workers in the world, the country as a whole has stopped training enough people in the mid-level skills that factories require. However, wages are starting to rise in China and other countries, and manufacturing is slowly returning to the United States. We are not seeing the job growth, however, as technology and innovations such as robotics are replacing the need to hire workers.

This technological boom in manufacturing, energy, and other industries is creating a technology-driven environment where the total numbers of workers needed are fewer and the skill-set required is different.  According to McKinsey and Company, more and more employers are working with educational institutions to provide programs to develop global workers who will have the skills required for this new environment and the adaptability necessary to adjust to constantly-changing work requirements.

Regulatory Changes

The rapid increase in the number of temp workers has prompted lawmakers to focus their attention on the rights and protection of this workforce. For example, in January of 2013, Massachusetts implemented a Temporary Workers Right-to-Know Law, designed to prevent abuse of over 65,000 temporary workers employed in the state. The law requires temp agencies to give each worker a written job order that provides information the worker has a right to expect before going to a job, including designated pay days, actual hourly rate of pay, overtime compensation and more. It also limits and prohibits the levy of transportation costs and other fees that would reduce a worker’s pay to below minimum wage.  Agencies are also required to reimburse workers if they are sent to worksites when no work is in fact available. The law also provides tools for the Department of Labor Standards to ensure transparency and accountability within the temp industry.  The staffing industry, along with union activists and lawmakers, firmly supports the law.

Along the same lines, the California Wage Theft Act, implemented in 2011, and modeled on the New York Wage Theft Act, ensures that non-exempt employees are provided with specific written information concerning the terms of their employment immediately upon hire.

In Terms of the Economy

Economists generally agree that, historically, secure jobs drive consistent spending and investment, which aid in economic upturn. However, despite the increase of temporary employment adoption, experts do not predict growing expenditure. The belief is that since temp workers typically receive fewer benefits and limited job security, they will be less likely to spend freely. This spurs the thought that temp jobs are not contributing to economic boosts and recovery in the same way that permanent employment does.

However, economists and labor experts also agree that an increase in temporary hiring is a leading indicator of overall labor market demand. A continuous positive trend in temporary hiring is a sign that the labor market and the economy is improving, and hints at an increased pace of hiring for workers going forward. According to the Bureau of Labor Statistics Employment Situation report, temporary help employment has grown by 7.5 percent, and on a daily basis, American companies are hiring an average of over 715 temporary workers every business day over the past year.

There is an implication that the model is still the same – that a rise in temporary hiring should be followed by an increase in permanent hiring. But this model does not take into account other economic and social factors. Besides cost savings, companies are focusing on other factors such as efficiency, risk mitigation, strategic talent development, and competitive positioning. More businesses are taking on a “just-in-time” mentality to their workforce in order to be ready to address rapid skill requirement changes and fluctuations in talent supply and demand.

Workers are motivated by more than just stability when they choose a temp position over a permanent one, such as work-life balance, flexibility, pay rates, and more. The recession years with their downsizing, layoffs, benefit reductions, salary freezes and more have left their impact on the American worker where the old days of “trust” in the employer have been reduced.

With changes in motivation, psychologies and socio-economic concerns of both employers and workers, it stands to reason that the economic models will have to shift as well. 

Major Temp Occupations and Wages

Major Temp Occupations and Wages

A Growing Model in Certain Industries

In a growing number of industries and job titles, temps are replacing full-time workers. At auto plants, for example, one in six assemblers is a temporary worker.

For companies, temp workers offer many legitimate benefits, such as handling sudden and seasonal upswings and providing flexibility. Historically, temp positions were a way to try out a job and gain skills that would transition to full-time work. However, a survey by Staffing Industry Analysts found that only 30 percent of industrial jobs would become permanent positions.

Top Temp Occupations

Top Temp Occupations

“Temp Towns” Springing up all over the United States

Across America, temporary work is becoming a core component of the economy, resulting in a proliferation of what researchers refer to as “temp towns.” These neighborhoods are primarily Latino and full of temp agencies or are cities where it is nearly impossible for workers to find factory or warehouse work without being directed to a temp firm.

In places such as Kane County, Illinois, one in every 14 workers is a temp. In Greenville County, South Carolina (near BMW’s U.S. manufacturing plant), one in every 12 workers is a temp.  Warehouses operating in temp towns rarely have their own employees, and engage temp workers who may work at one jobsite for years. 

U.S. Counties with High Concentrations of Temporary Help Services Workers

US Countries with high concentrations

The Shift Towards Services

The Shift Towards Services

Looking at the largest employers in the United States it is easy to spot a trend. Over the last fifty years, America has shifted away from manufacturing and creating goods to providing services. Currently, only 10% of Americans work in manufacturing while service providers, retailers and temp agencies employ about six in seven of the country’s workers.

Changing Nature of Employment: The Largest Companies and Their Total Number of Worldwide Employees

Changing Nature of Employment

The Service Industry: Year-Over-Year Percentage Change in Pay

The Service Industry

Looking Ahead

The shift towards service industry jobs also leads to an increase of factory and warehouse work being filled by temp workers. With the substantial growth in blue-collar jobs that are being filled by temporary workers, the overall temp system is catching researchers’ and economists’ attention.

Growth of Blue-Collar Temporary Jobs

Growth of Blue-collar temporary jobs

“We’re seeing more and more industries using business models that attempt to change the employment relationship or obscure the employment relationship. While it’s certainly not a new phenomenon, it’s rapidly escalating.”  ~Mary Beth Maxwell, top official at Labor Department’s Wage and Hour Division

Economists say that the growth of blue-collar temporary jobs helps to explain why the nation’s economic recovery has been slow and uneven. With workers returning to temporary or part-time jobs, despite a soaring stock market or steady economic growth, income inequality is intensifying. Temps, on average, earn 25 percent less than permanent workers. 

Economists predict that the growth of temporary work will continue to rise, partly due to healthcare reform, which leads employers to engage temps rather than hire permanent employees to avoid the costs of covering full-time workers. The U.S. generally grants its temp workers fewer protections than other countries, resulting in taxpayers having to pay for worker care via the social-welfare systems.

Strictness of Employment Protection by Country (2008)

Strictness of Employement

“New middle-class jobs will eventually emerge. But will someone in his 40s have the skills for them? Or will he be bypassed for a new graduate and never find his way back into the middle class” ~Lawrence Katz, Harvard economist.