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Special Report on Contingent Staffing Time of Uncertainty

October 23, 2008
When the national economy tanks, temporary workers are usually the first to go. Job cutbacks hit quickly and sharply, and the rebound is typically long in coming. But the current economic downturn has been different.

Temporary and contingent jobs have been disappearing again, but for a longer time and at a much slower pace than in previous downturns. Temporary jobs have been stagnant or declining since at least early 2007, a period of contraction that analysts say is unprecedented. Yet the total number of lost jobs to date is still just a fraction of the number cut in previous, shorter setbacks.

The unusual situation has experts in the contingent staffing industry and company officials scratching their heads. They are trying to understand the forces at play and determine whether the staffing industry has managed to engineer a soft landing or if more serious job losses are still to come. Some of the largest global staffing companies are telling investors the outlook for temporary staffing is so unsettled that they are unable to predict how well—or how poorly —they will perform in the next few months.

Part of the uncertainty comes from the continuing disruptions in the national and global economies and the fact that contingent and temporary staffing has yet to undergo what many expected would be a steep drop earlier in the cycle. Indeed, the performance of the U.S. staffing industry has thus far been a tale of two sectors. Demand for skilled, professional workers in fields like health care and technology has remained strong even as cutbacks hit the commercial sector, populated by lower-skilled clerical and manufacturing workers.

"Even in a down economy, some staffing sectors and firms in some parts of the country continue to fare pretty well," says Richard Wahlquist, president and CEO of the American Staffing Association in Alexandria, Virginia. "Generally, the commercial sector has borne the brunt of the downturn. Professional sectors have, for the most part, held up the best."

Brief stints for pros
    The use of professional short-term contingent workers has been the fastest-growing sector in the contingent and temporary staffing industry over the past few years. The commercial sector, which once accounted for the bulk of temporary and contingent jobs in the U.S., has been overtaken by the professional side, which now accounts for more than half of the overall temporary job count.

Those professional temporary workers are more in demand partly because they are assigned to more important and integral corporate tasks and projects, so companies are less likely to immediately let them go. According to Jon Zion, president of Eastern U.S. operations for Robert Half International, which specializes in professional staffing, the reluctance to cut professional contingent workers has become more widespread in the past few years. Corporations were much more likely during the last recession, in 2001-02, to cancel ongoing projects that used temporary workers rather than let those projects run their course, Zion says.

"A lot of companies realized that when they stopped, it impeded their ability to grow when the downturn ended," Zion says. This time around, companies are choosing to proceed with projects despite the slowing economy. "They have investments in strategic projects and they are bringing them to conclusion."

The real test will come once the current round of strategic projects runs out. If the economy remains soft, companies may choose to delay additional projects that use professional contract workers, which could spell trouble for the staffing industry. "Companies have seen bad news long enough to think twice about starting new initiatives that the staffing industry supplies," says Jonas Prising, president for North America at Manpower Inc., which is based in Milwaukee. "My best guess is that companies are probably going to slow down their use of professional skills."

How much slower the professional staff­ing sector gets could be determined not just by the state of the economy but also by the availability of skilled labor, particularly in fields like engineering, technology and health care. The need to find the right skills to fill critical jobs could continue to bolster demand for certain types of professional temporary workers even if the economy worsens.

Tech workers are among those who are most in demand. During the last recession, which was tied to the end of the technology bubble, contingent tech workers were among the first to go. Not so this time around.

"In the current downturn, I have found it very interesting how information technology has prospered," Zion says. "Maybe tomorrow is another day. But up until now it has been very good."

Staffing firms hold steady
   
The combined strength in professional staffing and the gradual decline in overall temporary staffing have proved to be a calming influence on staffing companies. While there has been belt tightening among staff­ing companies, there have not been widespread cutbacks and staffing office closures. Staffing companies say they are hoping to maintain their office networks so they are ready when the economy revs up again.

"Nobody is pushing any panic buttons," says Steve Berchem, American Staffing Association vice president. "I’m not hearing alarm bells going off."

But he adds, "That isn’t to say there hasn’t been an impact."

One of the puzzling aspects of the current downturn is that while the number of lost temporary jobs has been modest, the total still represents the brunt of overall job losses in the economic slump. Staffing Industry Analysts, a research and consulting organization, has been closely tracking the temporary staffing sector and comparing the current situation with earlier economic downturns.

In a recent report on its findings, the Los Altos, California-based company noted that the U.S. shed 370,000 temporary jobs in 2001 as a result of the last economic slump. That total represented 22.7 percent of the total 1.6 million jobs lost in 2001. By comparison, the U.S. lost 189,000 temporary jobs from January to July 2008. But the latest staffing cuts represented 40.8 percent of the 463,000 total jobs lost in the U.S., an indication that the temporary sector has been hit with an even bigger share of overall job losses this time around.


"Talent that moves around is what is in demand. ... We have clients that are coming to us to help get contingent labor from one place to another, to the extent that laws allow you to do that." —Lance J. Richards, global practice leader for HR, Kelly Services Inc.

Andrew Steinerman, an equity analyst who covers staffing companies for JPMorgan, has been mulling the conflicting signs in the contingent labor force for months. In his most recent report in early September, he noted another worrisome sign. The U.S. typically shows an increase in temporary hiring in August compared with July. But Steinerman says temp jobs instead were showing declines in August. The downward trend was troubling, he says, and suggested a continuing decline in temporary staffing during the second half of 2008.

Barry Asin, chief analyst of Staffing Industry Analysts, says that while the outlook for the rest of the year is still too murky to predict, he says evidence of a recovery has yet to appear. As Asin points out, one of the reasons temporary staffing is so popular with U.S. corporations is because of its flexibility. Companies can use temporary help to expand or shrink staffing levels to respond to economic conditions without the complications of hiring and firing permanent employees.

The gradual rate of temporary job loss suggests that companies have been making much more strategic and careful use of contingent staffing than in the past. A more sophisticated and measured approach to temporary staffing can help companies avoid hiring too many temporary workers too quickly during an economic expansion, and the same principles can be used to gradually reduce temporary staffing when the economy starts to cool.

"After the last downturn, we didn’t have a big a ramp-up," says William Grubbs, COO of Fort Lauderdale, Florida-based staffing firm Spherion Corp. "Our clients have been using temps a little bit more strategically and are managing their workforces better than in the past."

During the 2001-2002 recession, the nation’s temporary workforce saw several months of double-digit drops before the sector started to recover; there has yet to be a double-digit loss in this down cycle. Steinerman notes that the U.S. has lost about 10 percent of its temporary workforce since the employment peak in December 2006. But that’s only about half as big a decline as occurred during the 2001-2002 slump.

International picture
    Earlier this year, some large multinational firms were able to offset temporary labor weak spots in the U.S. with gains in other global markets, including parts of Europe. Those revenues, combined with the continued strength in U.S. professional staffing, helped bolster the bottom lines of many global staffing companies at the start of 2008.

But soft spots have started popping up around the globe in temporary staffing, and global staff­ing corporations were reporting weakening profits this summer. The one bright spot is the continuing global demand for certain hard-to-find professional contract workers such as nurses and engineers. Global staffing companies that are able to locate the right workers and effectively move them across borders to fill crucial temporary jobs are finding a ready market.

"Talent that moves around is what is in demand," says Lance J. Richards, global practice leader for human resources consulting at Troy, Michigan-based Kelly Services Inc. "We are seeing mobility from around the world. We have clients that are coming to us to help get contingent labor from one place to another, to the extent that laws allow you to do that."

While staffing companies look for opportunities in areas such as health care, technology and international talent mobility, they are also keeping a close watch on trends in U.S. temporary staff­ing, look­ing for any sign of a turnaround.

"The silver lin­­ing is that at some point, we will reach rock bottom," says Manpower’s Prising. "Since we have been in this for quite some time, you could argue that rock bottom can’t be that far away. Of course, that is just a hope and nothing else."

Workforce Management, October 20, 2008, p. 33-37 -- Subscribe Now!