Staffing firms seem to thrive when employers are feeling uncertain about the economy’s future during a recovery.
Generally, when the economy experiences a downturn, the number of temporary workers in the workforce declines. When the economy is expanding, the total contingent workforce rises, too — especially after a recession. This cycle applies to the current economic climate in the United States, as temporary hires have consistently increased for more than 40 months since the end of the Great Recession, according to the U.S. Bureau of Labor Statistics.
“If you look at the job growth numbers from the Bureau of Labor, overall job growth has been pretty weak, but temporary job growth is a significant portion of that. I think that reflects the uncertainty that’s still out there about medium- and long-term prospects for the economy,” said Barry Asin, president of Staffing Industry Analysts, a contingent work adviser based in Mountain View, California. “One of the measures that we look at is the temporary penetration rate of total employment, and that’s back at peak levels that haven’t been seen since 2006, 2007.”
According to the American Staffing Association, the penetration rate is defined as “the percentage of the nonfarm workforce employed by temporary help firms.”
As of August, 1.99 percent of the nation’s workforce was made up of temporary workers compared with a 1.34 percent rate at the end of the Great Recession, around June 2009. The highest penetration rate ever recorded was 2.03 percent in April 2000, where it remained nearly unchanged until the recession that hit in March 2001, according to the Bureau of Labor Statistics.
Despite the penetration rate’s propensity to follow the ebbs and flows of the national economy, a 2012 study released by the American Staffing Association explains that the metric, and the staffing industry in general, should not be interpreted as leading indicators of economic health, but rather as coincidental indicators.
According to an examination of employment and economic data from 1972 through 2008 done by the staffing association, “Temporary help employment is a coincident economic indicator. But analysis showed that that relationship had weakened over time; it was stronger in the 1970s and ’80s than in the past two decades. Further analysis, looking at the phases of economic cycles rather than merely the passage of time, uncovered an important nuance: Temporary help employment is a particularly strong coincident economic indicator when the economy is emerging from a recession.”
While the economy is recovering, employers are still uncertain about its future because of concerns about debt sovereignty in Europe and the coming implementation of the Affordable Care Act, for example. As a result, many companies are hesitant to commit to hiring full-time workers, and turn to temporary workers. This uncertainty has been a boon for the staffing industry and driven the industry during the past 12 months.
SIDE EFFECTS OF UNCERTAINTY
As evidenced by the consistently increasing penetration rate of temporary workers in the total workforce, there are more temps in the workplace these days. The Bureau of Labor Statistics found that temporary jobs in the U.S. increased by 13,100 to 2.7 million in August.
Industry experts attribute this increase to the expansion of the economy and the subsequent rise in the demand for labor, as well as employers having a better understanding of how to leverage a contingent workforce to manage the uncertainty they feel toward their businesses and the economy.
Compared to the early ’90s, more employers have learned how to use the staffing industry to meet labor demand when they’re unsure about hiring full-time workers during periods of economic uncertainty, said Brett Good, Robert Half International Inc.’s senior district president of Southern California and Arizona.
“What’s interesting is when I got into the business 20 years ago, there was still an education process for businesses to understand how to better utilize this industry,” Good said. “Fast-forward two decades, more organizations now have that understanding, and I think that’s reflective of the penetration rate. Organizations have learned how to better leverage this industry.”
Employers have turned to the staffing industry to help assuage doubts about labor demand during the economic recovery because they’re seeking agility, said Jeff Joerres, chairman and CEO of ManpowerGroup.
“The trend of the industry clearly has been companies striving toward some form of agility and flexibility,” Joerres said. “We’re seeing organizations become much more creative and decisive in what do they want to do vs. what should be done on the outside. Outsourcing is nothing new, but it’s being done with more finesse.”
The trend Joerres identified is certainly driven by employer uncertainty. However, employers’ desire for a larger contingent workforce and more flexibility may be the sign of a budding structural change for the national workforce as a whole. Mark Nussbaum, chief operating officer of Signature Consultants, said he believes the United States is on its way to having a higher permanent penetration rate of temporary workers in the workforce.
Data Bank Analysis
Amid widespread uncertainty about the recovering economy, the penetration rate of temporary workers is approaching an all-time high of 2.03 percent.
As more people find work on a temporary basis, more companies are turning those employees into full-time staff members. However, economic and political issues have caused employers to remain hesitant about the future of the economy, which leads to tepid gains in full-time employment. As the unemployment rate decreases, the penetration rate of temporary workers can be expected to make small gains, as well.
The penetration rate of temporary workers, which measures the percentage of temporary labor in the overall workforce, was 1.99 percent on Sept. 6, 0.04 of a percentage point behind the all-time high set in 2000. Since 1990, the staffing penetration rate — the percentage of the nonfarm workforce employed by staffing firms — has mostly ranged from 1 to 2 percent.
The staffing rate has been recovering more rapidly than previous recessions. This could be explained in part by what some experts believe to be a looming structural shift in the U.S. workforce, whereby a greater portion of labor demand will consistently be filled by temporary workers, who appear to be content (see chart on left). According to an American Staffing Association study, 42 percent of temporary workers say they’re “extremely satisfied” with their job, and 90 percent say they’re “satisfied” overall.
“The percentage of Americans employed though a temp staffing firm five years from now will be greater than the percentage of Americans employed through temp staffing firms five years ago. And that will be structural in our economy,” Nussbaum said. “The rate of change in the economy is faster. One of the ways to cope with that is to use a larger flexible workforce.”
While it remains to be seen if the increase in temporary workers is indeed signaling a structural shift for the U.S. economy, the trend could also mean the overall unemployment rate will continue to drop. According to the American Staffing Association, staffing employment is considered a leading nonfarm employment indicator.
Generally, when a rise in temporary staffing occurs, a rise in regular full-time employment follows three to six months later, the association’s research shows. The increase in temporary workers converted to full-time employees, or “temp-to-hires,” lends credibility to this observation, providing hope that people are finding jobs and that the unemployment rate will continue to drop for at least the next three months.
In fact, temp-to-hire is “one of the quickest growing areas,” said Jim Link, managing director of human resources for Randstad U.S.
Jeanine Hamilton, president at Hire Partnership, has noticed an uptick in temp-to-hire transitions. Many of the candidates her firm has placed have been hired by Hire Partnership clients. Hamilton also said she has noticed more clients calling with positions that can potentially become full-time jobs.
“I think companies are starting to look at their staffing levels and realizing that they actually need to bring more people on. They’re getting busier; therefore they need to bring more people in,” Hamilton said. Companies are first hiring candidates on a temporary basis to “actually make sure they do have that position available, that the work is there; and also to make sure that candidate is the right candidate long-term for the position.”
The combined increases of temporary workers in the workforce and more temporary hires being taken on in a full-time capacity has unsurprisingly led to the tightening of the candidate pool. As a result, it has been increasingly difficult for staffing companies to find qualified job candidates. This is especially true when it comes to finding candidates for jobs in fields that require at least a bachelor’s degree — a group with a relatively low overall unemployment rate of 3.5 percent as of August 2013, according to the Bureau of Labor Statistics.
“With fewer and fewer people out there on the unemployment rolls and generally available on the marketplace, it becomes a tougher job for recruiters to go out and find” the right candidates, Link said. It’s especially difficult for companies to find temporary help in fields such as health care and information technology. But Nussbaum, whose company specializes in IT staffing, said if it were easy to find qualified candidates, “we wouldn’t exist.”
“It’s particularly difficult, as you would imagine, in the emerging technologies. More and more companies want to do things around big data; more and more companies want to do things around mobile technologies,” Nussbaum said. “I mean, we are able to do it, but it’s taking effort. Concerted, continuous effort.”
IMPACT OF THE AFFORDABLE CARE ACT
The continued increase in temporary workers isn’t the only major trend affecting the staffing industry. Like all other employers in the U.S., staffing firms are paying close attention to the coming implementation of the ACA. And like many employers, staffing firms were relieved by the postponement until Jan. 1, 2015, of the employer mandate, which requires employers to provide their workers with affordable health insurance. However, the delay hasn’t stopped employers from worrying about how they’re going to comply with the law or how it will affect their businesses.
“I think the staffing industry as a whole has been holding its breath because it’s such a big change in the way staffing firms operate,” said Aaron Green, president of Professional Staffing Group.
Until that day actually arrives, it seems as if the staffing industry will continue to watch and wait on this issue. Employer uncertainty is likely to remain as well, because of confusion over the ACA and other economic and political issues such as a labor-friendly National Labor Relations Board, which means temporary staffing can be expected to continue playing a large role in satisfying labor demand.
“Employers are less likely to hire their own full-time people when they need them if they’re unclear on how the ACA is going to impact their costs. They’re much more likely to go out and use a temporary agency to do that whenever they have that uncertainty in the back of their minds,” Link said.