What does the rise in temp work mean?

Chris Farrell From chief economics correspondent Chris Farrell

The unemployment rate stayed steady at 9.7% for February. Payrolls declined by 36,000. It’s a disappointing report considering it takes payroll job gains of at least 100,000 a month just to keep up with population growth. As Paul put it in a post earlier this morning “there’s still a long road to walk before we get to a recovery that people feel.”

There’s even mixed feeling among some market observers about what is normally considered a bright spot in the employment numbers: An increase in temp jobs. According to today’s Bureau of Labor Statistics report, temporary help services added 48,000 jobs. What’s more, since reaching a low point in September 2009, temporary help services employment has risen by 284,000.

Numbers like that are typically considered a healthy sign for future job growth.

The reason is that companies like to hire temp workers first when the economy is making the transition from contraction to expansion. This way, they don’t take on additional fixed costs, especially employee benefits. But when management is confident that the recovery is truly gaining traction, companies start offering their temp workers full time jobs and also put out the help-wanted sign.

One of my favorite blogs to regularly follow is Calculated Risk. It has an intriguing chart on temp employment compared to full time employment.

TemporaryHelpFeb20102.jpg

It’s a complicated chart, but the red line is an adjusted three month average change in temporary help services and the blue line is the three month average change in total employment (excluding temporary help services.) The temp data goes back to 1990, which isn’t a very long data set.

Still, it shows that temp employment appears to lead overall employment by about four months.

Here’s the thing: Calculated Risk wonders if the rise in temp work this time around isn’t a precursor to full time job growth. The future is temp. Management is increasingly willing to hire a just-in-time work force with no benefits and job security. It’s what this recent Business Week cover story on the disposable workers speculates could be the future.

The economic numbers don’t really provide an answer. It’s unlikely that most companies will embrace a disposable workforce. The downsides are painfully obvious. But it’s very possible that companies will rely on temp workers much longer than in the past.

This an important story to follow in coming months.

  • John O.

    The temp job represents a reasonable compromise for many employers. As you point out, the company using a temp agency is not the employer of record, so they do not have to consider expenses such as benefits, retirement packages, unemployment taxes or workers’ comp premiums. Depending on the task(s) involved with the job, younger workers can often be brought in at a fraction of the cost of older workers.

    If temp “A” does not work out, a quick call or e-mail to the agency gets them temp “B.” Some positions (obviously) do not easily lend themselves to temp workers.

    However, many pundits are talking about a “jobless recovery.” I would submit that at least some of that is going to be shrouded within the ranks of persons working through temp agencies on short-term or even long-term assignments. Until Washington gets its act together with respect to a direction on health care, it isn’t hard to understand why employers might be reluctant to take the plunge and begin hiring workers into permanent, full-time positions.

    I’m not holding my breath.