Temp work and low skill workers

Chris Farrell From chief economics correspondent Chris Farrell

It’s hard to put a good spin on today’s employment report. Sure, the headline figure that the economy added 431,000 jobs in May looks good. But the bulk of the job gain came from hires for the Census Bureau and that survey work ends soon. The private sector added a mere 41,000 jobs. Of course, however disappointing, the 41,000 private sector gain was a huge improvement over the loss of 334,000 private sector jobs in May 2009.

One positive sign is that for the eighth month in a row temporary hiring’s were up in the private sector. It’s a traditional sign that a pick-up in full-time employment is coming. Companies prefer to hire temps during the early stage of a recovery in case the rebound falters. Once it’s clear that the expansion is durable employers often offer temps a full time job. It’s also a good way for employers to screen though potential hires.

At least that’s the theory. A recent study into the temp market for low-income low-skill workers throws cold water on the idea, at least for a critical segment of the labor market. In Do Temporary-Help Jobs Improve Labor Market Outcomes for Low-Skilled Workers? Evidence from ‘Work First,’ economist David Autor of MIT and Susan Houseman of the W.E. Upjohn Institute for Employment Research suggest that temp work actually lowers a worker’s employment and income prospects over time. It doesn’t lead to full time work.

The scholars looked into a welfare-to-work program in Detroit. The Detroit Work First and Michigan Unemployment Insurance data sets they tapped into are from 1999 to 2003. Work First places people into either temporary work or long-term positions. The results of the study show that hires into full time work increased their earnings by about $2,000 annually compared to what they earned before. In sharp contrast the earnings of temp workers dropped by some $1,000 a year compared to their previous earnings history. “Thus, despite much descriptive evidence to the contrary, our analysis indicates that temporary-help placements have no net beneficial effect for the earnings, employment and labor market advancement of low-skilled workers.

Basically, the full-time jobs did better because the earnings were more stable and they also acted as stepping stones into stable jobs. But placement into temp work increased job churn and more employment in the temp sector rather than a ladder into a permanent position.

The economy still has upward momentum, despite a number of worrisome headwinds. But when it comes to people living around the poverty line it will take years of economic growth before the low-skill poorly educated sector of the job market sees an improvement.

  • John O.

    One nuance that is overlooked with respect to contract employees is that the company is not only NOT on the hook for benefits, but they are also not on the hook for workers’ comp, unemployment taxes, or withholding of appropriate federal, state and local taxes (if applicable).

    Having done some contract work many, many years ago myself, one needs to know up front that if they are let go, there will (probably) not be any unemployment compensation and enough funds need to be set aside to cover projected taxes. The tax implications alone can be daunting for a person who is uncomfortable or unfamiliar with evaluating their own tax situation without going to a tax accountant.

    For many, the contract position is a necessity to get by in tough economic times. Converting that contract position and becoming a “regular” employee, however, is a whole different matter.