Unemployment Rate News: Staffing and Temporary Employment Jobs Reports

This entry is part 3 of 5 in the series Exploring Labor Market Data

Staffing and Temporary Employment As an Important Leading Indicator

Providing employees to employers on a temporary or third-party employment basis is a big business today, one involving numerous staffing and temporary employment companies of all sizes and specialties — and millions of employees. The American Staffing Association (ASA) is a trade association for this business sector.

The ASA funded a detailed study on “Staffing Jobs as Economic and Employment Indicators.” This study, published in June 2009 — as the unemployment rate was nearing its recent peak — found support for “the conventional wisdom that the temporary help industry is a coincident economic indicator and a leading employment indicator.”

The study found temporary employment begins to show growth one to two quarters before growth shows up in overall employment, the unemployment rate, and some other economic indicators.

As a result, it concluded that “a sustained upturn in temporary and contract staffing employment would signal the end of the current recession and suggest that total nonfarm employment would begin to grow about three months later.”

Others concur that temporary hiring is a leading indicator.

Staffing Jobs Reports Support View That US Labor Market Is Now In Recovery

The ASA maintains a staffing employment index. This is information developed independently of the labor department, based on ASA members’ input. Here’s how it’s looked from 2007 to present (each colored line representing one year):

ASA Index graph

After declining sharply in the second half of 2008, and remaining largely flat in the first half of 2009 — the worst period for job losses as well — the ASA staffing employment index has climbed steadily. Year-over-year comparisons are most useful, because there are significant seasonal variations in temporary and staffing employment for which this index is not corrected.

Specifically, here’s how ASA has analyzed recent changes in its index:

Is There a “Dark Side” to the Solid Growth in Staffing and Temporary Employment?

Normally, staffing and temporary employment is a leading indicator because it is strong during a transitional period — before employers have built up the confidence to make more permanent hires. Temporary workers benefit the employer by allowing the employer to see if they like the worker in question — and if a business upturn appears sustainable — before hiring them permanently. This is the conventional wisdom:

When the economy looks bad, temps get let go first, and when it is recovering temps are hired back first. Companies don’t want to hire a full-time person until they know they need it.”

But now some worry whether the increase in staffing and temporary employment — and the lag in a corresponding increase in permanent hiring — indicate a long-term trend towards an economy relying more on temporary work than permanent hiring.

In December 2010, the New York Times reported:

Despite a surge this year in short-term hiring, many American businesses are still skittish about making those jobs permanent, raising concerns among workers and some labor experts that temporary employees will become a larger, more entrenched part of the work force. . . .

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. . . .

[T]here are signs that this time around, the economy could be moving toward a higher reliance on temporary workers over the long term.

This year, 26.2 percent of all jobs added by private sector employers were temporary positions. In the comparable period after the recession of the early 1990s, only 10.9 percent of the private sector jobs added were temporary, and after the downturn earlier this decade, just 7.1 percent were temporary.

The Times prepared a graphic from Labor Department statistics that clearly illustrates this change:

The Times quoted Allen L. Sinai, chief global economist at the consulting firm Decision Economics, stating that temps “are becoming an ever more important part of what is going on.”

Possible reasons for increased longer-term reliance on temporary employment include:

Richard Wahlquist, ASA president and chief executive officer, said:

While ASA members expect . . . growth to continue, they report that businesses are being very strategic about adding back permanent jobs, timing employment increases with sustained increases in demand.

But there is some evidence the traditional temp-to-perm route will be increasingly followed by employers as they see business conditions improving. 17 percent of employers surveyed in a CareerBuilder/USA TODAY job forecast released March 31, 2011, said they are planning to transition some contract or temporary staff into permanent employees in the second quarter.

Conclusion

Of course, it remains to be seen whether there is in fact a significant long-term transformation to extended reliance on staffing and temporary employment. The fact a higher proportion of recent hiring is of this type may merely reflect a slow, uncertain recovery from a severe recession — one that was brought on not by ordinary business cycle fluctuations, but by a major financial crisis.

As we read the economic tea leaves, there are many other relevant measures of employment recovery worth watching.

Thanks to Beth Hanson for her assistance with this series.

Series NavigationUnemployment Rate News: March 2011 Labor Department Jobs Report Appears to Show ProgressUnemployment Rate News: Other Measures of Jobs Recovery

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