Trending: Companies Hire More Temporary Workers in Uncertain EconomyJuly 8, 2013
Hiring is exploding in the one corner of the U.S. economy where few want to be hired: Temporary work.
Hiring is always healthy for an economy. Yet the rise in temp and contract work shows that many employers aren’t willing to hire for the long run.
The number of temps has jumped more than 50 percent since the recession ended four years ago to nearly 2.7 million — the most on government records dating to 1990. In no other sector has hiring come close.
Driving the trend are lingering uncertainty about the economy and employers’ desire for more flexibility in matching their payrolls to their revenue. Some employers have also sought to sidestep the new health care law’s rule that they provide medical coverage for permanent workers. Last week, though, the Obama administration delayed that provision of the law for a year.
The use of temps has extended into sectors that seldom used them in the past — professional services, for example, which include lawyers, doctors and information technology specialists.
Temps typically receive low pay, few benefits and scant job security. That makes them less likely to spend freely, so temp jobs don’t tend to boost the economy the way permanent jobs do. More temps and contract workers also help explain why pay has barely outpaced inflation since the recession ended.
Beyond economic uncertainty, Ethan Harris, global economist at Bank of America Merrill Lynch, thinks more lasting changes are taking root.
“There’s been a generational shift toward a less committed relationship between the firm and the worker,” Harris says.
The trend toward contract workers was intensified by the depth of the recession and the tepid pace of the recovery. A heavy investment in long-term employment isn’t a cost all companies want to bear anymore.
Susan Houseman, an economist at the Upjohn Institute of Employment Research, says companies want to avoid having too many employees during a downturn, just as manufacturers want to avoid having too much inventory if demand slows.
“You have your just-in-time workforce,” Houseman says. “You only pay them when you need them.”
This marks a shift from what economists used to call “labor hoarding”: Companies typically retained most of their staff throughout recessions, hoping to ride out the downturn.
“We clearly don’t have that anymore,” says Sylvia Allegretto, an economist at the University of California, Berkeley.
The result is that temps and contract workers have become fixtures at large companies. Business executives say they help their companies stay competitive. They also argue that temp work can provide valuable experience.
Todd Miller, CEO of software company Gwabbit in Carmel Valley, Calif., says about a third of his 20 employees are temporary. An additional one-third are contractors.
He says he’s had no trouble filling such positions. People are “willing to entertain employment possibilities that they would not have six or seven years ago,” Miller says.
If the economy were to accelerate, Miller says he might hire more permanent staff. But “I don’t have tremendous confidence in this economy.”
Temp hiring has accelerated even though the economy has 2.4 million fewer jobs than it did five years ago. Temp jobs made up about 10 percent of jobs lost to the recession. Yet they’ve made up nearly 20 percent of the jobs gained since the recession ended.
A survey of companies with more than 1,000 employees by Staffing Industry Analysts found they expect 18 percent of their workforces to be made up of temps, freelancers or contract workers this year, up from 16 percent in 2012.
Online competitors are seeking to upend the temp industry just as Amazon and eBay disrupted retail. Employers spent $1 billion last year hiring workers for short-term projects through online labor exchanges, such as oDesk and Elance, according to Staffing Industry Analysts. That’s 67 percent more than in the previous year.
Freelancers in the online exchanges can be evaluated by employers, post portfolios and take online tests to demonstrate their abilities.
Gary Swart, CEO of oDesk, says his clients are mainly small or startup companies. But giants like AOL and Unilever are using the service, too.
When Hans Hess of Arlington, Va., was seeking a lawyer to do a trademark search for his Elevation Burger chain, he turned to Elance. He found a lawyer to do it for under $500.
“When I was using a big law firm, it could cost me $5,000 to get to the point of just filing a trademark,” Hess says.