Special Report on Contingent Staffing Contingency Plan

October 14, 2010

Lilla Horvath, a recruiter who specializes in helping technology companies land talent, found a position at a San Francisco firm doing exactly what she wanted—but as a temp hired through the Philadelphia-based staffing firm Yoh Services. She works alongside permanent employees in her new office, but, as a Yoh temp, she doesn’t get access to company health care coverage and other benefits. “I would love to be in a permanent position at this company in this job,” Horvath says. “But when the economy is like this and head counts are up and down, they never know if they will need someone three months from now.”

Horvath’s situation reflects the booming growth in demand for contingent workers, even as permanent hiring remains sluggish. Positions that might have been reserved for permanent workers in a more robust economy now often go to temps or contract workers. While that trend may portend a slow overall business recovery, contingent staffing firms are bouncing back from the recession quite smartly.

Joyce Russell, who as president of Adecco Staffing oversees the placement of contingent workers in the U.S., is positively giddy. “We are superbusy at Adecco,” she says. “We are seeing sustained growth” across all industries from pharmaceuticals to technology to consumer products to aerospace. Glattbrugg, Switzerland-based Adecco Group reported that second quarter revenue grew 29 percent from the year before, while first-half revenue increased 18 percent. Its net income of roughly $188 million in the first half compares with a year-earlier loss of about $174 million.

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The American Staffing Association reported that second quarter staffing revenue in the U.S. hit $16.9 billion, a 33 percent increase over the same period in 2009—the largest year-to-year quarterly percentage increase since the association began tracking the industry in 1992. Companies employed 2.4 million temporary and contract workers per day in the second quarter, the association reported, an increase of 23 percent from a year ago and 18 percent more than in the first quarter. “It has been steady growth for over a year now,” says Steve Berchem, the staffing association’s vice president for research.

How long the contingent labor boom will continue is a matter of considerable speculation. Many industry experts are taking a cautious view of the future; they are worried that the continuing weakness in the overall economy could temper the growth.

Staffing companies were hit hard by the recession. The staffing association reports that the industry lost 1 million jobs, and the bulk of the losses came in a six-week span in 2008. “It was a huge hit, just remarkable,” Berchem says. Jobs began to come back in summer 2009 with contingent hiring growing nearly every week through summer 2010. Staffing companies were nearly as surprised by the strength of recovery they witnessed as by the ferocity of the decline.

Staffing company officials say the pace of contingent job growth suggests a shift toward more use of temporary labor at the expense of permanent jobs. Companies had to fire thousands of workers during this downturn and are leery of ramping up permanent employment too quickly. They can more easily downsize again if they hire mainly temporary employees. “Companies need more flexibility, because they are uncertain about how strong the recovery will be,” says Jorge Perez, senior vice president of staffing for North America at Milwaukee-based Manpower Inc. “They want to see stability, that everything is going to be OK.”

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Manpower client Hamlin Electronics, an electronic device manufacturer in Lake Mills, Wisconsin, is taking a cautious approach to hiring. Hamlin slashed its workforce during the slump that began in 2008, and—as business has rebounded with assembly lines running 24-hours-a-day, seven-days-a-week—it relies increasingly on temps. Hamlin now counts 63 temps out of a workforce of about 200 at the Lake Mills plant. Prior to the recession, it typically employed only about 10 contingent workers. “We would like to staff full time, but we are not allowed to yet,” says Mary Ann Hildebrandt, human resource coordinator at the Hamlin plant.

Such caution vexes Obama administration officials trying to stimulate the economy and boost permanent job creation. Before the recession, contingent labor might have accounted for 10 to 12 percent of a corporate workforce. Now, says Linda Galipeau, president of Randstad Staffing, some companies “say they want to use 15 percent. But many are at 20 to 25 percent.” She says she believes employers may convert some of these contingent jobs to permanent positions once they feel more confident about the economic recovery.

The industrial sector, which has seen some of the most dramatic growth in contingent labor, is being watched especially closely. “It is pretty typical in a recovery that industrial is the first thing that starts growing,” says Barry Asin, president of Staffing Industry Analysts, a contingent staffing research and analysis firm owned by Crain Communications Inc., which is also the parent company of Workforce Management. “Companies get orders, so they have to run assembly lines and production work. But until they know whether the recovery is going to stick, it makes more sense for them to hire temporary workers.”

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A recent survey by Staffing Industry Analysts noted a trend toward more rapid turnover in temp positions, an indication that employers are being much more careful about using permanent employees for short-duration tasks. One staffing company noted in the survey, “While there has been an increased demand for light industrial staffing, assigned employees are being used to complete work and then are immediately released. This is resulting in greater fluctuations in usage than we have experienced in the past.”

Some staffing experts aren’t sure how many temporary positions will become permanent. They believe temporary help could account for 20 to 25 percent of some workforces even after the economy gets stronger. Berchem of the staffing association says that the surge in contingent labor at a time when permanent hiring remains weak seems to point to a workplace realignment, but that the unsettled nature of the current economy makes it difficult to know for certain. “I think it is going to be a while before we know if there is a permanent paradigm shift in using flex labor more than in the past,” Berchem says.

In the U.S., the rising demand for contingent labor, while strongest in industrial jobs, has touched nearly every sector and includes higher-wage, skilled jobs. Staffing companies say the trend began in the eastern U.S. and then spread south and west. Joel Capperella, senior vice president of the staffing firm Yoh, says the technology field has been a particular hot spot for staffing at his company.

The recession prompted corporations to delay planned technology improvements and trim jobs required to carry out those tasks. As the need to undertake delayed technology projects becomes more critical, corporations are looking to staffing companies such as Yoh to fill skill gaps with contingent workers. “We are seeing that bare-bones skeleton crews need to do more work, and that brings demand our way,” Capperella says.

Yoh, which is a division of Day & Zimmermann Co., is conducting a survey of its clients to better understand the long-term implications of the current rise in demand, not only for technology workers but also for other professions as well. “We think this increase in a blended workforce” of permanent and temporary employees will not decrease, Capperella says. “The landscape has potentially changed for the foreseeable future.”

Workforce Management, October 2010, p. 28, 30, 32, 34 -- Subscribe Now!