Temporary employment

by on December 19, 2010 at 9:56 pm in Economics | Permalink

This year, 26.2 percent of all jobs added by private sector employers were temporary positions. In the comparable period after the recession of the early 1990s, only 10.9 percent of the private sector jobs added were temporary, and after the downturn earlier this decade, just 7.1 percent were temporary.

Here is more.  And this:

Temporary employees still make up a small fraction of total employees, but that segment has been rising steeply over the past year. “It hints at a structural change,” said Allen L. Sinai, chief global economist at the consulting firm Decision Economics. Temp workers “are becoming an ever more important part of what is going on,” he said.

1 david December 19, 2010 at 6:58 pm

Presuming, like all good monetarists, that money is the key actor here –

Regardless of whether you think the Fed could have suppressed the Great Recession, it is clear that it didn't, and so any certainty that the Great Moderation could be relied on to continue is gone. Temporary hiring is a logical response.

What were temporary position numbers before the Great Moderation?

2 thehova December 19, 2010 at 9:01 pm

Does consulting count as temp work? In practice, they address the same need.

I know consulting type work has grown rapidly in the past 20 years.

3 kuant December 19, 2010 at 9:19 pm

Don't forget health care costs. Will Obamacare "bend the cost curve"?

4 Raa December 19, 2010 at 9:59 pm

The structural change side can also be explained as an increase of people who want to work as temps, for the added flexibility and lack of commitment to a company which will lay off people when it feels the need, whether they are temps or supposedly permanent workers.

5 Six Ounces December 19, 2010 at 10:54 pm

Uncertainty over health care costs and obligations, taxation, resumption of demand.

Employers are preserving labor flexibility. It is precisely through these sorts of changes that the market achieves wage flexibility that Keynesians believe doesn't exist. This is a very good thing for the US economy but bad for the individual worker. Employer uncertainty is being partially passed along to employees just like the burden of a tax.

6 zbicyclist December 20, 2010 at 6:28 am

This is a sign that employers expect unemployment to continue to be high for some time. There's no need to try to lock up labor, because it won't be scarce.

7 Michael December 20, 2010 at 7:25 am

I'm very sympathetic to the argument that temp jobs are the result of significant regulatory uncertainty emanating from this administration. However, I wonder how much of it may simply be a more fundamental transformation of standard HR policies. I've had several friends hired lately for high paying IT jobs in a "temp" capacity, with a four or six month probation before getting hired permanently. While many eventually get hired on full time, not all are, and it is largely used as a trial period after which employees can be more easily fired, uh, I mean, not hired, or whatever euphemism they're using.

This is a trend that I could easily see as having positive overall effects, even if it does screw up some of our standard measures.

8 Karl December 20, 2010 at 8:11 am

@Dan H: It is assumed to be structural because a typical first-order analysis assumes all current trends are projected as a straight line to infinity.

@Michael: I frequently do high tech hiring for the team I manage. You are correct that we often use "contract to hire" to test out new team members – it is hard to interview and collect enough information because the circumstances in an interview (or even a series of interviews) are contrived, and there is little opportunity to evaluate the very important team dynamics.

This works for the hiring company and the contracting company- many staffing companies charge a fee of 30% or so of annual salary; this can be avoided by paying their hourly rate for three or six months, then hire full time for no fee.

There are some unexpected negative features, especially from my perspective as the guy who has to build the team and deliver product.

1. Often candidates are passed through several layers of contracting companies, and each gets their cut. This means that the contractor I am paying $85/hr for is only getting $25, and each of three contracting companies are also getting $20.

a. This means market signals of the candidate's quality are masked. I think I am getting a "$85/hr guy" and really I am getting a "25/hr guy", eg someone who's skills are such that $25 is the best they can negotiate.

b. If I do actually do the hard work of getting this $25/hr guy integrated into the team and functioning well, they are easily poached. The can easily double their rate just by getting better circumstances and being a direct rather than third-party contract.

2. Employees have a "contractor mentality" where they expect to come in, do the work for six months, and move on. They are unwilling to work harder to understand the underlying issues a company faces, just implement the features required without questioning their fit into a greater whole, or suggesting different ways of working.

As knowledge work becomes more and more team-based, this will counteract the trend towards contracting. Or, extend a two-tier system where there are some insiders who call the shots and do the innovation, and outsiders who come in and just execute the vision.

It is my belief that innovation by definition comes from unexpected sources, so keeping a large number of the team as "second-class citizens" on the team reduces the innovation available to the company.

9 John Dewey December 20, 2010 at 10:21 am

Karl,

Do you feel the use of contract employees for high tech jobs has changed much over the past 20 years? Based on what I've observed, I would have trouble believing this accounts for much of the change since 1992. But I could be wrong.

What I have seen recently is a much greater use of temps for lower skill positions. I think one reason is that the practice insulates a large company from the risks of hiring workers with fraudulent documentation. Of course, that's only one reason. I agree with others that large companies are hesitant to add permanent hires while the potential health care costs remain so uncertain.

10 Karl December 20, 2010 at 5:46 pm

John- Agreed, the macro trend is at the low end of the skill spectrum.

JonF- Often we do, but at my management level there is not often a lot of bargaining power. It is also in the contracting agency's best interest to hide the details of the contract from me- from their perspective, I should feel I am getting a $100 guy for $85. So the first I learn can be when the employee comes in and say they have another opportunity.

I'll also push back on your assumption of universal inertia in the job force. I agree it is the headline story, but many who are used to the contractors' life are eager and expecting to move to a new job every 1-2 years. In fact, I just interviewed an engineer who was qualified and seemed like a good team fit, but was up front that he'd only be interested in a 1-2-year engagement and I was looking for someone with a 5+ year time horizon.

11 JonF December 21, 2010 at 4:41 pm

Karl,

I was not making a universal statement, only saying "most people". Some people may well enjoy job-hopping, but I suspect these are people with highly marketable and in-demand skills, not people at risk of being dumped from the books when their current assignment ends.

Also, I very much doubt temp companies are routinely pocketing that much of a spread between what they pay and what they charge. I did an in-house project for a temp company once– and this involved its financial data. For w2 employees the spread was around 15$/hr*.If you are being charged 85$/hr then chances are the person is actually being paid ~70$/hr.

* This company did not pay any benefits apart from those mandated by law for w2 employees.

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