Contingent workers have always served as the bookends to economic cycles: They’re the first to feel the brunt of job cutbacks in a recession and the first to be called back to work as business starts showing signs of renewed vigor. But the role contingent labor plays in a corporate workforce strategy may be poised for a new and far more vital role as the economy revs up again.
Stung by massive and disruptive layoffs that accompanied the latest recession, companies are starting to rethink the way they get work done. This has brought a renewed focus on contingent workers, who can be quickly added or cut to meet demands. That’s the conclusion of a recent report by labor law firm Littler Mendelson. It predicts that contingent labor could rise to as much as 30 to 50 percent of the entire U.S. workforce, triple the average of 13 percent that a Staffing Industry Analysts survey estimated it to be in 2008.
“Something really remarkable is happening,” says Garry Mathiason, vice chairman of Littler Mendelson in San Francisco. “The world is starting to change.” In the future, he says, companies will likely make wider use of staffing methods similar to those practiced by the film industry. There, entire crews of contingent production workers are assembled for a movie, then disbanded once it is finished. Littler is so convinced that the trend will pan out that it has formed a new contingent workforce unit that will focus on advising clients of legal issues involving contingent labor. The law firm figures that the increasing appetite for contingent workers will present a host of new issues for corporations—particularly human resources departments.
Others are watching for trends in contingent worker use as the recovery gains traction but say it is difficult to predict what labor market changes may take place.
“I think that it is a little bit early to tell if there is a fundamental shift going on,” says Barry Asin, chief analyst at Staffing Industry Analysts, a research firm that covers the contingent workplace. (Staffing Industry Analysts is owned by Workforce Management parent Crain Communications.) “I do think that we have had an unprecedented decline in the use of temporary and contingent workers over the last year or two, which is exactly what it is supposed to be doing.”
One measure of how the contingent workforce has reacted to the recent economic swings so far comes from the American Staffing Association, which tracks trends among staffing companies that provide contingent and temporary workers to others. The number of people placed by staffing firms fell by a third, dropping from about 3 million in 2007 to about 1.9 million in the second quarter of 2009.
That number has been rising since the end of June and was up by more than 8 percent by early September. ASA vice president Steve Berchem says staffing companies are watching the early rise, wondering whether it is simply the usual post-recession rebound or something more.
“Some clients of our staffing firms are saying they are going to use more temporary and contract labor,” Berchem says. “And even if their clients are not talking about it, many staffing firms are expecting more clients to do that.”
Tom Hart, executive vice president of client management and talent acquisition at Veritude, a Boston-based staffing company, says that while the evidence so far is inconclusive as to whether a shift of the magnitude Littler predicts is under way, he senses that something major may be brewing.
“I would tend to believe what Littler is saying, but I don’t know that I have seen it in the actual statistics,” Hart says. “I am pretty sure it is heading in the direction they are talking about.”
The right ratio
Veritude conducted a survey this year of corporate views on hiring in the post-recession period, polling companies with at least 2,000 employees. Of those who responded, 80 percent were in human resources positions. Of those polled, only 3 percent planned to revert to the staffing model they used before the recession. The biggest group—38 percent—said they planned to use a hybrid model that combines some pre-recession methods with new ones. Companies said they were looking for ways to maintain leaner and more efficient workforces. When asked about contingent workers, 33 percent said that temporary workers help provide flexibility when cuts need to be made, and an additional 30 percent said those workers can help handle fluctuations in workloads.
One point observers of the labor scene agree on is that use of contingent workers will continue to vary widely from company to company, depending on individual needs and operations.
For example, Mark Manichiello, director of global employment and human resources at Akamai Technology, an Internet services company based in Cambridge, Massachusetts, says he has a basic target of using contingent workers for 10 percent of the company’s workforce, and he says it is unclear to him whether the ratio could effectively be increased.
“I believe that the way to approach it is to try to find a threshold that makes sense for a company,” Manichiello says. “About 10 percent makes sense for us. That allows you flexibility if things change. Much more beyond that, I think you are getting into cost issues and long-term challenges. Anything less than that and I’m not sure you are using the power that it can bring.”
Mathiason says the ratio of permanent to contingent workers depends on the definition of “contingent.” The ASA defines contingent workers as temps provided by staffing firms, and bases its statistics on that. But some companies may directly hire temporary workers without using staffing firms. Other companies might hire workers under short-term contracts to complete specific projects, and those too could be defined as contingent workers. Mathiason says that under some definitions, part-time employees whose work hours vary according to need are considered contingent workers.
Companies that tend to engage in a large number of projects, such as engineering firms, will continue to be leaders in the use of contingent workers, Mathiason says, while industries that depend on steady, repeatable tasks—retailers, for example—will likely continue to rely on temporary workers to fill special needs such as seasonal work.
Joanie Ruge, senior vice president of staffing company Adecco Group North America, says one element that may influence the pace and direction of hiring in the recovery is the way jobs were cut during the recession. Ruge says that companies seemed to cut much faster and deeper during this recession than previous ones, quickly moving past contingent workers into core permanent jobs.
Those cuts reflected a desire by corporate leaders to react more quickly to economic shifts and limit the potential economic harm from a deep downturn. That same logic may result in a broader use of contingent workers as hiring picks back up, since contingent workers are easier to cut if the recovery proves to be less than solid. Ruge says she is hearing increasing talk among corporate executives about the possibility of raising the percentage of contingent workers to 20 or even 30 percent of their workforces.
“We work with many Fortune 500 executives, and what we see in our conversations with them is that they really want flexibility with their workforces,” she says. “It is starting to become one of the most important initiatives and priorities as they look to future planning and forecasting. They want to be able to ramp up or scale back based on business needs. I think we will see that more, especially after this recession, where companies had to lay off so much of their workforces.”
Contingents at all levels
Companies are not just looking to use more contingent workers for lower-skilled jobs; they want to expand into higher-level positions as well, Ruge says. “More and more we are seeing requests for professional skills: engineers, information technicians, health care workers, specialists in accounting and finance. Companies are starting to look at really using a portion of contingent labor in even the more highly skilled positions.”
In making its prediction of the contingent labor upswing, Littler relied on a multiyear research project at the Sloan School of Management at the Massachusetts Institute of Technology called “Inventing the Organizations of the 21st Century.” The MIT study predicted a broad shift toward contract and contingent work that would be aided by the emergence of social networking groups such as Facebook and LinkedIn that enable individuals with similar talents and skills to connect and share job prospects. “Before Facebook and MySpace, lack of community was a central problem,” Mathiason says. “Your whole life revolved around your employer. If you changed your job, you changed your life. Take contract workers now. They end the project, and their friends and community go with them to the next one.”
While social networking might facilitate the growth of the contingent workforce, there is one stumbling block that is keeping more workers from joining its ranks: health insurance. Many contract workers have depended on health insurance from a spouse who has a permanent job that includes health benefits. Some staffing agencies offer health plans that workers can buy.
But many of those spouses lost coverage as a result of layoffs, and the coverage offered through a staffing agency might not be affordable or comprehensive enough as a primary source of health coverage. If the reform efforts in Washington make health insurance more available and affordable to those without traditional full-time employment, it could spur more workers to choose the contingent route, Mathiason says.
So what should a human resources leader be doing now to ensure that an organization is ready to handle a larger share of contingent workers? Mathiason says the first thing to do is get a handle on the current size of a company’s contingent workforce, how those workers are being used and the quality of service provided by staffing vendors. The next step is planning for how contingent workers might best be used in a corporate workforce in the future, and how best to integrate any expanded use of temporary workers into the company.
Akamai’s Manichiello says that what HR also needs to realize is that the contingent workforce can often be the source of future corporate leaders. Manichiello points out that he started with Akamai as a contract recruiter and worked his way into his current leadership role.
“I am always looking for the opportunity to use contingent workers where it makes sense,” he says.
Workforce Management, October 19, 2009, p. 45 — Subscribe Now!