Larger Temporary Workforce Could Be New Normal

Since the end of the recession, 54 percent of new jobs created have been temp work.

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The fastest-growing sector of the labor market since the end of the recession says a lot about the type of sluggish recovery the economy is experiencing.

Since June 2009, the temporary help services industry, which is comprised of staffing companies and temporary agencies, has added 557,000 jobs, or 54 percent of all jobs created across all sectors of the economy, according to the Bureau of Labor Statistics. Roughly one in every 50 employed Americans held a temporary or contingent position as of the end of October.

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Coming out a recession, employers typically hire temporary employees first, then begin bringing on full-time staff. This time around was no different. In September 2009, the staffing industry began adding jobs. Six months later, in March 2010, the private sector followed suit. But since then, job growth has been anemic, and the transition to permanent payrolls has been painfully slow. Private employers have only added about 2.6 million jobs, and the unemployment rate still rests at 9 percent. Cautious employers seem determined to add mostly temporary employees—or no employees at all—to their payrolls.

"If you look at the bigger picture … we're moving toward a new reality in the way we work," says Kathy Kane, a senior vice president at staffing firm Adecco in New York. "A lot of those companies are sitting on a lot of cash, but they're uncertain with economic stability. They're looking at contingent and temporary work as more of a risk-management strategy right now. They're trying to put their toe in the water versus jumping back in with both feet."

Employers view the workforce as more flexible than in the past. It's expensive to lay off full-time employees during a slowdown then hire new ones when business recovers. So rather than take on a new batch of full-time employees, companies have opted to hire on a contingent basis. "Companies are migrating their workforce from 100 percent core down to 80 or 90 percent core, and then leaving 10 to 20 percent of their workforce as what I would call 'perpetual contractors' or 'definite temps' with no expectation to ever move those people back to their core workforce," says David Lewis, executive director of franchising at Oklahoma City-based staffing firm Express Employment Professionals.

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In the past, the bulk of hiring in the temporary services industry was commercial hiring, in relatively low-paying industries like construction and manufacturing. But a fundamental shift is taking place, labor market experts say, because temporary jobs are popping up across all sectors of the economy. Even employers in high-skilled, well-paying industries such as engineering, information technology, accounting, and healthcare are taking on more contract workers.

"What we generally estimate, in terms of revenues or sales for the staffing industry as a whole, more than half of it now comes from professional, technical, and other high-skill, high-wage occupations," says Steven Berchem, vice president at the American Staffing Association (ASA) in Alexandria, Va. "So in other words, less than half of it comes from commercial staffing, which would be industrial and office clerical."

This shift to a larger contingent workforce is expected to continue. In a June survey issued by the consulting firm McKinsey, 58 percent of employers they plan to hire more "part-time, temporary, or contract workers" over the next five years. At the end of October, less than 2 percent of the overall workforce was employed in the temporary services industry. But over the next few years, Lewis expects that slice of the workforce to grow to 5 percent and beyond. "It's going to take years, not decades, to get there," he says.

For the 14 million unemployed, temp work may provide a new path to a permanent job. In this slow recovery, many employers are choosing to hire new employees on a part-time basis before extending a permanent offer—whether it's entry-level positions for workers who are fresh out of college or higher-level positions for workers who have been in the labor force for many years. "More and more staffing clients are saying they're turning to staffing firms as a way to find permanent help or permanent workers, so it's a way for both the employee and a business to evaluate each other to see if it's a good fit," says Berchem.