Temps Have a Permanent Place in the Workforce

Temporary employment arrangements can benefit both employers and workers. Businesses can cut costs and maintain staffing flexibility; employees can gain experience and training. While still not a large share of total payroll employment, the temp industry is growing both regionally and nationally and appears to have important implications for businesses and policymakers.

Regional Focus

)ur parents may have retired from their jobs after 30 or 40 years, receiving the obligatory gold watch and framed certificate. Today many of us have changed careers, much less jobs, several times, and we see a growing number of people in our workplaces who won’t be there thirty days, much less thirty years.

Over recent decades, job permanence has given way to job flexibility, and temporary workers have become an increasing and more important part of the workforce. The impact of temporary workers on overall employment and on the economy as a whole may have important implications for businesses and for the policymakers who seek to understand the temporary help industry’s cyclical nature and its role as an economic indicator.

Between 1979 and 1995 the number of workers employed by temporary-help supply services grew at an annual rate of 11 percent — five times the rate of growth for total employment. As a result, temporary services’ share of total employment also grew. Still, in 2001 estimates of temporary workers made up only a small percentage of total employment, estimated between 1.7 and percent of the total labor force (see chart 1). In the Sixth Federal Reserve District states, temp services as a proportion of total state employment rates range from a high of 2.7 percent in Georgia to a low of 0.9 percent in Mississippi.

A temp or not a temp? That is the question . . .
Temporary employment varies from contract and seasonal employment to employment-agency placements in jobs that may last only a few hours. Temporary employment provided through staffing firms can be divided into two broad categories: temporary help and employee leasing.

Temporary help represents employees hired to meet employers’ short-term or project-specific needs. Employee leasing is typically a longer-term contractual relationship between a leasing agency and an employer; the agency assumes responsibilities such as payroll, taxes and possibly even management of the leased employees.

Temporary Help Employment as a Percent of Total Payroll and Services Employment
Chart 1
Note: All figures are as of the first quarter.
Source: Bureau of Labor Statistics

Why use temps?
A recent survey by the Upjohn Institute for Employment Research found employers demand temporary workers for a broad range of reasons. Using temps allows firms to adjust more easily to workload fluctuations and employee absences. Companies that hire temporary workers also enjoy lower employee-screening and hiring and firing costs because temporary help agencies bear some of those expenses. And using temps saves firms health insurance and pensions-related costs. For example, the Upjohn survey notes that in 2001 only 10 percent of temporary workers had employer-provided health insurance and only about 7 percent were included in employer pension plans. In comparison, roughly 55 percent of permanent workers received health insurance and 47 percent had a pension plan through their employer, according to a study by David Autor of the Massachusetts Institute of Technology.

In addition, firms may save on salaries because temporary workers are paid roughly 20 percent less, on average, than permanent workers are. A temp worker earned $396 weekly in early 2001, significantly below the roughly $500 per week paycheck of a permanent employee. Even taking into account the fees paid to the staffing agency, roughly three-quarters of firms surveyed found temporary employees’ total compensation costs less than those of permanent employees.

Steve Berchem, vice president of the American Staffing Association, says that many businesses use temps to help out during unexpected increases in demand or to fill in for absent regular employees. This labor flexibility will continue to be an important market factor in the use of temporary help. In fact, workforce flexibility was a critical driver behind the record-breaking expansion of the U.S. economy during the last decade, and Berchem predicts that more businesses will turn to staffing companies to help meet their labor needs as they understand the importance of such flexibility.

Many workers may also benefit from temporary employment arrangements. Temporary employment can allow workers to balance work and personal activities. And temporary employment provides both work experience and training. Manpower Inc., one of the country’s largest staffing firms, estimates that it trains 100,000 temporary workers a year in office-automation software. For some workers, temporary jobs serve as a pathway to permanent jobs. Although some workers may choose temporary work for experience and training, over half of temporary workers in 2001 preferred permanent employment.

Regional Focus

Here, there and everywhere
In 2001, according to the Bureau of Labor Statistics’ Current Population Survey, there were 5.4 million temp workers, who accounted for 4 percent of total national employment. The demographic characteristics of these temps have remained relatively stable since the BLS started the survey in 1995. Temporary workers are employed in nearly all occupational areas, but they tend to be most heavily represented in professional specialties, administrative support, general services, precision production and farming.

One of the significant trends in temporary employment, however, is the steady decline in the number of temps used in manufacturing. In 1995, one-third of all temporary agency–employed workers were employed in the manufacturing industry. By 2001 that portion had fallen to one-fifth.

In recent years, minor increases in temporary employment have been noted in the transportation and utilities industries. But the largest gains have come in services. Pam Scheibenreif, area manager for Royal Staffing Services Inc. in Atlanta and current president of the Georgia Staffing Association, noted a large growth market for staffing of “contact” centers, or call centers, which companies use to handle customer inquiries.

Consistent with population rankings as a whole, the temporary help industry has a strong presence in the Southeast, with Florida and Georgia among the top 10 states in terms of percentage of total workforce and in terms of industry receipts (see the table); Tennessee ranks nineteenth. The Atlanta metropolitan area is the region’s largest single market, ranking eighth in the nation for temporary help services. The Miami and Tampa markets also rank among the nation’s largest.

Sixth District Staffing-Industry Profile
  Alabama Florida Georgia Louisiana Mississippi Tennessee
Total employment
through staffing services1
50.9 345.9 163.5 45.6 17.8 75.7
    Percent of total employment   2.7     5.4   4.5   2.5   1.6   2.8
Temporary help services employment2 33.7 144.3 95.9 38.6 10.4 53.8
    Percent of total employment   1.8     2.2   2.7   2.1   0.9   2.1
Employee leasing employment3 14.8 199.6 64.5   5.0   6.2 15.4
    Percent of total employment   0.8     3.1   1.1   0.3   0.6   0.6

1Includes temporary help services, employee leasing, and two minor categories not listed in the table — executive search and permanent placement.
2Employees hired to meet employers’ short-term or project-specific needs.
3Typically a longer-term contractual relationship between a leasing agency and an employer; the agency assumes responsibilities such as payroll, taxes and possibly even management of the leased employees.

Note: All staffing numbers are in thousands.
Source: Staffing Industry Sourcebook, 2000–2001

Temps on the rise
Overall, temporary help employment has been a positive force in a slower economy. “The increased hiring in temporary personnel services is a good indication that employers, while hesitant to make long-term hiring decisions at this point, need additional workers to meet their current demands,” said Georgia Labor Commissioner Michael Thurmond. “The additional hiring in this sector represents 38 percent of all jobs created in Georgia since January 2002.”

Many businesses in the region have also noted a rebound in temporary employment beginning this year, and this trend is reflected in the national and regional data. Scheibenreif said, “Business is picking up, but we are still below year-ago levels.” Some staffing firms have also noted that business is improving, and they expect demand for temporary workers to continue to rebound. In the Atlanta area, personnel services employment has shown steady improvement this year, and employment levels are back to year-ago levels.

Contribution of Temporary Workers
to Payroll Employment Change
Chart 2
Note: All figures are as of the second quarter.
Source: Bureau of Labor Statistics

Not only is the number of temporary employees on the rise, but the number of temporary-help supply establishments has also grown in recent years. According to Staffing Industry Analysts Inc., there were over 20,000 temporary help supply offices in the United States and Canada in 2000. If offices that provide employee leasing and permanent placement services are included, that number rises to over 30,000. The number of franchised or licensed offices of staffing companies in operation in North America doubled in the second half of the 1990s, an impressive growth rate. The recent economic downturn resulted in some closings, but the overall growth trend appears to be well established.

Part of the cycle
As chart 1 indicates, temporary workers make up an increasing, yet still small, proportion of total payroll employment. Notwithstanding the modest absolute size of temporary employment, fluctuations in the industry comprise a substantial segment of variation in total payroll employment over the business cycle.

Despite the fact that temporary employment comprises about 2 percent of payroll employment, fluctuations in temporary jobs contributed negative 0.3 percentage point to the 1 percent net decline in payroll employment over the latest employment downturn (see chart 2). This pattern contrasts slightly with temporary employment trends through the 1981–82 and 1990–91 recessions, when the decline in temporary jobs added only marginally to the overall payroll decline. Given the nature of temporary employment and the increasing use of temporary help by private firms, temporary employment appears to have a growing importance in labor market fluctuations over the business cycle.

Is temporary employment a leading indicator?
Temporary employees are typically “marginal” workers. They’re the first to be dismissed as business conditions deteriorate because they tend to have lower productivity than permanent employees, and the firing costs are lower as well. As demand for workers increases, it should follow that temporary workers are the last hired as well. But when the economic outlook is uncertain, the pattern is more likely to be an increase in hours worked by existing employees, the hiring of low marginal cost temporary workers and, as economic uncertainty diminishes, the addition of workers to permanent payrolls. In this scenario, temporary workers provide employers with additional workforce flexibility.

Regional Focus

Chart 2 shows that fluctuations in temporary jobs have generally occurred along with broader changes in total payroll employment through the 1980s and 1990s. But over the most recent downturn, temporary employment appears to have led slightly the downturn in overall employment and now appears to be preceding broader growth in payroll employment. Temporary employment rose by 126,000 workers between February and May 2002 whereas overall employment expanded by only 42,000 workers.

Temporary help means business
Temporary employment has grown substantially over the past decade relative to other employment categories in the nation as a whole and in the Southeast. While contributing only modestly to employment changes during the 1981–82 and 1990–91 recessions, fluctuations in temporary jobs have been a considerable proportion of total employment variation through the most recent recession. Staffing industry data show trends in the Southeast that reflect recent national employment patterns. Given the evolving nature of temporary employment and its importance in recent payroll employment fluctuations, developments in this segment of the labor market warrant continued close scrutiny.

This article was written by Michael Chriszt of the regional team of the Atlanta Fed research department.

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