When Temp Jobs Tumble, the Economy Stumbles

By Irwin Speizer

Jun. 13, 2007

The number of temporary jobs in the U.S. declined during the first four months of 2007, the first sign of a possible slowdown in a sector that often serves as an early predictor of the overall health of domestic employment.

    According to monthly estimates of employment by the Bureau of Labor Statistics, the number of workers in temporary jobs, which stood at a seasonally adjusted 2.642 million in January, fell slightly each month through May, which finished at 2.61 million. The sector lost 32,300 jobs during the period, a decline of 1.2 percent.

    The slowdown could indicate a more cautious approach to labor spending during an uncertain economic period as corporations worry about the effects of high energy costs, a housing slump and rising interest rates. At human resources operations, curtailing spending on temporary help is often seen as a quick and relatively painless way to control labor costs.

    “If an organization is going to be cautious or conservative, the first thing they do is go slow on their temps,” says Bernadette Kenny, senior vice president of human resources at Adecco North America, an international staffing company. “It is an easy way to cut costs when you have an economy that has some uncertainty.”

    That economic uncertainty has been reflected in the stock market. The Dow Jones industrial average, although experiencing an overall upward trend for much of 2007, has also seen some sharp dips this year as fears about inflation and rising interest rates prompted concerns about economic growth and spooked investors.

    Despite the slow start to 2007 for temp agencies, Steve Berchem, vice president of the American Staffing Association, says that the outlook for the remainder of the year still looks solid. In fact, Berchem says the association’s own tracking of the contingent workforce shows that temporary-help employment began picking up again by the end of May, with the first few weeks of June running ahead of 2006.

    “We are weathering a soft patch, but it isn’t anything that is concerning people,” Berchem says.” I think that the worst of the slowdown is over. I don’t think we are going to see double-digit growth by any means, but I think that growth will continue to pick up as we go deeper into the year.”

    Berchem says any current slowdown is likely restricted to certain labor sectors, but that other sectors should continue to grow. The two that are most affected: construction, which has been hurt by the housing slowdown, and manufacturing, which has been dragged down by layoffs in the auto industry.

    “We have this sort of duality here,” Berchem says. “The demand has been softening in the less-skilled categories like manufacturing and industrial. The labor supply is tightest in high-skilled areas.”

    Labor shortages, rather than slowing demand, have been the issue most on the minds of temp agencies lately. When the American Staffing Association surveyed its members in January, the labor shortage emerged as the most pressing concern, with three in 10 ranking it as the top issue and six in 10 saying it was one of the top three.

    The tight market for talent has apparently helped keep temp wages rising in 2007 even while the number of temporary jobs fell. Growing shortages of labor in certain high-demand occupations like health care and high tech promise to keep overall temp wages up.

    One result of the talent shortage is that temp agencies are finding themselves competing for workers not just with other temp agencies but with companies looking for permanent workers. Some agency executives suggest that one reason the number of temporary workers is down is simply because there are not enough of them to meet demand in certain occupations.

    “We certainly have been hearing from our members that there is a very tight labor market and that it is hard to find labor candidates,” Berchem says.

    The labor shortage is affecting not just the temp sector, but the overall labor market. Manpower Inc., in a recent report on the talent shortage, found that within the U.S., 45 percent of companies and organizations surveyed would have hired more permanent professional staff if they could have found candidates with the right skills. And 38 percent say they were paying higher salaries than a year ago to fill permanent professional positions.

    “I think that when things start to tighten up, there is almost a feeling of ‘I better get people while I can,’ ” says Alice Snell, vice president of research for Taleo Corp., a workforce talent management consultant. “That is much more long-term thinking than bringing in a temp short term.”

    Indeed, some contingent labor agencies say that they find their workers are increasingly viewed as potential permanent hires. One result of that trend is that companies often conduct extra screening of temporary hires for certain positions rather than simply asking a temp agency to send over a worker.

    “I was in our New York branch and our recruiter was being asked to send over two or three résumés for every temp,” Adecco’s Kenny says. “In the old days, you would just send one résumé or just have a person show up for the job. Now companies want to consider hiring those people full time. When we have jobs with major employers, we are often viewed as an entree to permanent hires.”

    Snell says that some corporations are becoming more liberal about issues like flexible work schedules, partly to encourage temp employees into taking full-time positions. A preference for work flexibility has often been cited by professional temps as one reason why they remain in the contingent workforce.

    “Companies are getting better about offering flex in their permanent positions,” Snell says. “Temp agencies will need to start making some adjustments around that.”

    Temporary employment has had its ups and downs over the past decade, rising sharply through the last few years of the 1990s during the technology and Internet boom. Temporary jobs began slipping in 2000, offering an early warning sign of the tech bust of 2001 and the prolonged economic slump. When the economy bounced back in 2003, so did temporary employment, with jobs rising steeply through 2005. But growth stalled in 2006, a year that saw almost no change in the contingent workforce.

    The dip in the first few months of 2007 has both temp agencies and human resources departments watching closely to see if the trend continues for the rest of the year or if things level out and possibly start rising again. While the auto sector is expected to remain slow, construction may rebound, and other sectors like services, health care, and oil and gas are expected to have healthy appetites for temporary workers.

    “It has not really been a slowdown,” Kenny says. “It is just a cautionary couple of months.”

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