Research Newsletter

Volume 23 Number 1 Article 1

1-1-2016

The Nature and Role of Temporary Help Work in the U.S. Economy

Susan N. Houseman W.E. Upjohn Institute for Employment Research, [email protected]

Carolyn Heinrich Vanderbilt University

Upjohn Author(s) ORCID Identifier: https://orcid.org/0000-0003-2657-8479

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Citation Houseman, Susan N., and Carolyn Heinrich. 2016. "The Nature and Role of Temporary Help Work in the U.S. Economy." Employment Research 23(1): 1-4. https://doi.org/10.17848/1075-8445.23(1)-1

This title is brought to you by the Upjohn Institute. For more information, please contact [email protected]. JANUARY 2016 Susan Houseman and Carolyn Heinrich In this issue . . .

Susan Houseman and Carolyn Heinrich The Nature and Role of The Nature and Role of Temporary Help Work in Temporary Help Work in the U.S. Economy

 the U.S. Economy

Johannes Schmieder and This article is based on the authors’ working paper, workers work at the clients’ sites, typically Deborah Goldschmidt “Temporary Help Employment in and under the clients’ supervision, they are Domestic Reduces Recovery,” Upjohn Institute Working Paper No. 15- the legal employees of the temporary help 227. To read the paper, please visit research.upjohn agency. Government surveys collect no and Contributes to .org/up_workingpapers/227/. Rising Inequality information on the industries to which temporary agency workers are assigned, lthough only about 2 percent of  A so we know little about where the work is and workers are employed in performed and the employment outcomes the temporary help industry, temporary WEEfocus Books of these workers. agencies account for a much larger This article provides insights into the share of the U.S. workforce in blue- nature of temporary help work at one Vol. 23, No. 1 collar occupations and play an outsized of the largest staffi ng companies in the role in workforce adjustment during United States, using detailed information Employment Research is published and recoveries. According to on all temporary orders in the U.S. quarterly by the W.E. Upjohn Institute for data from the Bureau of Labor Statistics, Employment Research. Issues appear in operations of the company from 2007 January, April, July, and October. 8.4 percent of workers in production to 2011. The temporary help industry occupations and 16.1 percent of workers is diverse, and we do not claim that our The Institute is a nonprofi t, independent in material-moving occupations (such data are representative of all companies. research organization devoted to fi nding and as warehouse workers and industrial promoting solutions to employment-related Nevertheless, this company’s practices problems at the international, national, state, truck drivers) are hired through staffi ng are likely similar to those at other large and local levels. The Institute is an activity companies. Refl ecting, in part, the staffi ng companies, and, to the extent that of the W.E. Upjohn Trustee concentration of its employment in this is the case, our data should describe Corporation, which was established in 1932 cyclically sensitive occupations, the to administer a fund set aside by Dr. W.E. an important segment of the industry. Upjohn, founder of the Upjohn Company, to temporary help industry contracted by conduct research on the causes and effects 30 percent and accounted for 11 percent Where Temporary Help Workers Work of unemployment and seek measures for the of net employment losses economy-wide alleviation of the hardships suffered by the during the . unemployed. The occupational distribution of Despite its importance in the macro hours worked in our temporary help W.E. Upjohn Institute economy, relatively little is known about fi rm is closely comparable to that of for Employment Research the nature of temporary help work or the temporary help industry in national 300 S. Westnedge Avenue its role in workforce adjustment. This Kalamazoo, MI 49007-4686 statistics. As in national data, about (269) 343-5541 information gap results in large part from half of employment is in industrial or www.upjohn.org the fact that temporary help agencies blue-collar occupations, which include function as labor market intermediaries, production occupations and materials- Randall W. Eberts contracting out workers to client President handling and logistics occupations. organizations. Although temp agency Together, blue-collar and offi ce

ISSN 1075–8445 Employment Research JANUARY 2016 occupations account for three-fourths of Figure 1 Length of Temporary Help Assignments by Broad Occupation, 2007–2010 the hours worked in our fi rm. Another 15 percent of hours are in a variety of Panel A: Distribution of Assignment Length (%) professional and technical occupations, 60 which include in law, health, < 1 month accounting, science, and education. 1–3 months 50 Just as in national statistics, the 3–6 months temporary help fi rm represented in our 6–12 months data does not systematically collect 40 1+ years information on the industries in which their workers are placed. For the years 30 2010 and 2011, however, the temporary help fi rm linked client names and addresses to business lists that include 20 industry information. Through this process, it was possible to code industry for assignments that accounted for 10 two-thirds of its temporary help hours in these years. Consistent with the 0 occupational patterns of temporary help Industrial Office Professional All assignments workers, a majority of workers were and technical placed in industries that heavily utilize manual labor. Among temporary help Panel B: Share of Hours Worked by Assignment Length (%) hours for which client industry could be 60 identifi ed, over half (53 percent) were in < 1 month the manufacturing sector, 7 percent were 50 1–3 months in wholesale trade, and 6 percent were in 3–6 months transportation. 6–12 months 40 1+ years How Temporary Are Temporary Help Jobs? 30 While the name temporary help implies short-term assignments, case 20 studies and the media have reported instances in which workers are on assignments for an extended time 10 period, a phenomenon dubbed “perma- temping” (Eisenberg 1999). Our 0 data, which include information on Industrial Office Professional All assignments assignment start and end dates, paint a and technical complex picture. As shown in Panel A of Figure 1, which plots the distribution technical workers that fi gure was 9 help agency. In industrial and offi ce of assignment lengths for selected percent. occupations, respectively, 28 percent broad occupations and all assignments As we discuss below, however, a large and 37 percent of hours worked are in commencing between 2007 and 2010, share of workers are fi red or quit prior to assignments lasting at least one year, the large majority of assignments at this the completion of their assignment, which and 52 percent and 59 percent of hours temporary help fi rm are short. Three- skews the distribution of assignment worked are in assignments lasting at least fourths of all assignments lasted less than length. Moreover, by defi nition, long six months. For professional and technical three months, with over half lasting less assignments account for a disproportionate workers, nearly half (49 percent) of the than one month. Even in assignments share of hours worked. Panel B of Figure work occurred in assignments lasting a involving professional and technical 1, which shows the distribution of hours year or more, and over 70 percent were workers, the duration was less than three worked in temporary assignments by the in assignments with a duration of at least months in two-thirds of the cases. In length of those assignments, displays the six months. Thus, while most temporary contrast, 4 percent of all assignments opposite pattern of that in Panel A: long help assignments are short, the majority of commencing during these years lasted assignments account for the majority temporary help work takes place in long- a year or more; for professional and of work performed in the temporary lasting assignments. 2 Employment Research JANUARY 2016

Transitions to Permanent Positions Houseman, Kalleberg, and Erickcek staff is most apparent during recessions, and Other Outcomes 2003). when many fi rms simultaneously Figure 2 shows the distribution of experience adverse demand conditions Temporary help positions often are assignment outcomes: fi red or quit, and terminate temporary help contracts promoted as pathways to permanent hired by the client, otherwise completed to quickly reduce staffi ng levels. During employment. Client organizations have the assignment, or other outcomes; the recession and initial recovery, the opportunity to see how a temporary the last category includes the client when many are uncertain about future agency worker performs on the and terminating the contract early for reasons economic conditions, employers also may may offer workers a permanent position other than worker performance. Most disproportionately rely on temporary help following the temp assignment. While this notable is the large share of temp agency staff to expand their workforces. Indeed, screening process typically is informal, workers who are fi red or quit before the although the temporary help industry the temporary help fi rm we study also assignment is complete—about one- experienced robust growth following designates certain contracts (about 4 third. In industrial occupations, which the offi cial end of the recession in 2009, percent) as “temp-to-hire,” meaning that include the lowest-paying jobs, that employment growth in the economy there is an explicit understanding that the share exceeds 40 percent. Being fi red for overall was weak until 2012. A leading worker is auditioning for a permanent tardiness or failing to report to work are hypothesis for that weak aggregate position with the client. In our data, especially common among those in low- employment growth is that companies about 7 percent of all temporary help wage occupations. Our data point to a were uncertain about the strength of assignments ended in a hire by the client. signifi cant challenge that temporary help the recovery and were reluctant to take The hire rate was only slightly higher agencies have in fi nding good matches on permanent employees (International among professional and technical workers between workers and organizations. Monetary Fund 2012). Consistent with (8.8 percent) than among offi ce workers Diffi culty recruiting and retaining this hypothesis, our model estimates, (8.0 percent) and industrial workers (6.6 workers in these positions may help which control for changes in the quality percent). Individuals, of course, may explain companies’ extensive reliance on of temporary help workers during the work on multiple assignments before they temporary help agencies to fi ll them. recession, show that companies reduced fi nd a good match. Over the fi ve-year hiring from the pool of temporary help period covered by our data, 15 percent of Temporary Help in Recession workers and lengthened the duration all individuals working for the temp help and Recovery of temporary assignments during the fi rm were ultimately hired by a client. recession and initial recovery period. Thus, although a sizable share land a The temporary agency company’s data permanent job via their temp assignment, span the recession and early years of the The Future of Temporary our data suggest that in the large majority recovery, and we use it to provide insights Help Workers of cases, fi rms are using temporary help into the dynamics of temporary help agencies to meet a temporary staffi ng employment in recession and recovery. Although unemployment rates have need. Employers’ reliance on temporary help returned to prerecession levels, wage Interestingly, even in temp-to-hire assignments, less than half ended in a Figure 2 Outcomes of Assignments in Temporary Help Agency (% distribution) hire by the client. Among professional and technical workers, 44 percent of 70 temp-to-hire assignments ended in a hire, and among industrial workers, 60 only 22 percent were hired by the client. Fired or quit Although of new hires is high in Hired industries using industrial workers, our 50 Completed assignment analysis indicates that it is considerably Other lower than the implied turnover of those 40 in temp-to-hire positions, who spend their probationary period on the payroll of the 30 temporary agency. With the caveat that we cannot control for possible differences in the pool of new hires entering from 20 temporary help fi rms and new hires made directly by employers, our fi ndings 10 are consistent with case study evidence indicating that use of temporary help 0 agencies to screen new hires allows fi rms Industrial Office Professional and All assignments to be more selective (Cappelli 2012; technical

3 Employment Research JANUARY 2016 growth is weak, labor force participation Johannes Schmieder and Deborah Goldschmidt is historically low, and deep concerns remain, particularly about the low-wage workforce. Temporary help agencies, Domestic Outsourcing which hire a disproportionate share of low-wage workers, are often touted as providing a pathway to permanent, Reduces Wages and better jobs for these workers, yet we see strikingly low hire rates in our data, even Contributes to Rising among those in temp-to-hire contracts. Low conversion rates to permanent jobs with clients refl ect the fact that employers Inequality are highly selective in making job offers to temporary help workers, but they also This article highlights fi ndings from “The Rise of rather than offshoring, as it refers to a refl ect skills defi cits among the workers. Domestic Outsourcing and the Evolution of the Ger- form of outsourcing where the service Performance problems or quits prior to man Wage Structure,” Upjohn Institute Working provider is located in the same country. assignment completion drive a signifi cant Paper No. 15-244. To read the paper, please visit We document for the fi rst time in detail research.upjohn.org/up_workingpapers/244/. share of temporary help assignment the increase in outsourced labor services terminations, with “soft skill” problems over the last three decades in Germany, such as tardiness and unexcused absences The last three decades have seen a focusing in particular on cleaning, notably high among the lower-paid thorough transformation of the nature security, logistics, and food services. temporary workers. In sum, our data of the labor market, with large fi rms Figure 1 shows the share of all full- indicate that the pathway to better jobs increasingly relying on nontraditional time workers in business service fi rms via temporary help employment currently employment arrangements such as that provide cleaning, security, and is limited for low-wage workers. outsourcing, temporary or contingent logistics services, as well as , offshoring, and subcontracting. help agencies. In 1975 only 2 percent References Across a wide range of industries, of the German labor force worked for fi rms have been focusing on their such companies, but that number almost Cappelli, Peter. 2012. Why Good People “core competencies” and hiring outside quadrupled by 2008 to around 7 percent. Can’t Get Jobs: The Skills Gap and What companies to provide services that were A substantial share of this rise is due to Companies Can Do About It. Philadelphia: once performed by their own employees, the growth in both temp agency work and Wharton Digital Press. such as cleaning, security, logistics, human business service fi rms. Since employment resources, or information technology. in cleaning, security, and logistics Eisenberg, Daniel. 1999. “Rise of the Outsourcing to business service occupations has remained relatively Permatemp.” Time, July 12. http://content.time providers potentially allows for reductions constant, this suggests that a much larger .com/time/magazine/article/0,9171,27707,00. in wages for the contracted-out jobs. The html (accessed March 12, 2015). share of these occupations are now outsourcing fi rms are often traditional working for contractors. Houseman, Susan N., Arne L. Kalleberg, lead companies in sectors such as In order to obtain credible effects of and George A. Erickcek. 2003. “The Role manufacturing or fi nance, and they outsourcing on wages, we develop a new of Temporary Agency Employment in Tight typically offer the most attractive jobs, method of identifying a particular type Labor Markets.” Industrial and Labor with higher wages, increased , of outsourcing—on-site outsourcing— Relations Review 57(1): 105–127. strong worker representation, and union which refers to situations where a large coverage. Large employers may thus employer spins out a group of workers International Monetary Fund. 2012. fi nd it benefi cial to reduce the number providing a particular service, such as “World Economic Outlook: IMF Sees of direct employees who benefi t from cafeteria workers, to a legally separate Heightened Risks Sapping Slower Global such wage premia by outsourcing jobs to business unit, such as a subsidiary or an Recovery.” IMF Survey Magazine: IMF subcontractors. These business service Research, October 9. , DC: existing business service provider. In these fi rms compete fi ercely with each other for International Monetary Fund. http://www situations the outsourced workers still .imf.org/external/pubs/ft/survey/so/2012/ service contracts from large companies work together and do essentially the same res100812a.htm (accessed March 16, 2015). on price, and since labor costs are a large job at the same physical location but for share of business service fi rms’ total costs, a different employer. Such outsourcing Susan Houseman is a senior economist at the this creates intense pressure to lower events can be identifi ed in administrative Upjohn Institute. Carolyn Heinrich is professor of wages and reduce benefi ts. data sets using worker fl ows between public policy and at the Peabody College We analyze domestic labor service and professor of economics in the College of Arts establishments. and Sciences at Vanderbilt University. outsourcing in Germany using detailed The basic intuition is that if a group administrative data on workers and fi rms. of workers is contracted out at the same We use the term domestic outsourcing time, this can be observed by following 4