Tuesday, December 21, 2010

Increase in Temp Help: Cyclical, Not Structural

Tyler Cowen points to this NY Times article about the increase in temporary hiring in the post-recession recovery:

"This year, companies have hired temporary workers in significant numbers. In November, they accounted for 80 percent of the 50,000 jobs added by private sector employers, according to the Labor Department. Since the beginning of the year, employers have added a net 307,000 temporary workers, more than a quarter of the 1.17 million private sector jobs added in total."

This is "raising concerns among workers and some labor experts that temporary employees will become a larger, more entrenched part of the work force. This is bad news for the nation’s workers, who are already facing one of the bleakest labor markets in recent history. Temporary employees generally receive fewer benefits or none at all, and have virtually no job security. It is harder for them to save. And it is much more difficult for them to develop a career arc while hopping from boss to boss."

Temporary employees still make up a small fraction of total employees, but that segment has been rising steeply over the past year. “It hints at a structural change,” said Allen L. Sinai, chief global economist at the consulting firm Decision Economics. Temp workers “are becoming an ever more important part of what is going on,” he said."

Two comments:

1. An increase in contract, freelance or temporary employment is not necessarily "bad news" for U.S. workers. That type of work can actually enhance job security for some workers in the long run, because their careers and livelihood are not dependent on a single corporation or company. 

2. The chart above displays temporary employment workers as a share of all private sector jobs back to January 2000, and shows a normal cyclical pattern that does not reflect any "structural changes" in the labor market.  At least not yet. While the share of temporary workers has been rising since the recession ended in the summer of 2009, the current share of 2.05% is still way below the 2.34% peak in late 2005. 

38 Comments:

At 12/21/2010 9:22 AM, Blogger morganovich said...

that is a really interesting chart.

it would seem to indicate not that we are experiencing some vast shift to a temp only economy, but rather that the temps bore a disproportionate share of firing in the recession and that they have not even recovered to a typical level yet.

i also completely agree that contract jobs are not necessarily bad jobs and would actually go further and say that they are sometimes better jobs.

everyone who works for us does so as a contract employee. they are very well paid, have excellent benefits, and far better job security than most. they also have the advantage of being able to file their taxes as sole proprietors which gives them far more write offs than they would get as an "employee".

even those of us that are founders and partners do this.

being a "contract worker" can actually be a tremendous benefit.

 
At 12/21/2010 10:37 AM, Blogger Walt G. said...

morganovich,

Are you talking about temporary contract workers (who are considered employees by the IRS) or self-employed contractors (who are not considered employees by the IRS)? I do both for the same college, and I sign contracts for both types of work.

 
At 12/21/2010 10:51 AM, Blogger morganovich said...

w-

we are all self employed contractors so that we can all file as sole proprietors.

in effect, each of us is a one man business.

 
At 12/21/2010 11:12 AM, Blogger Buddy R Pacifico said...

According to a survey of employers the overwhelming reason to hire "contingent workers" is to save money. The saving averages 9% the survey says. The savings start to decline after a threshold of 15% total of employees is reached.

 
At 12/21/2010 11:30 AM, Blogger Walt G. said...

I can't have any benefits as an independent contractor. I produce contracted results with a completion date using my choice of hours and days, and my own equipment/tools (computer, and vehicle . . .). I recruit my own students for any testing; write my own grants, curriculum, self-study accreditation, and I apply for a classroom in whatever city I need for testing if necessary. I also have to file and pay 15.3% Social Security/Medicare and federal and state taxes. Of course, I charge for all that in my bid. The system college provides me a 1099-MISC form at the end of the year.

My single-site college employer sets my hours and days, provides a class room, and provides the students for my other contracted work. They also pay half my Social Security and withhold taxes and provide a W2 form.

I enjoy the variety of all of my work. I think what is missing from the chart is the redefinition of what we used to think of as "permanent" being temporary or contracted out now. Most of my work outside of GM used to be done by full-time employees. I see “permanent” as two to five years now with a decline in lifetime employment by a single employer a relic of the past.

 
At 12/21/2010 12:02 PM, Blogger Jason said...

Morgan, you've made some excellent points. I've found the "independent contractor" existence to be somewhat rewarding and beneficial to my professional and personal development. It is really hard to gain that kind of perspective otherwise. And it's interesting to discuss benefit, labor and compensation issues with those without such perspective.

Walt, lifetime employment is not just a relic of the past - I wonder if it was a false existence born of a moment in time where all the "planets aligned" very briefly, now given way to the actual.

 
At 12/21/2010 12:12 PM, Blogger Benjamin said...

Suddenly, a large fraction of my cohorts are consultants. They are guys in the their 50s without jobs. They will never get another job, so they are doing what they can.

I also wonder if the idea of lifetime employment has come and gone.

This again suggests that health care should not be employer-based.

I have owned by own small business since the early 1990s. Morgan is right, everything becomes deductible, and cash income is just too hard to report, isn;t int?

Boy, there is a story, in a city like Los Angeles, a huge amount of business is done cash.

 
At 12/21/2010 12:21 PM, Blogger Walt G. said...

Jason,

I would not advise my students to expect lifetime employment from one employer or prepare themselves academically or experientially for it. If, and only if, it is beneficial to both parties, I see nothing wrong with lifetime employment. I just don’t see lifetime employment by one employer as being the normal employer/employee relationship in the future.

I predict a lot of people will be disappointed and unprepared for the U.S. labor market in the 21st century as is shifts to a globalized market. We will not be able to shape it into our idea of what it should be no matter how hard we try because it is too huge to be controlled. Some people will say it’s “unfair” and just give up. But the people who can adapt will survive and thrive given the new opportunities.

 
At 12/21/2010 12:41 PM, Blogger morganovich said...

jason-

one could argue that self employment is now more stable than "lifetime" employment, especially if you have multiple clients.

lifetime employment presumes big, stable companies that will be around for 40 years.

that is just not the way most of the economy works anymore (and certainly not the most dynamic parts).

i job at a start up is rarely a stable one.

walt-

we have the guys who work for us just submit health care insurance costs (bought through our payments processor) to us as expenses. they then deduct the cost on their own taxes. it nets out exactly the same as it would if we were buying it.

i also agree with benji that getting health cover from employers is not a great system and creates potentially sporadic coverage.

preventing competition across state lines is a really bad idea as well. it means that if you move, you may wind up in healthcare trouble.

 
At 12/21/2010 1:33 PM, Blogger Walt G. said...

Thanks morganovich, that sounds like a great way to make it work.

Benjamin, all compensation should be in the form of present value wages instead of deferred future value compensation. A lot of companies (and public governmental units) have not been any better than individuals are at saving/funding for future expenses. I prefer the cash and obtaining my own benefits if I am the one to assume the risk (possibly using business or union economies of scale for discounts).

You have to build transferable skills and have a mindset of work instead of job. Some work might turn into jobs, and some might not.

I deeply appreciate the U.S. Treasury help for the auto industry, but I sure would not want to be dependent on it or expect it as an entitlement next time.

 
At 12/21/2010 5:38 PM, Blogger sethstorm said...


1. An increase in contract, freelance or temporary employment is not necessarily "bad news"...


Interesting that the only place where you add middlemen is labor, but you cut middlemen about everywhere else.

The binding is in the company & client's favor, not the person who ends up doing the work. Any statement on "flexibility" is reflective of a minority of people versus the majority that experience disposablity. One would wish that it was not so, but that really is the case.

Some of us still believe in making multidecade, nontemporary, single employer employment work. We don't believe in the siren song of consultancy.





one could argue that self employment is now more stable than "lifetime" employment, especially if you have multiple clients.

Bullshit. No other word fits.

 
At 12/21/2010 5:59 PM, Blogger sethstorm said...


I predict a lot of people will be disappointed and unprepared for the U.S. labor market in the 21st century as is shifts to a globalized market. We will not be able to shape it into our idea of what it should be no matter how hard we try because it is too huge to be controlled.

I'm not sure that's the case. The US can if it is willing to start taking some people to task and not handing them everything on the plate. The US is powerful enough to do so, it only needs to do so.

It's not a global anything if it's simply pitting people against the US for the favor of business. It's still a US economy and a US labor market, albeit a broken one.

 
At 12/21/2010 6:47 PM, Blogger sethstorm said...


Suddenly, a large fraction of my cohorts are consultants. They are guys in the their 50s without jobs. They will never get another job, so they are doing what they can.

Then change the law on age discrimination to have more teeth.

 
At 12/21/2010 7:29 PM, Blogger morganovich said...

seth-

if you spent 10% of the time you spend bitching and demanding that employers be required to hire you acquiring useful skills, you'd have a job by now.

it's much more stable having your own book of business that being an employee. your fortunes are not tired to one company. it's the safest way to work with start ups and gives you more wage leverage if you are good at what you do, as it's easy for you to leave if you want and it's much easier for you to jump and ignore salary bands.

of course, this is only true if you have valuable skills, but there is no job security anywhere without that.

most of the best paid people i know do it by running their own show. being a "contract" employee is just like being a business. when it succeeds, it becomes a business with more employees.

it's much better and safer to build your own brand that to lock yourself into a corporate structure.

the fact that you cannot see this seth is why you are never going to have job security.

can you really believe that it is better to be a network engineer working for a big company and letting them take most of the money they charge customers as opposed to doing it freelance and keeping it all?

 
At 12/21/2010 8:46 PM, Blogger Walt G. said...

Sethstorm,

Even if you can find multi-decade work, it might not be to your advantage to stay. The flexibility and opportunity will work in both directions. Regardless, you will be safer in being prepared to perform more than one type of work.

How do you suggest we keep capital in the U.S.? I can type a few numbers and move my entire portfolio to another country in a shorter time than it took me to type this message. In fact, I will be making some investment transactions in a couple of minutes. Do you think we should limit that ability even if we could?

 
At 12/21/2010 9:11 PM, Blogger Jason said...

Seth, I think the concept of multi decade employment is actually an empty one...not that I want people unemployed.

Companies and employees can benefit from an occasional churn. Companies get varied skill sets and experience, which brings a diversity of thought. And employee's skills can become more flexible. There is a balance where both parties benefit. At least what I've seen in my career is both extremes lead to ruin.

 
At 12/21/2010 9:15 PM, Blogger Paul said...

Seth,

"Some of us still believe in making multidecade, nontemporary, single employer employment work."

I find this a tad hard to believe coming from a guy who recently said on this very blog he was prepared to spend the rest of his life living off government programs.

 
At 12/22/2010 3:14 AM, Blogger Jet Beagle said...

I believe it likely that most of the nation's large and profitable employers today will employ over 100,000 American workers in 30 or 40 years. Walmart, IBM, Fedex, Citigroup, GE, and other current giants may be joined by new mega-firms - but I do not foresee them being completely displaced.

While it may be advantageous for employees in certain professions to change employers in the future, I don't see the advantage for employers. Corporations today still spend thousands of dollars developing the expertise of ann individual professional worker. I just cannot see how employers benefit from the "churning" suggested by one commentor if such turnover results in losing that investment in the employee.

IMO, employees in many professions would do better in their careers by sticking with profitable companies rather than seeking a broadening of experience by changing jobs. I realize that is hard for many - including me - to do for several decades. But the best corporations in America have generally rewarded loyalty, and shown that they valued company-specific experience.

 
At 12/22/2010 6:51 AM, Blogger Walt G. said...

Jet Beagel,

I think the long-term employment numbers at most companies will continue to be reduced as the business model changes to core work. I have a friend who used to clean floors at Wal-Mart, and he quit and started his own floor cleaning business after he got very good at his job. He now has a Wal-Mart contract to clean their floors for a five state region because Wal-Mart exited that non-value-added busineess.

I am not saying there will not be any long-term employment, but I think workers need to be prepared and ready to shape themselves to the labor market instead of hoping it will be what they wish it to be now or what it used to be in the past. Prepare for the worst. Hope for the best.

 
At 12/22/2010 7:08 AM, Blogger Jason said...

Jet, I'm not saying that constant churn should be a company policy. I'm saying that I've seen situations where companies do cast out employees on a regular basis and companies that NEVER fire employees (except in rare blatant cases) and neither case works well.

However, I am not a big believer in investing in employees. Although I do know that properly trained employees are beneficial. I just think that employees are a fickle bunch, prone to complain and such. A policy of employee investment can backfire pretty quickly.

I believe in balance. A good company will have a combination of robust systems, employees trained in those systems and an accountability structure to move out employees who can't, don't or won't follow the systems. This balance doesn't include the policy of multi-decade or lifetime employment. Although, an employee could work in such a company for 40 years providng both parties are benefiting from the relationship.

 
At 12/22/2010 9:21 AM, Blogger Walt G. said...

I found this interesting for the current discussion. Younger workers tenure at a job is 5.2 years and older workers over 55 (like me) is 10.4 years in 2010: Exactly double.

Job Tenure Report

 
At 12/22/2010 9:25 AM, Blogger sethstorm said...

Paul said...
Only as a last resort. The preferrable path is honest, permanent work.


Walt G. said...
I understand that you are at peace with your situation.

As for moving capital with a click, are you talking about human capital? While you can move inanimate objects and money with great speed, humans generally dont have such ability(thank the laws of physics as much as the ones of government). While you can move the job itself with a click, the person objects to the speed difference and costs (monetary and otherwise) to catch up.

Until the average person in that situation is not a second class citizen, I don't see a point in supporting it beyond the few that make it work.


Morganovich said...
That money gets eaten up by not being able to take advantage of scale. Insurance costs, et cetera.

Second, I view startups as one might view casino gambling. That is, they might be interesting to look at but something to involve myself in.

Third, you provide relevance to my point about how I view it. There are a few that make it work well, but for the most part people do not experience this advantage.

 
At 12/22/2010 9:56 AM, Blogger morganovich said...

seth-

far more people are making working for themselves work than have lifetime employment.

in either case, it's all about skills and ability to add value.

while you may view start ups and small business as a casino, it's where all the job creation is. perhaps your perception is keeping you from looking for work in the right places.

how can anyone without those things expect stable employment?

walt-

those are interesting job tenure numbers. i suspect that they reflect 2 things:

1. a cultural change. young workers expect to move jobs. diagonal movement is now the expected norm and the young are not afraid to change companies and industries.

2. it's likely just a function of age as well which cuts several ways. first off, small companies are where all the job creation has been, so that is where a lot of the young go. small companies fail a lot, and people tend to hop from place to place building skills and gaining responsibility. at some point, they find a real winner to ride. then, they tend to stay and their tenure increases. this is likely bolstered by increased desire for stability when you have kids and get a mortgage etc.

i suspect that the guys with 5 years stints now will look more like the guys with 10 years tenure as they age.

keep in mind that it's also much more difficult for a 30 year old to have 10 years of tenure than a 55 year old. if you graduate from college at 22, it's impossible. some of this may just be a function of statistics.

 
At 12/22/2010 9:57 AM, Blogger Jet Beagle said...

Walt,

I'm referring to professional and high-skilled employees when I suggest that the most successful firms in most industries will continue to offer long-term employment. I agree that non-critical functions will continue to be outsourced.

Enlightened (and profitable) companies such as FedEx, Southwest Airlines, General Mills, SAS Institute, and Apple have learned the value of taking care of the employees that make them successful. Other employers are learning to emulate them.

Our views on employment trends may be biased by our own personal experiences. I was fortunate enough to have worked for two very successful employee-oriented firms. My guess is that you have had different experiences.

 
At 12/22/2010 10:17 AM, Blogger Jet Beagle said...

Jason: "I've seen situations where companies do cast out employees on a regular basis and companies that NEVER fire employees (except in rare blatant cases) and neither case works well."

Not sure exactly what you mean by "NEVER fire employees". All firms fire employees for such offenses as frequent tardiness, sexual harassment, and continued insubordination.

I would suggest that perhaps you haven't observed enough companies which embrace no-layoff policies. FedEx, Nucor, Toyota North America, Aflac, and Southwest Airlines have "worked well" by making the avoidance of layoffs essential to their long-term strategies.

I realize that either adverse financial conditions or a change in exacutive leadership could result in these enlightened employers changing their policies. 3M and Eli Lilly recently abandoned their long-standing no layoff policies. Still, I expect large companies such as these to continue avoiding layoffs as long and as much as possible.

 
At 12/22/2010 10:48 AM, Blogger Jason said...

Jet, no layoff policies at companies sound great. And they can work well if a company can achieve the balance I wrote of. However, what I've witnessed is that a company can become "burdened" by it, like a Toyota or a Ford for instance.

As long as a company can hold it's employees accountable for professional habits (tardiness, etc) as well as performance habits (Getting sh!t done), layoff aversion can be a great policy. Some of the companies you've listed are world leaders in their fields. I'll bet there is a culture of work and accountability that compliments the no-layoff policy. I wouldn't describe them as enlightened, I would describe them as balanced.

Apple is a great example - it works its people like dogs, but if they perform, they'll have a job. I've worked for employers where the opposite is true: "work your tail off and you may keep your job for a while, maybe." Under that pressure in a culture of fear, people are not productive. Again, it is about balance.

 
At 12/22/2010 11:17 AM, Blogger Walt G. said...

Jet Beagle,

I have 37.4 years at GM, and I have worked numerous side jobs since the early 1980s. I average 3500-4000 hours of paid work per year combined. I get to see a lot of different angles.

The no-lay off policies at Toyota and the other transplants only apply to their full-time permanent employees. The full-timers are usually around 50% of the workforce supplemented with contingent workers as needed (the contingent workers are laid off and usually have few or no benefits). We, the UAW, got vilified for our jobs bank, which was modeled after the Toyota system, but it did not address the permanent downsizing in the domestic auto industry or use the contingent worker cushion.

I agree that labor capital is many companies most valuable resource. At the same time, I would not sit around 99 weeks on unemployment waiting for "things to get better."

You have to use the current parameters you given whether it is economics or politics if or until the dynamic processes shift. Sometimes the shifts will be in your favor, and sometimes they won't.

morganovich, nice observations. Although, it will be interesting to see if the 10-year tenure for older workers will hold in the future. Quite a bit of research says it will not. It's best to be flexible, trained, and qualified for whatever the future holds.

 
At 12/22/2010 12:11 PM, Blogger Jet Beagle said...

Walt G: "The no-lay off policies at Toyota and the other transplants only apply to their full-time permanent employees."

No layoff policies of FedEx and Southwest Airlines also only apply to their permanent workers. Both companies have regularly hired temporary workers when the situations warrant that. So what? That doesn't change my assertion that enlightened companies will continue to keep professional and high-skill workers for as long as possible - offerring lifetime employment as best as they can.

Walt G: "I would not sit around 99 weeks on unemployment waiting for "things to get better." "

Sorry, but I do not understand what that has to do with this discussion. I think you know from previous threads that I view extended unemployment benefits as an evil which only increases the unemployment rate.

 
At 12/22/2010 12:18 PM, Blogger Jet Beagle said...

jason: "I'll bet there is a culture of work and accountability that compliments the no-layoff policy."

The companies on my list I have been involved with do hold their employees accountable. But I think most successful large companies are able to hold their non-union workers accountable.

What is different about the enlightened companies to which I refer is the commitment of leadership to not hiring surplus employees. Hiring decisions are scrutinized even during flush times. It is continuous cost control which makes no-layoff policies feasible.

 
At 12/22/2010 12:25 PM, Blogger Walt G. said...

Jet Beagle,

There is a rather common misconception how a no-layoff company operates and how the policy is applied.

I was not necessarily addressing you on the 99-week unemployment comment. I'm sorry I was not clear about that. I deal with people who are just hanging around waiting for things to get better. I find a lot of people at two extremes: those who make things happen to them and those who let things happen to them. The first are called lucky while the second are called unlucky.

 
At 12/22/2010 3:46 PM, Blogger juandos said...

"Second, I view startups as one might view casino gambling. That is, they might be interesting to look at but something to involve myself in"...

No doubt about sethstorm, you're ready to be a leech on someone else's wallet....

 
At 12/23/2010 5:04 AM, Blogger sethstorm said...

That doesn't change my assertion that enlightened companies will continue to keep professional and high-skill workers for as long as possible - offering lifetime employment as best as they can.

Stability for me, but not for thee. Basically, you give it to people who lord over the ones who need it the most. Offer the more permanent work to all or hope that no politician makes it the law.

If you want to create class division, you've done it right there. By making those people temporary, you have consigned them to a less-than-voluntary relationship, where their existence is de facto slavery.

The Japanese salaryman system is bad enough as it is. We don't need to make it our own practice too. By how the transplants practice things in the US, the only thing missing in them is the Japanese culture. Expanding the salaryman practice is a very wrong idea.

Stability is not something you reserve for the few. It is something you allow for all.

 
At 12/23/2010 6:15 AM, Blogger sethstorm said...


Under that pressure in a culture of fear, people are not productive.

That's what you get if you make the divide wider in the US between the few with security, and the many who only get a 4 month window.

If it is so good to be temporary at the high-end, it is senseless to reserve security for only those people.

morganovich said...
I wish I had the room for certain non-moralities that would allow me to consider your solution.

 
At 12/23/2010 8:59 AM, Blogger Walt G. said...

Sethstorm,

What is the one thing you suggest I could tell my students who want to know how to get and keep a good job (job security)? They consider a good job as paying a lot of money and benefits and not getting laid off.

Most of the students are 18 to 60 years old with no savings, pensions, or health care attending college on a federal or state grant. Many worked 10 to 30 years in the same field and/or for the same employer before losing their jobs.

 
At 12/24/2010 5:12 AM, Blogger sethstorm said...


What is the one thing you suggest I could tell my students who want to know how to get and keep a good job (job security)? They consider a good job as paying a lot of money and benefits and not getting laid off.

Most of the students are 18 to 60 years old with no savings, pensions, or health care attending college on a federal or state grant. Many worked 10 to 30 years in the same field and/or for the same employer before losing their jobs.

That if any of them ever get such a rare thing again, that they work as if they didn't. A good employer is a rarity that should be appreciated.

Even if you do roll the dice favorably, it doesn't hurt to make things that much better

 
At 12/24/2010 10:18 AM, Blogger Dave Thomas said...

My business only hires temp workers because of cost. It costs more up front to higher a temp worker, but we shield ourselves from workers compensation cases and the like by doing so. We outsource absolutely every single task we can to avoid liability on the advice of numerous attorneys.

 
At 12/24/2010 10:28 AM, Blogger Dave Thomas said...

Our company outsources as much work as possible on the advice of our labor lawyer in order to avoid lawsuits and liability. It costs more up front, but in the long term it definitely saves our company money, and that is the trend you see in my opinion.

The costs of defending workers compensation cases and the ruinous increases in workers compensation insurance premiums if you lose a case represent a huge roadblock to hiring.

If a small company hires permanent employees in today's legal climate without extensive and expensive consultation and preparation with a labor attorney to prepare a comprehensive employee manual they must expect disaster. We won't even discuss the amount of government regulation and oversight you avoid by relying on a purely temporary workforce in a small business like mine.

All of that expense, regulatory oversight, and liability disappears with temporary workers.

 
At 12/25/2010 8:17 AM, Blogger sethstorm said...


Dave Thomas said...

The unintended consequence is that it creates a imbalance against those who do the actual work. That is, they have to appease two parties(the temp agency and yourself), and you have two ways of causing more damage to them(cancelling the contract, or by making sure the agency blackballs them). Even if you only use it for a liability cover(and not a pure weapon), the temptation is too much.


Suit yourself for wanting to protect yourself. However, mind that others want the same thing. Given that the ASA protects against the people that do the work(given their legal defense library not mentioning anything substantial in a worker's favor), favoring such is to have the worker make a Faustian deal.

 

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