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The Temporary Labor Force

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The Temporary Labor Force h tprr lbr fr M. Sl nd nl G. Sllvn In this article we examine the ing indicators are useful to policymakers and characteristics of workers in others who need to base decisions on where the the personnel supply industry, economy is headed rather than where it has the great majority of whom are been. However, there is evidence that the employed by temporary help temporary help industry has undergone struc- supply firms.' We examine the changes that tural changes, including expansion into indus- have occurred to the demographic and occupa- trial settings. Assessing these structural chang- tional composition of this industry's work force es can help us assess the implications of using over the last decade. We also provide evidence employment growth in the temporary help on the labor force attachment and industrial industry as an indicator for the economy as a mobility of temporary workers and examine whole. Toward this end, in the pages that how their wages compare to those of similar follow we examine micro data on workers. workers, as well as to their own wages on pre- The increasing use of temporary help in vious or subsequent "permanent" jobs. manufacturing has also been suggested as a Several factors motivate this undertaking. possible explanation for the puzzlingly slow First, employment growth during the current growth of manufacturing employment coming economic expansion has been led by the service out of the recent recession. That is, it is possi- sector. One of the fastest-growing components ble that more workers were employed in manu- of this sector has been the personnel supply facturing activities than the manufacturing industry, which supplies temporary and con- employment totals would suggest, but that a tinuing workers to client firms (see table 1). sizable fraction of the workers were temporar- Indeed, though the personnel supply industry ies and so not counted in those totals. Examin- currently comprises less than 2 percent of total ing occupational data on individual workers in employment, it accounted for over 15 percent the personnel supply industry helps us to eval- of employment growth between 1992 and 1993, uate this explanation. and many analysts predict continued rapid Finally, there has been considerable con- growth. Thus it is worth understanding the troversy about the social desirability of tempo- makeup of workers in this growingly signifi- rary help. Some describe temporary workers cant sector. as an underclass who, because of their contin- Furthermore, the personnel supply industry gent status, do not receive sufficient human has received attention because it is widely capital investments to succeed in today's labor believed to be a leading indicator of employ- market.' Defenders of the temporary help ment conditions. As we confirm below, em- ployment in the industry has led total employ- M. Sl n nt nd nl G. ment during recent business cycles. Such lead- Sllvn nr nt rd tnt v prdnt t th drl rv n f Ch. 2 ECONOMIC PERSPECTIVES AE as well as a new one constructed from the 1983 through 1993 Cur- Payroll employment by industrial sector rent Population Survey (CPS). Annual vr The CPS data provide a perspec- (thousands of workers) tive on individual workers in the rnnl ppl personnel supply industry and Yr tl Mnftrn Srv (SIC 6 the labor force as whole. These data can, moreover, be used to 0 0,42 ,06 2,4 , observe changes over time in 1991 08,262 8,408 28,6 ,48 individual workers' labor force 2 08, 8,0 2,00 ,60 status and earnings. 1993 0,2 8,00 0,26 ,26 The remainder of this article has the following organization. Annl rth rt First we describe the personnel (percent) supply industry in greater detail, rnnl ppl sketching its recent growth and Yr tl Mnftrn Srv (SIC 6 verifying its status as a leading indicator of employment condi- 0 .4 .6 .8 . tions. Second, we review some of 1991 . .4 . the reasons why client firms and 2 0. .6 2. .8 workers turn to temporary supply 1993 .8 0.6 4.2 8.2 services. Last, we examine the characteristics of the temporary Sr: U.S. prtnt f br, r f br Sttt, Crrnt Eplnt Srv, (vr r. labor force as viewed through CPS micro data, focusing on the questions raised above. industry point out that temporary employment Overall, we find that the personnel supply provides workers with additional skills and industry is a leading indicator of aggregate serves a number of other important economic economic growth as measured by aggregate functions. They note that the industry has employment. However, the industry is also increasingly provided human resource services undergoing substantial structural change in that were traditionally provided within client demographic and occupational composition, firms, and that the use of temporary workers showing a long-term trend towards increased has increased the efficiency and competitive- male participation and increased placement in ness of U.S. industry. While such controver- blue-collar occupations. The increase in tem- sies are beyond the immediate scope of this porary blue-collar positions offsets up to one- article, some relevant facts can be learned from half of the decline in manufacturing employ- the data on individual workers. For instance, ment observed between 1991 and 1993. Work- from the micro data we can determine if tem- ers in the personnel supply industry exhibit porary employment is a permanent condition, weaker attachment to the labor force than other as implied by the "underclass" designation, or workers, and yet a large fraction shift into rather, a transitory state en route to permanent permanent work within a year. Temporary employment. workers earn lower wages than workers with Most prior analyses of the personnel sup- similar demographic characteristics and educa- ply industry have drawn on data collected from tional attainment. Moreover, among workers temporary help firms. Such sources include who held both temporary and permanent jobs, the Bureau of Labor Statistics' Current Em- wages were lower when they worked as tempo- ployment Survey (also known as the establish- raries. The wage differential for temporary ment survey or the payroll survey), surveys work varies widely by occupational group, conducted by the National Association of Tem- being largest for blue-collar workers and es- porary and Staffing Services (NATSS), and sentially zero for managerial and professional special surveys of personnel supply firms con- workers. Although temporary status often ducted by the Bureau of Labor Statistics lowers workers' wage levels, it does not lower (BLS).' Our analysis draws on these sources EEA ESEE AK O CICAGO their average wage growth; wage growth of es (SIC 7362), and a residual category of firms those who remain temporaries does not differ not elsewhere classified (SIC 7369). The BLS significantly from that of workers who remain payroll survey estimated employment in these permanent employees. three industrial categories on a monthly basis through 1989. The first category, employment Cptn f th prnnl ppl ndtr agencies, includes firms that match workers Our main interest is in analyzing the char- with other employers. As such, they provide acteristics of temporary workers. Unfortunate- an alternative hiring mechanism that aims to ly, our primary source of data for this analysis, improve the speed and quality of the employer/ the CPS, does not identify workers' industries employee matching process. In contrast, the to this level of detail. All we can tell from the second category, temporary help supply service data is whether workers are in the broad indus- firms, provide temporary workers to client trial category called "personnel supply." Be- firms, directly providing an alternative source low, we will follow the fairly common practice of labor. While temporary workers are under of ignoring the distinction between the tempo- the supervision of the client organization, they rary help supply and personnel supply indus- remain on the payroll of the supplying firm. tries. In order to assess the impact of this im- The residual category includes firms that sup- precision on our results for temporary workers, ply workers on a longer-term basis, including we briefly discuss the composition of the per- employee leasing services, firms providing sonnel supply category. facilities management, and continuing mainte- The 1972 Standard Industrial Classifica- nance services. The 1987 revision of the Stan- tion (SIC) scheme decomposed personnel sup- dard Industrial Classification scheme combined ply services (SIC 736) into employment agen- temporary services and the residual category cies (SIC 7361), temporary help supply servic- (excluding facilities management and continu- Terms used in this article Personnel supply services (SIC 736)—establishments involved in supplying workers to firms. This aggregate category includes employment agencies, temporary help services, and other help supply services. Employment agencies (SIC 7361)—establishments primarily engaged in providing employment services by assisting either employers or those seeking employment. Examples are chauffeur registries, employment agencies (excluding theatrical and motion pictures), executive placing services, labor contractors, maid regis- tries, model registries, nurses' registries, ship crew registries, and teachers' registries. Help supply services (SIC 7363)—establishments primarily engaged in supplying temporary or continuing help on a contract or fee basis. The help is always on the payroll of the supplying establishment, but is under the direct or general supervision of the business to whom the help is furnished. Temporary help supply services—establishments primarily engaged in supplying temporary help on a contract basis to other businesses. The help is always on the payroll of the supplying establishment, but is under the direct or general supervision of the business to whom the help is furnished. Examples are office help supply services, model services, labor pools, manpower pools, and usher services. Prior to the 1987 revision to the Standard Industrial Classification scheme, these firms were classified as SIC 7362; they are currently part of SIC 7363.
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