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Temporary Employees in the Market Today

By mpr732 May 07, 2011 2095 Words
The United States unemployment rate is currently at 8.9%, down from 9.4% in December 2010. However, as the labor market improves, employers are still skeptical about hiring permanent employees and are increasingly turning to temporary agencies to fill job vacancies to avoid costly benefits, training, certain taxes and payroll costs that accompany permanent employment. Past recessions and recoveries have usually indicated that the market is improving when temporary hiring increases, stabilizes and finally, permanent hiring increases. This recovery is different in that, while temp hiring is increasing, the usual trend of permanent hiring to follow is not happening. Temporary staffing companies and short-term, cost-conscious employers are optimistic that this new, post-recession hiring trend of short-term workers is more of a permanent way for companies to fulfill their staffing needs, rather than simply a trend. If the US workforce accepts constant uncertainty, low wages, and no benefits as the only means to earn a paycheck, productivity is sure to be affected. This in turn, raises the question of why employers don’t take into account the “hidden costs” of hiring temporary workers. These costs include high turnover, absenteeism, higher learning curves, lack of commitment and loyalty among temporary employees. The temporary worker has a definite role in a company’s cost-control during the recovery phase. However, this phase should be one that is short-lived and not permanent, as is happening today.

Exercise 1
During previous economic recoveries, the hiring of temporary workers has been a leading indicator of improvement in the job market. Shortly after this increase in temp hiring, an increase in permanent employee hiring would result. The 2010 recovery has been different in that the increase in temporary worker hiring continued to grow without any end in sight. At the same time, permanent employee hiring has been stagnant. It appears as if the jobs that have been lost in the recession are gone forever and that the staffing needs of companies are being contracted out to staffing agencies where temporary workers will come in and complete “projects” that last several months or even years. The forecast for the next five to ten years is the same and permanent jobs will become a thing of the past and most employees will be temporary (Coy, et al. (2010)). The U.S. may acquire a new nickname this decade: Freelance Nation. Though it is tempting to hope for a quick rebound in jobs in 2011, recent history suggests job recovery is getting increasingly slower and less robust with each passing decade. The reason: The U.S. economy is undergoing deeply structural changes. (Smith) This deep structural change is due to the fact that hiring is slowing with every economic recovery and the abundance of low cost workers in India and China are not helping the situation for Americans. In addition, jobs are being lost due to technological advancement. For example, hardware is so much cheaper to replace today than to get repaired, consequently outdating a computer technician’s skills and job.

In addition to these structural trends, there is another reason some jobs won't be coming

back: They were the product of the bubble in credit and housing. Fueled by super-low

interest rates, exotic mortgages and risky derivatives, growth from the 2001 recession

greatly expanded the number of jobs in the financial and construction industries. The

housing bust and the global financial meltdown mean the number of jobs in those fields

will be much lower than in the boom years. That expansion was a once-in-a-generation

speculative frenzy that virtually no one expects to reflate to its 2006 levels. (Smith)

Not only are many of the jobs that have been lost unlikely to come back, but those that do are increasingly likely to be freelance, temporary or contract positions rather than permanent jobs with benefits.

For corporations, hiring contingent workers is cheap, less risky and extremely flexible. They do not want to be burdened with the time and costs associated with hiring, training, and nurturing employees for the long term. The cost of a direct hire includes recruiting costs (create Job Description, Source, Interview & Select candidates), on-boarding costs (make offer, orientation on company enrollment process) and employee costs (benefits (medical, vacation, holiday, sick etc.), salary, human resources, payroll Expenses, wage garnishments, end of year tax forms etc.). In addition, there are sever hidden costs associated with permanent hiring including bad hires (If you or someone in your organization makes a hiring mistake, it can cost from two to five times or more of that persons annual salary) and various timing factors (learning time before actual production). ( Employers find it attractive when these huge costs are nullified by hiring temporary workers in

which the apparent costs are simple expenditures such as time card processing. Staffing giant

Adecco “reported a sharp increase in fourth- quarter net profit and said it had enjoyed a strong

start to 2011 due to growing demand for temporary workers.” (Revill) Businesses are constantly

dealing with uncertainty and therefore, workers have to be contingent. Health insurance,

retirement benefits, sick days, vacation, severance, access to unemployment insurance, etc.;

these are significant costs. Benefits usually account for about 30% of an employee’s total

compensation. (U. S. Department of Labor, Bureau of Labor Statistics) This 30% savings by

hiring temps is huge for employers.

It’s obvious why full-time permanent jobs are becoming a thing of the past. But how

does all of this affect the working American? Regardless of the fact that the cost of working is

now the worker’s burden, temporary positions are still attractive for employees who have been

laid off and out of work for long periods of time. But while becoming a nation of temp workers

may help workers in earning a paycheck and may seem like the answer for Corporate

America in which the future seems to lie in constant uncertainty, low wages, no benefits,

and practically no stability cannot be a feasible alternative for the American workforce. A

flexible work schedule and a varied work environment may be great for a while, but there is not

enough incentive for employees to continue working without security from their employment.

Families cannot prosper under these conditions.

Many temporary workers struggle. Leonard Lamkin, 58, started doing independent contract work two years ago, after he left his position as head of a Chicago patient-safety advocacy group to care for his ill mother. While Lamkin has juggled two or three assignments at a time — including writing grants for food pantries and training a nursing home's staff — he's also faced long dry spells and is earning less than half his former salary. He had to take $6,000 from his savings to pay bills, dropped his health club membership and can't get health insurance because of a pre-existing condition. (Davidson) The concern for workers now should be the permanency of this trend in hiring temps over

regular employees. If the US workforce accepts constant uncertainty, low wages, and no

benefits as the only means to earn a paycheck, productivity is sure to be affected and long term

implications for employers are certain to be negative.

Temporary workers have normally been associated with entry level office positions. However, temporary workers in today’s economy not only include low paying office administrative staff, but can include professionals such as attorneys, engineers and scientists. More than 9% of companies say they use temporary workers in management functions to a "high" or "very high extent," according to a recently released survey by the Institute for Corporate Productivity, a Seattle-based research organization. In addition, more than 17% of companies say they frequently use temps in high-skill areas, like engineering and science. To be sure, the bulk of temp positions still seem to be in lower-level roles, but "in the coming years, we're going to see a sea change in who the typical contingent worker is," said Lorrie Lykins, director of research services for the institute. (Light) It seems that even the “professionals” are accepting the new way of life in terms of their jobs being contracts and not permanent positions.

If temporary work becomes the permanent employment model in America, there are sure

to be some hidden costs associated with this. Can and should employers that have accepted this

new “apparent” short-term, cost saving trend accept it as a permanent way in which business can

operate? First, employers will be faced with issues such as employee loyalty, disregard

for confidentiality, reliability, and resentment from temporary workers that work alongside

permanent employees that reap higher salaries, benefits, and all the other advantages of being on

the company’s payroll.

“As good as this Staffing Workforce Model was, as good as this temp workforce model

was, there was a problem with it also. How could you work side by side with another

worker earning half or sometimes more than half than the worker next to you and how

could you expect that worker to give you the same effort?” (Hatcher)

Since costs such as aptitude testing, reference checking, and absorbing workman’s

compensation insurance are included in the rates charged to employers by staffing

agencies, wages paid are ultimately higher. Also, learning takes time for the temporary worker.

Employees that have to train temps costs time and the employee's productivity and a temp

can make mistakes during the learning process, which can cost the company. Finally,

“temporary workers hired through staffing agencies generally are considered to be employed by

both the agency and company, even though the agency pays the salary.” (Greenwald) This could

raise legal implications for the employer, such as discrimination laws and other laws in which

temporary employees are as equally protected as permanent employees.

Regardless, employers are enjoying the cost savings too much to consider longer term

drawbacks to hiring temporary workers. 80 percent of employers said that they expected the size

of their non-employee work force (consultants, independent contractors, temporary employees

and project teams) to stay the same or increase in the next year. Sixty-three percent of business

leaders reported working on better ways to manage their non-employee work-force segment.

(Raines) How can this be good for the economy? Perhaps for the short-term, but certainly not in

the long-run. A solution for workers would be to specialize and become an independent

contractor who bypasses employment agencies, recruiters, etc. and markets his or her skills

directly to employers. If a worker is required to pay for his own health benefits and is not

earning money when he is sick or when he takes his children on vacation, then these costs

should be factored into the hourly rates this “new temporary worker” charges the corporation.

Maybe then the burden of costs that the workers are being forced to absorb, can be shared and

perhaps then, corporations will see that hiring a permanent employee may be more beneficial.

Coy, Peter, & Conlin, Michelle & Herbst, Moira, (2010, January 7). The Disposable Worker; Pay is falling, benefits are vanishing, and no one's job is secure. How companies are making the era of the temp more than temporary. Businessweek. Retrieved from Davidson, Paul, (2010, Ocotber 13). Freelance workers reshape companies and jobs. USA Today. Retrieved from Greenwald, Judy, (2010, January 26). Use of temp workers invites exposures. InvestmentNews. Retrieved from Hatcher, R. (2010, December 15). Hidden Costs of Temporary Workers [Video file]. Video posted to Light, Joe (2011, February 28). When the New Temp Happens to Be the Boss. The Wall Street Journal. Retrieved from Raines, Laura, (2011, February 22). Non-employee labor a growing trend in work force. The Atlanta Journal-Constitution. Retrieved from Revill, John, (2011, March 3). Adecco Sees Demand For Temporary Workers Continuing. Dow Jones Newswires. Retrieved from Smith, Charles Hugh, (2010, January 19). Freelance Nation: Why Permanent Jobs May Not Come Back. Daily Finance, An AOL Money & Finance Site. Retrieved from (2008-2010). Temporary Staffing Versus Direct Hiring Cost. Retrieved March 16, 2011, from U. S. Department of Labor, Bureau of Labor Statistics. (2011, March 9). Employer Costs for Employee Compensation news release text. Retrieved from

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