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TEMPORARY EMPLOYMENT AND THE SPOT MARKETMODEL
SUGGESTIONS FROM A PRELIMINARY STUDY
byHiroshi Ono
Working Paper No. 116January 2000
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Temporary Employment and the Spot Market Model
Suggestions from a Preliminary Study
(Revised version of paper originally presented at the Work, Employment & Society
Conference, University of Cambridge, September 1998)
ABSTRACT
In recent years, growth rate of temporary employment has far surpassed the growth rate ofaggregate non-farm employment. Market uncertainty, such as the rapid pace of technological change, hasgiven rise to a practice where employers hesitate to hire workers into their core workforce, and becomeincreasingly more reliant on contingent labour. The result is a just-in-time practice of human labour inwhich employers purchase skills on an as-needed basis. While previous studies have focused on eitherthe supply- or the demand-side factors behind temporary employment growth, this paper focuses on theactual temp-employer matching process which take place within temporary staffing firms. Based oninterview results from managers and executives of the temporary staffing firms in the US, I argue that theexplosive growth of temporary employment can be attributed to its spot market features which allowemployers to adjust freely to market changes while minimizing transaction costs.
Keywords: just-in-time production, spot-market model, technological change, temporary employment,transaction costs
JEL Classification: J21, J23, J31, J41
1 Introduction
The movement towards contingent employment practices originally began to
attract attention when the book The Contingent Economy was published in 1989 by
Richard Belous of the National Planning Agency. According to the Bureau of Labour
Statistics (BLS), contingent workers are defined as “those individuals who do not
perceive themselves as having an explicit or implicit contract for ongoing employment”
and include part-time work, self-employment, employment in the business services
industry, as well as “any work arrangement that might be considered to differ from the
commonly perceived norm of a full-time wage and salary job.” 1 Although grossly
overstated, Belous’s estimates that contingent workers account for one third of all
workers caught the attention of many, and the trend has since been monitored closely by
policy makers, the media and academics.
Although the distinction between what constitutes contingent workers and what
does not is open to considerable debate, researchers have proposed several useful ways
concerning the extent to which contingent employment deviates from standard forms of
employment. In particular, Kalleberg, et al define standard employment as being
characterized by “the exchange of a worker’s labour for monetary compensation from
an employer with work done on a fixed schedule – usually full-time – at the employer’s
place of business, under the employer’s control, and with the mutual expectation of
continued employment” (2000: 258), and further construct a scale of standard versus
1 Bureau of Labour Statistics. “Contingent and Alternative Employment Arrangements.” (Press release,February 1997).
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non-standard (or “bad”) jobs, in which they categorize jobs according to the number of
“bad” characteristics inherent in the job. Using the 1995 Current Population Survey,
they estimate the number of “bad jobs” as those with low pay, and lack of health
insurance and pension benefits and find that one out of seven American jobs is bad on
these three dimensions.
Another notable dimension of contingent employment concerns flexibility. If
we were to categorize jobs across a continuum of flexibility, then on one extreme would
be the standard or the full-time ‘permanent’ jobs. These jobs are typically found in the
core of the internal labour market and are characterized by extensive training, internal
promotions and employment security. On the other end of the continuum are the
flexible jobs. In its extreme form, flexible job assignments may be those which last
only a matter of few hours. Workers in such flexible job arrangements have little or no
employment security as they take on assignments from one employer to the next. The
continuum of job flexibility is hence a continuum which characterizes the duration of
the employment relation, from long-term ‘permanent’ jobs to short-term jobs that last
less than a day.
This paper focuses on the most flexible form of employment known as
temporary employment. Workers in this category are employed by temporary staffing
firms who dispatch workers to client firms on an as-needed basis. Given its highly
flexible nature, temporary employment has grown at a pace which far surpasses the
growth of aggregate non-farm employment. Although supply-side factors such as the
desire for flexible employment among workers have received some attention, temporary
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employment growth can be attributed mainly to the benefits it bestows on employers.
In fact, the Kalleberg study finds that temporary workers belong to the “baddest” of the
“bad job” category, mainly because employers view temporary workers as a cost-
minimizing tactic and have no vested interest in investing in them (see also Houseman
1998).
While previous studies have examined supply- or demand-side factors behind
the growth of temporary employment, this paper focuses on the market intermediary –
the temporary staffing firm. Based on interviews with managers and executives of
temporary staffing firms, I highlight some of the principle features of the temp-
employer matching process, or the process in which temporary workers are matched to
jobs. Given the brokerage role between the supply and demand for human labour, the
matching transactions which take place within temporary staffing firms mirror the
selling and buying of commodities. Moreover, with the advancement of information
and database technology, the matching of temps to jobs is headed in the direction of
instantaneous transactions, features which closely resemble the spot-market model.
While the paper focuses primarily on micro-level transactions, the impact of temporary
employment growth has far reaching implications at the macro-economic level. The
paper closes by exploring the relationship between temporary employment,
unemployment and wage changes, in the context of the recent economic expansion in
the US.
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1.1 Why study temporary workers?
BLS categorizes temporary workers as “workers who are paid by a temporary
help agency whether or not their job was temporary.”2 According to the BLS
classification, contingent workers accounted for 1.9 to 4.4 percent of all employment in
February 1997; temporary workers accounted for 1.0 percent. Using a different
measurement procedure, the National Association of Temporary Staffing Services
(NATSS) reports the proportion to be 2 percent at the end of the fourth quarter of 1998.
These numbers suggest that temporary workers make up a very small proportion of the
civilian labour force.
So why study temporary workers? There are several reasons. First, change in
temporary employment is widely believed to be a leading indicator of employment
conditions. In a report issued by the Federal Reserve, Segal & Sullivan (1995) find that
temporary employment has consistently led aggregate employment during recent
business cycles and write, “the predictive power of this industry for the aggregate
economy is particularly interesting in view of its small size.” Changes in temporary
employment have become crucial indicators for policymakers in predicting economic
expansion.
Second, the temporary workforce is growing at a rate which far exceeds the
growth of aggregate employment. According to NATSS estimates, the number of
temporary workers grew from 184,000 (or 0.26 percent of total employment) in 1970 to
2 BLS, ibid. In the Current Population Survey, BLS categorizes temporary workers as (1) those who saidtheir job was temporary and responded affirmatively to the question, “Are you paid by a temporary helpagency?” and (2) workers who said their job was not temporary but answered affirmatively to the
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over 2.8 million3 in 1998. From 1992 to 1995, temporary employment grew at an
annual rate of 17 percent, from 1995 to 1998 at an annual rate of 9 percent. The growth
in this sector of the labour force far surpasses the 2 percent per annum growth rate of
aggregate non-farm employment.
Third, while temporary employment maybe a small proportion of labour
supply, their impact on labour demand has been incredible, if not irreversible.
Temporary workers are in great demand by firms who take advantage of the highly
flexible nature of the temporary employment arrangement. Some 90 percent of US
firms use temporary workers (Abraham 1990), thereby suggesting somewhat ironically
that the use of temporary employment is becoming a permanent feature of the US
business environment (Larson 1996; Nollen 1996).
And fourth, insofar as temporary workers represent flexible employment
trends, a focus study should advance our understanding of why the labour market is
headed towards flexibility. Although the proportion of workers categorized as
temporary is very small, a looser interpretation of the terms “temporary” or
“contingent” would include a wider range of workers and occupations4. For example,
outsourcing practices which have become increasingly popular in recent years5 may
question, “Even though you told me your job was not temporary, are you paid by a temporary agency?”3 Numbers indicate average daily employment.4 Dennard (1996) suggests that a broad definition of contingent employees could include the following:(1) self-employed individuals; (2) individuals with a “short-term” employment contract; (3) part-timeemployees; (4) temporary employees; (5) casual employees; (6) leased employees; (7) independentcontractors; (8) on-call employees; (9) seasonal employees; (10) contract employees. Laird & Williams(1996) insist that analysis based on temporary employment should not be used to make inferences aboutcontingent employment, because the demographic composition and occupational distribution ofcontingent workers vary significantly by category. Although this may be true for empirical analysis, Ibelieve we can still make qualitative inferences at a broader level.5 According to Harrison & Kelly (1993), 57.4 percent of firms outsourced their machine operations in the
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constitute one form of contingent labour, to the extent that employment is contingent on
the client firms’ need to adjust to demand fluctuations. For statistical reasons,
outsourced personnel who are typically employed by consulting firms or firms which
specialize in certain niche areas, are not counted as contingent workers according to the
BLS classification since they are not paid by temporary staffing agencies nor are they
self-employed or independent contractors. Indeed, the distinction between what
constitutes contingent workers and what does not is open to considerable debate.
Estimates vary significantly by how contingent workers are defined. For example,
citing Belous’s estimates, a 1993 Time magazine article reported that contingent
workers accounted for a third of all workers in 1993 and that “their ranks are growing so
quickly they’re expected to outnumber permanent full-time workers by the end of the
decade.”6 Whatever the numbers, the fact remains that we are headed towards a
contingent and flexible economy. By focusing on one extreme form of contingent
labour, the temporary workforce, we should be able to draw wider implications about
why we are witnessing this trend toward flexibility.
1.2 Design and focus of the study
Temporary work arrangements involve three parties: temporary workers (or
temps), temporary staffing firms (TSFs) and client firms. Figure 1 illustrates this
arrangement as a supply, demand and intermediary relationship.
mid 1980s.6 Time, March 29, 1993.
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FIGURE 1 Temporary work arrangements
The TSF functions as a market intermediary or a broker who matches the supply and
demand for temporary work assignments. Temps are employees of the TSFs, i.e. they
are paid by the TSF and not by the client firms. As such, there is no direct employment
relationship between temps and client firms. This arrangement is a departure from
conventional labour markets in which supply and demand for labour are directly
matched. As will be discussed extensively in the following sections, the selling and
buying of human labour that take place within TSFs more closely resembles a market
for commodities rather than a market for labour. The TSF can be viewed as a retailer of
temporary workers, where client firms can purchase the necessary units of labour on an
as-needed basis.
Previous studies have focused on either the supply-side or the demand-side of
temporary employment. These studies have examined reasons for growth in temporary
employment (Abraham 1988, 1990; Golden & Appelbaum 1992; Harrison & Kelley
1993; Laird & Williams 1996), demographic composition and compensation structures
among temporary workers (Davis-Blake & Uzzi 1993; Kalleberg, et al 2000; Lenz
1996; Segal & Sullivan 1995, 1997), social and psychological ramifications of
Temporary workers
Temporary StaffingFirms (TSF)
Client firms
SUPPLY DEMAND
INTERMEDIARY
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temporary employment on workers (Henson 1996; Lee 1996; Rogers 1995), and legal
and policy implications of temporary employment (Dennard 1996; Hylton 1996).
My main contribution is to spotlight the temporary staffing firm itself, and to
study in more detail the actual temp-employer transactions that take place within
temporary staffing firms. The TSF is the CPU of temporary work arrangements, but
very little has been studied with respect to how these firms operate. Understanding the
process in which temporary workers are matched to jobs allows us to draw broader
inferences about why we are witnessing a trend toward a highly contingent economy.
In order to understand the industry in more detail, I conducted in-depth
personal interviews with twenty managers and directors from eight different temporary
staffing firms located in Philadelphia and the New York metropolitan area in November
1997. These managers and directors occupied key positions in marketing, sales, and
corporate communications. Interviews were performed at corporate headquarters and
on-site locations where actual temp-employer transactions take place. Interview
questions ranged from reasons for temporary employment growth to future industry
trends, but the principal objective of the interviews was to illuminate the temp-employer
matching process which takes place within TSFs. The study is the first phase of a larger
project currently under progress with the Nomura Research Institute in which we
compare and contrast the management strategies of temporary staffing firms in the US,
Europe and Japan.
In addition to the interviews, I conducted an extensive review of company
brochures and promotional material from firms included in the interview as well as
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firms not included in the interview, staffing industry publications, resources available
over the internet, and articles from major periodicals collected from the Lexis/Nexis
database.
1.3 The temporary staffing industry: an overview
Temporary staffing firms have undergone dramatic changes since they began to
take form in the 1950s. Traditionally, temporary employment was a means for filling in
during employee vacations or sick leave. The majority of temporary workers held
clerical and secretarial jobs. In the 1980s, temporary employment underwent both a
quantitative and a qualitative shift: the number of temporary workers doubled, and they
were required to perform a wider range of job assignments. The upward shift in
required skills accelerated in the 1990s as temporary workers were assigned to tasks
conventionally performed by permanent employees7. As the skill requirements became
higher, so did marginal revenue. Between 1990 and 1998, the industry’s revenue nearly
tripled from 20 billion to 59 billion dollars (Table 1). In 1996, 34 staffing firms were
included in the Inc. 500 ranking of fastest growing companies in the US 8. These
companies had achieved at least 600 percent sales growth between 1991 and 1995.
Although clerical work is still the largest portion of the temporary staffing
7 In this paper, I use the term “permanent workers” to denote regular full-time workers. “Long-term” maybe more appropriate but this could cause confusion since some temporary workers are assigned to long-term employment which may last several years. “Full-time” is equally confusing because most tempswork full-time (as opposed to part-time).8 Staffing Industry Review, 1996.
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industry’s payroll9 (40.5 percent), the fastest growing segment of the industry is the
professional category which includes accountants, attorneys, and management
specialists. The three categories of industrial, technical and professional now comprise
more than half of the industry’s payroll.
TABLE 1 Payroll composition of the temporary staffing industry (1998/1991)1991 1998 1998/1991
$ billion % $ billion % ratioOffice/clerical1 6.6 47.6 17.6 40.5 2.7Industrial2 3.8 27.4 15.0 34.5 3.9Technical3 1.9 13.4 4.7 10.9 2.5Professional4 0.3 2.4 2.8 6.4 8.3Other5 1.3 9.2 3.3 7.6 2.6
Total 14.0 100.0 43.4 100.0[SOURCE: National Association for Temporary Staffing Services 1999]1Secretaries, general office clerks, filing clerks, receptionists, typists, word processing operators, dataentry keepers, cashiers, etc.2Blue-collar occupations including manufacturing personnel, factory workers, shipping and receiving, etc.3Computer programmers, computer systems analysts, designers, drafters, editors, engineers, andillustrators.4Occupations in the accounting field (accountants, auditors, CFOs), legal (paralegals, attorneys),management (middle and senior management), sales and marketing professionals.5Health care, marketing, and other categories
Temporary staffing firms can be segmented along lines of industry10,
occupational category, and geographic location. For example, a TSF may have a niche
in a particular industry such as finance or telecommunications, while another TSF may
specialize in providing clerical or technical services only. Small TSFs operate locally
and their services will not extend outside of their region. On the other hand, large-scale
TSFs like Manpower, Olsten and Kelly have extensive networks nationally and in some
cases, internationally. They are also more likely to provide staffing services across a
9 Payroll consists of gross wages paid to temporary employees assigned to clients (NATSS 1997).
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wide variety of occupations and industries.
TSFs provide a variety of services to accommodate the demand for a flexible
workforce. Their services are not limited to temporary staffing, although this is
obviously the main service provided. Other services include outplacement, contract
staffing and training. A TSF may provide any combination or all of these services,
depending on its size and specialization. Outplacement, sometime referred to as
vendor-on-premise, is a service where the TSF allocates an entire division of workers to
fulfill a specific administrative function for the client firm. From the client’s
standpoint, outplacement is outsourcing. Outplacement includes such functions as
payroll, legal and regulatory compliance, and recruiting. Contract staffing is a service
targeted for independent contractors and the self-employed in need of coverage. The
TSFs provide a customized package of coverage (e.g. health, pension plans) in
compliance with IRS qualifications. TSFs also provide specialized training services for
client firms enabling them to keep abreast of latest technological developments. These
areas include telecommunications, customer services, telemarketing and computer
systems.
2 Growth of temporary employment: Some explanations
2.1 Flexible manufacturing and Just-In-Time production
It is not a simple task to disentangle the chain of events which has led to
10 Temporary work is not limited to the business sector. See for example “Teachers Are Temp Services’Top Choice” (Chicago Daily Herald, May 2, 1998).
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flexible employment practices. But a reasonable point of departure is what some
scholars conceptualize as the post-Fordism context – a movement from mass production
to flexible accumulation (Harvey 1995). In the face of diversifying consumer needs, the
inherent problem of Fordism could be identified as rigidity: “there were problems with
the rigidity of long-term and large-scale fixed capital investments in mass-production
systems that precluded much flexibility of design and presumed stable growth in
invariant consumer markets” (1995: 142). The need to respond quickly to variable
product demand gave rise to flexible manufacturing technologies, small-batch
production11 and sub-contracting, culminating in what has come to be known as Just-In-
Time (JIT) production.
JIT is often referred to as “lean production” (Womack, et al 1990) or the
“process of eliminating waste” (Roper, et al 1997). By establishing an intricate
hierarchical network of subcontractors, the firm can minimize market risk by
maintaining low levels of inventory and reducing their work force to the very core.
Insofar as JIT is production using parts and labour on an as-needed basis, JIT has had a
profound impact on labour management. One of the managers interviewed remarked as
follows:
In the 1980’s the labour force was influenced by the just-in-time practice of management,which triggered the movement to strategic, flexible staffing.
Flexible staffing is a form of JIT management where the production unit is human
11 Harrison & Kelley (1991) find that use of temporary workers was positively correlated with productdiversity (measured by the batch-size of production).
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labour. Like any other form of input, human labour became a more atomistic element
of production. The need to respond quickly to market changes forced firms to shed
excess labour and maintain a minimal permanent workforce.
The two features just discussed – minimizing inventory and permanent workers
– are metaphorically synonymous, i.e. although inventory (or stock) is a term commonly
used in association with physical capital (e.g. parts and machinery), it can be viewed to
represent human capital. Rogers (1995) explains:
A term previously reserved for money-saving inventory control systems has been adoptedto describe this new workforce: “just-in-time.”... The worker is conceptualized as a workinput and is managed in much the same way as inventory or machines. (1995: 139).
In essence, the penetration of JIT practices has blurred the distinction between physical
capital and human capital.
From the perspective of labour management, inventory control is equivalent to
head count control (the number of permanent employees on the firm’s payroll). Since a
firm’s performance (productivity or sales) is assessed by using the number of permanent
employees as the denominator, firms are constantly under pressure to minimize their
permanent workforce (Pfeffer & Baron 1988), implying the firm’s hesitation to hire new
workers. It has also become more difficult to fire workers in recent years, in light of the
increasing “costs” of dismissing workers12. In this context, costs include not only
12 Wrongful discharges may violate anti-discrimination laws as well as a host of other civil rightslegislation. This has led to the gradual erosion of the employment-at-will doctrine. See for exampleAbraham (1988, 1990), Lee (1996).
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litigation costs, but also the negative publicity associated with downsizing practices13.
A manager explains the inherent complexities of head count control:
For firms, head count has become an important measure for labour management. Thecosts of firing – mainly negative publicity and litigation costs – made it more difficult tohire and fire workers. These days, HR departments are becoming extremely sensitivetowards public relations issues.
In fact, Kalleberg, et al (2000) find that managers who are committed to avoiding
layoffs were more likely to use temporary employment and other forms of employment
intermediaries, and less likely to use only full- and part-time employees. They further
find that organizations seeking to avoid layoffs were more likely to use temporary
employment across a larger number of functions.
In sum, the penetration of JIT practices has made it increasingly more difficult
to hire and fire permanent workers14. These forces, coupled by the need to remain
flexible and responsive to market changes, intensified demand for temporary labour.
Since temporary workers are paid by the TSFs, they do not appear in the client firm’s
head count. Freed from the complexities of head count control, firms were able to take
full advantage of a workforce which represented flexibility in its purest form.
The increasing reliance on temporary workers gave rise to a core/periphery
separation of workers within a single firm – a distinction which has been termed the
dual internal labour market (Mangum, et al 1985). The dual internal labour market and
its implications will be discussed extensively in the following sections. But first, I
13 For an extensive discussion on the effects of downsizing, see Baron & Kreps (1999) and De Vries, et al(1997).14 Unions may view the use of temporary workers as a threat, insofar as it inhibits the hiring of permanentworkers. Golden & Appelbaum (1992) find that temporary workers were less likely to be used among
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discuss how market risk and uncertainty can trigger the demand for temporary
employment. Since the growth of temporary employment is often attributed to the skill-
biased nature of technological change, the following discussion emphasizes the ways in
which technological change affects the demand for temporary employment.
2.2 Risk and uncertainty: The case of technological change
Technological change introduces uncertainty into the labour market by
triggering short-run fluctuations in demand. How long it takes for the market to adjust
to these shocks is a function of how quickly the technology can be diffused and
standardized into the production process. Technology is constantly in a state of flux.
Some technologies undergo continuous improvements while others become quickly
obsolete. Under these conditions of uncertainty, firms must decide whether to
internalize the particular technology in their production or to forego the decision until
they have better information. Internalizing the technology requires large-scale
investments because in addition to investments in physical capital (i.e. factories and
machines) firms must invest in human capital in the form of job training – training
which is geared specifically for the purpose of using the particular technology at hand.
Accompanying this decision is the risk that the technology could become obsolete, i.e.
the firm has made a bad investment. This is when firms downsize; they must quickly
de-invest the acquired units of physical and human capital since they are no longer
deemed as good investments. According to Department of Labour estimates, more than
highly unionized firms.
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eighty-five percent of the people unemployed in the previous economic downturn were
structurally (i.e. not cyclically) displaced workers whose jobs were unlikely to return.
As the pace of technological innovations accelerates, risk and uncertainty
intensify and firms are less likely to internalize the technology. Pfeffer & Baron (1988)
explain:
When new skills are required, one merely contracts with a different company or uses adifferent set of temporary workers, rather than confronting the costs of retraining thepermanent workforce. Interviews with people in the temporary help industry suggest thatthis is precisely why many organizations have externalized much of their data and wordprocessing – they will not have to worry about making fixed investments in personnel andtraining, only to find the workforce made obsolete by new hardware and software. (1988:273)
Using the Ben-Porath model, Bartel (1993) shows that “higher rates of obsolescence are
likely to decrease the amount of investment (in human capital).” Rather, firms are
likely to turn to contingent employment alternatives such as outsourcing and temporary
employment in order to minimize the risk associated with costly technological
investments.
The rapid penetration of information technology has been the primal force
behind the sudden growth of contingent employment in the 1990s. A 1996 Business
Week article entitled “Let’s Order Out for Technology” suggests that “today, Corporate
America can’t outsource data centers, computer networks, PC support services, and
software development fast enough.” The article reports that some 20 percent of the
largest US companies now use some form of technology outsourcing. Reflecting the
firms’ hesitation to internalize technology, a partner specializing in outsourcing is
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quoted as saying, “people want to buy knowledge, not develop it themselves.”
Not surprisingly, IT related job assignments have become the cash cow of the
temporary staffing business (see Table 1). Demand for office/clerical occupations has
continued to expand, particularly in data processing. One manager explained that “the
migration from a mainframe to client servers increased demand for workers at the ‘shop
floor’.” At the high end of the skills hierarchy are system engineers and computer
programmers. One manager explained that, “in the technology end of the market, there
are more jobs than people.” A recent Boston Globe article entitled “Temp Agencies
Find It Hard to Fill Glut of High-tech Jobs” describes how TSFs are “facing a perennial
shortage of high-tech workers.”15 Because TSFs charge a higher margin for their
workers employed with specific IT skills, these work assignments have become the
profit centers of the temporary staffing business.
Most TSFs provide technical and industrial staffing support, but some
establishments like Volt, CDI and Corestaff specialize in providing IT and light
industrial employment. In recent years, large-scale TSFs have made headlines by
outplacing massive droves of workers to meet clients’ needs to outsource particular
functions.
3 Temporary labour market: A spot-market model?
As the pace of technological change accelerates, labour market responses
become shorter in duration. In a purely theoretical context, imagine a situation in which
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these adjustment cycles become shorter and shorter until it reaches a point where the
market responds instantaneously to exogenous changes. This extreme form of
instantaneous market transactions is the spot market.
The spot market model is commonly used in economics textbooks for heuristic
purposes. It is a purely theoretical apparatus which has traditionally been applied to
analyze effects of supply and demand changes on quantity and price in commodity
markets. Block (1990) describes the spot market as follows:
The actual markets that are closest to (the spot market) are contemporary stock markets,commodity markets, and foreign-exchange markets in which traders on the market floorrepresent a multitude of different buyers and sellers and engage in very rapid transactionsthat are driven almost entirely by price considerations. (1990: 45)
Because it is supply and demand in its purest form, the model rests on a number of
simplified assumptions. With regards to the labour market, these assumptions are
summarized in the first column of Table 2 (edited from Reynolds, Masters & Moser
1991).
These assumptions state that the market is free to adjust to changes in supply
and demand, that it is price driven, and that there is perfect information in the labour
market. Obviously, each assumption is highly questionable, and it would not be an
overstatement to claim that the objectives of labour economics and sociology have been
to argue why the spot market cannot be applied to real life situations. Theories which
have evolved in this regard are summarized in the second column of Table 2. These
theories (loosely termed as “institutional” models) have been developed to explain such
15 The Boston Globe, June 7, 1998.
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phenomena as long-term employment and why workers’ wages rise with work
experience. However, the market for temporary employment exhibit features which are,
if anything, closer to the spot market model than these theories would dictate.
TABLE 2 The dual internal labor market: spot market vs institutional modeldual internal labor market
periphery = temporary workers core = permanent workers transaction costsspot market model* institutional model
Workers and employers are free to enter orleave the market at will, and workers canmove freely from one employer to another.
Supply shifts are flexible upward but notdownward with respect to both wagesand employment levels. Hiring newworkers incurs search and hiring costs.
search costshiring costsfiring costs
All job vacancies are filled through themarket. We ignore the fact that in practicemany vacancies are filled through internalpromotion.
Employees receive job training, jobsecurity, internal promotion, and fringebenefits. Workers are promotedinternally because employers have betterinformation, and promotion from outsideincurs search costs. (Doeringer & Piore1971)
search coststraining costs
Workers are interchangeable in the eyes ofthe employer and are of equal efficiency.We overlook the fact that workers differ inefficiency and that to achieve fullefficiency on a particular job usuallyrequires a training period.
Employer’s long term interests areassumed to override short term interests.Workers accumulate firm-specific skillsthrough training and become moreattached to the employer. Employers areless likely to dismiss workers becausethey must reap the benefits of training.(Becker 1993; Mincer 1962)
training costsfiring costs
The cost of labor is measured by its hourlywage rate. Since we assume no costs ofsupervision and no fringe benefits, theemployer’s cost of labor is equal to thewage rate.
Wages are determined by the job not theindividual. Providing on-the-job trainingincurs significant costs to the employer.(Thurow 1975)
training costs
Workers and employers are well informed.Workers know about vacant jobs, the wagerates they pay, and other terms ofemployment. Employers know aboutworkers available for employment, andthey know what wage it will take to attractthem.
Imperfect information and uncertaintypervade the market. Employers do nothave information on worker productivityex ante. Since employers must trainworkers to raise their productivity,“trainability” is a key determinant ofhiring decisions. (Thurow 1975)
search costsscreening costs
* Edited from Reynolds, Masters & Moser 1991
The decision to externalize or internalize a specific task is best understood in
terms of transaction costs, mainly the costs associated with hiring, firing, screening and
training workers (Table 2, third column). Highly institutionalized labour markets incur
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high transaction costs. In contrast, a spot market is a “pure form of market-mediated
arrangement” (Williamson 1975) involving zero transaction costs. Firms resort to
external labour markets when the benefits of doing so outweigh its transaction costs. In
this regard, we could argue that the temporary labour market grew because the
transaction costs of externalization were smaller than the costs of internalization.
Transaction costs are the costs associated with the selling and buying
transactions between labour supply and labour demand. Therefore, assessment of
transaction costs requires a closer examination of the ways in which labour supply and
labour demand are matched together in the market. In the following section, I examine
in great detail the process in which temps are matched to job assignments, and discuss
how the temporary labour market more closely resembles a spot market. Since very
little has been studied about matching transactions, I rely heavily on qualitative
evidence obtained from my interviews with managers of temporary staffing firms.
In the outset, I must remind the reader that because the spot market is a purely
theoretical model, we could never fully state that a market is a spot market, and this
holds true for commodity and stock markets. For example, in a purely theoretical sense,
the role of the TSF itself violates the assumption of perfect information, because if
employers and temps shared perfect information, perfect matching would take place
among themselves without TSFs. Lending from terminology in other markets, the
temporary staffing firm is a temporary staffing exchange. It is an exchange floor where
dealers buy and sell human labour over a market interface.
My purpose, then, is to illustrate how the temporary labour market shares the
21
principle features of the spot market, and how it departs (or reverts) from the
institutional model. In Section 3.2 I reevaluate the spot market features in light of the
new findings. Implications will be discussed in Section 4.
3.1 How temps are matched to jobs
Employment applications
Applicants seeking temporary employment are all asked to fill out job
application forms which are later entered into the TSF’s central database. Applications
may be submitted to the TSF in person, by mail, or in the case of large-scale TSFs, over
the internet. Applicants are typically asked to provide the following information:
contact information, job preference (type and location of employment), educational
credentials, employment history, job skills and references. For clerical/office workers,
job skills normally consist of basic computer skills such as the ability to do word
processing and use spreadsheets. Applicants seeking technical and professional
positions are often asked to select their area of specialization from a separate form
which consists of a detailed list of job skills. The list includes such areas as computer
programming, accounting expertise, legal expertise, and foreign languages. Each skill
is coded, and whatever the applicant checks off is later entered into the database as the
applicant’s area of specialization.
The TSF’s database has the capacity to determine the market wage of each
applicant based on the applicant’s information, mainly education, experience and skills.
This lends strong support to the neo-classical position that workers have unique
marginal products. To reverse the terminology used by Thurow, marginal productivity
22
is inherent in the man and not the job. Standardization of skills is the engine that
capacitates the determination of market wages.
The standardization process does have drawbacks, however, mainly because no
list can be complete and there could be significant variance within a skill category. The
latter is particularly prevalent among low-skilled categories such as basic computer
skills. One manager explains:
In our firm, most temps claim they have some proficiency in a computer application andmany demand higher rates. It’s becoming more difficult to differentiate.
As the skill category moves up the scale, differentiation problems become less serious
because the higher-level skills are more specialized and the number of qualified workers
become fewer. The premium margin is definitely tilted toward the upper end of the
skill distribution.
The trading room
Central to the everyday transactions of the temporary staffing firm is the
‘trading’ facility. This facility is divided up into several sections, each section serving a
distinct function. First there is the reception area. Applicants seeking temporary
employment are asked to fill out an application form which are later entered into the
TSF’s database. Then there are the training rooms where temps receive basic computer
training.
Behind the reception area is the ‘trading room.’ This is where the actual
23
placements take place. The personnel that work in this section are called ‘dealers.’ The
trading room is separated into two sections by a shoulder-high partition. One side is
called the supply-side, the other the demand-side. Supply-side dealers look for jobs
based on applicants’ information and requests. Demand-side dealers look for temps
based on the needs of client firms.
Most transactions initiate from the central database which contains information
from both the job applicants and the client firms. A typical transaction initiates when
the dealer enters an applicant’s request into the database. These requests may consist of
such information as job content, location and working hours. The database then
generates a list of potential jobs based on these requests. The dealer contacts the job
applicant to discuss the list of jobs16 at which point the applicant may decide if s/he
wants to take the job. If the applicant declines to take any of the jobs, her requests are
filled out at a later date when the database is updated with more recent job information.
A similar transaction takes place on the demand-side where the dealer instead enters
requests for specific workers such as availability, skills and experience. In return, the
database generates a “shopping list” of potential workers with their respective market
wages.
Although the database is updated daily with information from both the supply
and demand side, there is a slight time lag in the updating process. This happens
because application forms which are filled in on paper must be fed into the system, and
sometimes job applicants and client firms may contact dealers directly over the phone.
16 Some applicants may actually come into the trading floor to go through the process alongside the
24
This is frequently the case when the nature of the requests are urgent, e.g. an immediate
request by a client firm asking for twenty data entry personnel within two days. As a
result, situations arise where demand side dealers may have the latest information on
job openings while the supply side doesn’t and vice-versa, because the information is
yet to be entered into the database. In these cases, the dealers, instead of relying on the
database, rise from their chairs to call out to the dealers on the other side of the
partition. They may simply announce the latest request information received over the
phone, or they may be asking questions in order to fulfill certain requests. For example,
a demand side dealer may call out, “hey, whatever happened to so-and-so? Is she still
looking for a job?” while a supply side dealer may yell out, “hey, is that job opening on
the east side still available?” Not surprisingly, the manager on premise readily
explained that ‘trading room’ and ‘dealers’ were termed from the trading floors at Wall
Street.
The employment superstore
The stock of workers registered in the database is the central asset of TSFs.
The product line-up, in terms of both quantity and quality of the workers, becomes a
key element of differentiation from other TSFs. As the buying and selling of workers in
the trading room become more systematic and routine, it begins to resemble a
transaction of commodities. One manager remarked:
dealer.
25
We are like an employment superstore. Availability is the key issue. You don’t want towalk into a store and not find what you’re looking for, right?
Other managers had similar comments like “convenience store,” “supermarket” or
“clearinghouse.” Moreover, competition over availability is headed in the direction of
vertical integration and geographic (or horizontal) expansion. As the market for
temporary staffing expanded, client needs became increasingly more diversified and
TSFs were required to fulfill a wide range of job assignments. Vertical (or seamless)
integration is a response to market changes which enable TSFs to provide workers at all
levels of the organization, from clerical workers to high-level executives – “from the
mail room to the board room” as one manager put it. TSFs are also aiming for
geographic expansion. Many of the large-scale TSFs already have offices located in
different regions of the country as well as overseas. The advantages of a large-scale
TSF is what marketers refer to as “one-stop-shopping.”17 For client firms, benefits
include being able to “purchase” workers at all levels – clerical, technical or managerial
– from a single vendor. This simplifies the search process as well as the billing process.
For example, one manager explained a particular firm who recently became a client
after using multiple vendors. In the process, the firm was able to switch from a system
of using over thirty vendors to just one, and reduce service costs by fifteen percent.
This also had the desired effect of simplified billing since “the client now knows exactly
how much they’re paying for on a single interface.” The TSFs are aiming for what one
manager refers to as the “one-stop-vendor of human resources.”
17 The telecommunications industry presents a good example of “one-stop-shopping” practices in other
26
Response time
Closely related to the issue of availability is response time. A manager
explained that, “it’s not just how many people you have but how quickly we find them.”
An analogy to the commodity market is how quickly you fill in the orders or deliver the
goods. One manager explained the response time in the context of rapid technological
change:
The pace of change in IT is becoming so rapid that companies don’t want to train theirworkers. The costs of training them in-house would kill them. So the requests tend to beimmediate ones. Our strategy is to find and respond to their requests as quickly aspossible.
Competition over response time has led to improvements in database systems. Many of
the large scale TSFs have developed a system where applicants can submit resumes and
search for jobs over the internet18.
The relationship between response time and availability is a function of the
skill demanded by the assignment. With low-skilled assignments (e.g. clerical),
response time is very quick as TSFs are able to locate workers locally. High-skilled
assignments by nature tend to be more specific requests. Additionally, clients pay more
for these workers, so TSFs spend more time searching for the perfect match. In many
instances, TSFs may contact other regional offices and a qualified worker may be called
industries (see for example, New York Times , June 29, 1998).18 See for example Manpower at http://www.manpower.com/cgibin/ndCGI.exe/resume/pagSubmitResume and Olsten at http://www.worknow.com/work/work_frames.html.
27
in from another region to fulfill the request19.
Customer satisfaction
Like any establishment that sells products, TSFs have customer satisfaction
policies. In order to ensure a quality match and improve customer satisfaction, most
TSFs offer testing periods where the client firms can monitor the performance of the
temporary workers. If the worker does not meet expected quality, the client may
“return” the worker in exchange for another, or terminate the employment altogether.
Testing periods typically last two to three business days. However, this may vary
significantly by the type of job assignment. Normally, higher-wage workers such as IT
specialists have longer testing periods.
Not surprisingly, the quality of the placement is a main concern for client firms
as well. The following excerpt appeared in the Frequently Asked Question section of a
TSF’s brochure:
Q: What happens if the employee doesn’t work out?A: (We are) confident in our ability to provide quality temporary employees; however, iffor any reason you should be dissatisfied with the performance of (our) employee, notifyus immediately and we will identify a replacement.
Since testing periods are short lasting, it is difficult to accurately assess
workers and clients may face quality problems afterwards. What happens in these
situations varies significantly by the TSF as well as the context of the relationship
19 This description is consistent with the neoclassical explanations of search costs. See for example Rees(1966) and Stigler (1961).
28
between the client and the TSF. The TSF may adhere to the employment contract and
take no action, or it may choose to replace the worker. In some cases, the TSF may
allow the client to cancel the contract. But often there is room for negotiation between
the client and the TSF and such decisions are made in the best interests of both parties.
Lease or purchase?
Technically speaking, client firms do not purchase temporary workers, they
lease them. Clients lease the necessary units of labour and return them when their
objectives are met. But like any lease or rental agreement, the clients are given the
option to buy when they find a good quality worker. This arrangement is known as
“temp-to-perm” (stands for temporary-to-permanent). A manager explained the benefits
of the temp-to-perm arrangement:
Temp-to-perm has benefits for both the staff and the firm. For the firm, it’s like a longtesting period where they can screen out the workers they desire to keep. For the staff, it’san opportunity to find permanent placement.
This explanation fares well with actual data. A 1994 NATSS survey found that
38 percent of the temporary workers had been offered a full-time job at the firm where
they were on assignment. Focus group interviews have shown that many employers are
wary of using educational credentials as a sound predictor of job success. Instead of
hiring new graduates with no work experience, employers have come to rely more on
29
temporary employment as screening tools20. According to the Upjohn Institute for
Employment Research, more than half of companies that increased their use of
temporary help workers in the 1990s were motivated by a desire to fill permanent
positions 21. Among these companies, 24 percent did so to screen candidates for
permanent jobs and 37 percent did so because they found it difficult to find qualified
workers on their own. On the other hand, the majority of temps are looking for
“traditional” work arrangements (BLS 1997). Temporary employment is an opportunity
which allows temps to preview the workplace before they commit to a permanent job.
Most TSFs offer temp-to-perm arrangements but their positions vary. For
example, some firms advertise temp-to-perm in their promotional brochures but others
do not. When asked about these differences, one manager explained that the practice
had become so prevalent that many TSFs do not advertise it anymore; it’s assumed.
Another manager explained that temp-to-perm was but a byproduct of the temporary
employment business. As the business matured, more clients began to take advantage
of temporary work arrangements as an effective screening method for permanent hires,
and more workers began to view temporary work as a stepping stone to permanent
placement. Temp-to-perm was a natural response to these changing market conditions.
3.2 The spot market model revisited
Trading room, superstore, shopping list and testing periods. Needless to say,
20 New York Times, February 20, 1995.21 Cited from American Staffing Association Annual Report 1998.
30
these are vocabularies commonly associated with commodity markets. But just because
the market resembles a commodity market does not necessarily imply that it is a spot
market. Here, I review how the previously stated assumptions of the spot market
resembles the features of the temporary labour market.
• Workers and employers are free to enter or leave the market at will, and workers canmove freely from one employer to another.• All job vacancies are filled through the market. We ignore the fact that in practice manyvacancies are filled through internal promotion.• Workers are interchangeable in the eyes of the employer and are of equal efficiency. Weoverlook the fact that workers differ in efficiency and that to achieve full efficiency on aparticular job usually requires a training period.
Put another way these assumptions state that the market is driven purely by
supply and demand forces. The market for permanent workers does not fare well with
this notion, mainly because of its inherently difficult adjustments to downward forces in
demand. This is the main underlying rationale for employers to tap into the temporary
labour market. Employers can take advantage of the temporary workforce without
affecting their permanent workers, and without incurring transaction costs associated
with adjusting the labour force. Recall that the very definition of temporary workers is
that they do not have an explicit or an implicit contract for their employment. In this
regard, the supply and demand of temporary workers are free to adjust to business
cycles.
The market for permanent workers and temporary workers coexist within a
single firm in the form of a dual internal labour market. While permanent workers may
share the benefits of the internal labour market – employment stability, promotion
31
ladders and training opportunities – the temporary workers do not. Temps come into
firms to fulfill a specific assignment and leave when the task is completed. Because of
their short duration, firms have no incentive to train these workers so the temps do not
accumulate firm-specific skills. Rather, temporary workers are compensated based on
their general skills. Their human capital is portable or exchangeable across different
firms. “Temp-to-perm” can be viewed as an arrangement where a firm purchases the
workers and temps make the transition into the firm’s internal labour market. In doing
so, the firm is able to economize on search and screening costs.
• The cost of labour is measured by its hourly wage rate. Since we assume no costs ofsupervision and no fringe benefits, the employer’s cost of labour is equal to the wage rate.• Workers and employers are well informed. Workers know about vacant jobs, the wagerates they pay, and other terms of employment. Employers know about workers availablefor employment, and they know what wage it will take to attract them.
The temp-employer matching transactions are generated through the TSF’s
central database. Further, TSFs have developed a standardization system of skills where
market wages can be determined by the temp’s profiles. Another words, each
temporary worker commands a market wage, a wage which is determined solely by
general skills. Both the temps and the employers are well informed. The database
generates information such that employers can view the availability of workers and their
commanding wages in the form of a “shopping list” and workers can view the
availability of potential job assignments. Moreover, the database has the capacity to
generate information and process matching transactions in real time. Competition over
response time is headed in a direction of instantaneous transactions.
The principle features of the temporary labour market shares close resemblance
32
to the spot market – a frictionless market which allows employers to minimize
transaction costs. Because the market is able to behave like a spot market, it is a
powerful explanation behind our current economic expansion characterized by
aggregate employment growth without accompanying increases in real wages. This is
the central discussion of the next section.
4 Macro-level implications
A 1998 New York Times article reported that “far more than in the 1970s,
companies are using other recruiting tactics to dilute wage pressures.”22 Contingent
employment is a big part of the “other recruiting tactics.” On a similar note, Belous
(1989) states that among the benefits of contingent employment use is “the ability for
the economy to sustain economic growth and not rekindle high levels of inflation.” In
this section, I apply a supply and demand framework in an attempt to illustrate the
relationship between contingent employment23, unemployment and wage changes, in the
context of the recent economic expansion in the US.
A situation in which aggregate employment expands without wage increases
could be one of two scenarios (Figure 2). First, the labour supply curve could be flat.
Second, both the supply and demand curves could be shifting at the same rate, thereby
offsetting wage increases. The critical difference in the two is that the size of the labour
22 New York Times, April 6, 1998.23 To the extent that employment is contingent on the client firms’ need to adjust to demand fluctuations,contingent workers and temporary workers constitute similar work arrangements from the perspective ofthe employer. Henceforth, much of the discussions in this section draws inferences to contingentemployment practices.
33
force is fixed in the first scenario. In the second scenario, the shift in the labour supply
curve implies that the labour force itself has expanded. The influx of workers from E0
to E1 suggests that the labour market has tapped into a different pool of workers.
Under the first scenario, an increase in demand will eventually lead to job
vacancies as there will no longer be workers available to hire. Also, the labour supply
is so highly elastic that even a small change in wages will trigger a massive jump in
employment. But this has not happened. Instead, there is widespread evidence of the
increasing proportion of contingent workers which lends strong support for the second
scenario. I explore this in more detail below.
FIGURE 2 Relationship between employment and real wages
FIGURE 3 The role of contingent employment
LD
LS
realwages
employment
LD’
LS
employment
LS’
E0 E1 E0 E1
LD LD’
w/p w/p
scenario (1) scenario (2)
realwages
LS
employment
L’S
EA EC
LD LD’
w*
L”SwB
wD
A
B
C
D
realwages
→
34
Suppose the economy was in equilibrium at point A in Figure 3. LS represents
the supply of permanent workers. As the economy expands, the demand curve shifts
outward from LD to LD’ along the supply curve LS and a new equilibrium is attained at
B. This causes a raise in wages from w* to wB. The problem with this approach is that
when the economy contracts, the demand curve shifts back along LS accompanied by a
decrease in wages. But this backward movement runs into the problem of sticky wages,
i.e. wages having once risen do not fall back easily. The same can be said for decline in
employment. Recall the previous discussion concerning head count control, mainly that
it is becoming increasingly more difficult for employers to dismiss their workers. These
are the inherently difficult problems confronting the permanent labour force: wages and
employment are flexible upwards but not downwards.
As a consequence, employers have become more cautious about raising wages
relative to the past24. Rapid technological change has made it increasingly more
difficult to forecast how long the current economic expansion can be prolonged. So
employers resort to a tactic in which they expand overall employment while pegging
wages (movement from A to C) at w*. Expanding in this sense implies tapping into a
different source of the labour force – in this case, the contingent workers. To
accommodate shift in labour demand, the labour supply curve shifts from LS to LS’. At
C, the new equilibrium point, the economy has expanded from LD to LD’, employment
has expanded from EA to EC, while wages remain fixed at w*. If the labour supply
curve shifts out at a faster rate relative to the demand curve, the result is an actual
24 See for example comments made by Jared Bernstein, labour economist at the Economic Policy Institute
35
decline in wages, from w* to wD.
Another advantage in using contingent employment, discussed previously, is
that employers do not have to be concerned with employment disputes when the
demand for labour declines, that is, when LD’ shifts back toward LD. By reducing
contingent labour at the same rate as the decline in demand, employers can reduce
excess employment without affecting wages and without reducing their permanent
workforce.
The use of contingent workers supplementing permanent workers is sometimes
referred to as a “blended workforce” (William Olsten Center for Workforce Strategies
1997). The flexible workforce was traditionally viewed as a mere means for filling in
short-term assignments. However, in recent years, client firms are taking a more long-
term approach to flexible staffing. While permanent workers are still allocated to core
business activities, more temporary workers are being called in to perform assignments
that require specialized skills.
[SOURCE: William Olsten Center for Workforce Strategies 1997]
in New York Times , April 6, 1998.
supplementalflexible
workforce
coreflexible
workforce
regularfull-time
staff
workflow
launch
projectpenetrate
new marketbusy
season
custom
orderinventory
summer
doldrums
economic
slowdown
36
FIGURE 4 The blended workforce
The blended workforce suggests a three-tier employment system (Figure 4):
supplemental flexible workforce, core flexible workforce, and regular full-time staff.
Of particular interest is the so-called “core” flexible workforce. Workers who belong to
this category are appointed to longer-term assignments relative to those in the
supplemental flexible workforce. This trend points to a seemingly ironic feature of the
flexible employment strategy: the flexible workforce is becoming a permanent feature
of the business environment 25.
It is worthy to note how the features of the blended workforce mirrors the
relationship discussed in Figure 3. By strategically implementing the flexible
workforce, employers can buffer the changes in the business cycle without affecting
their permanent workforce. Thus, criticisms that decry the threat of the temporary
workforce on the permanent workforce fall short of the mark in this regard. The
flexible workforce is a complement (supplement) to the permanent workforce, not a
substitute.
The buffering effect suggests that the flexible workforce is more susceptible to
market changes – a feature which has been confirmed by many empirical studies
(Abraham 1988, 1990; Davis-Blake & Uzzi 1993; Golden & Appelbaum 1992;
Mangum et al 1985; Segal & Sullivan 1995). For example, Segal & Sullivan (1995)
have shown that the growth of temporary employment “is much more volatile than
37
aggregate employment, falling more during economic contractions and rising more
during expansions.”
Flexible employment strategies can be a cost-minimizing solution as well (see
for example Kalleberg, et al 2000). According to 1997 BLS estimates, median weekly
earnings of temporary workers ($329) were less than two-third of the earnings for
workers in traditional arrangements ($510)26. Although an accurate cost comparison
cannot be made since these are estimates of how much the workers earn and not how
much employers pay for these workers, the cost differential is likely to be larger when
comparing total compensation. BLS reports that 46 percent of temporary workers had
health insurance coverage from any source, and only 4 percent participated in a pension
plan at work. Corresponding numbers for workers in traditional work arrangements
were 82 percent and 44 percent respectively. Similarly, Kalleberg et al (2000) report
that even among workers in non-standard work arrangements, temporary workers were
more likely to earn lower wages, and least likely to receive health benefits and pension
benefits. Minimizing overhead is thus a great incentive for employers to use temporary
workers. Empirically, Mangum et al find that firms were more likely to use temps when
the level of fringe benefits provided was higher.
These ingrained features are the main reasons behind the explosive growth of
temporary employment: an employment buffer to protect the permanent workforce
which also acts as a cost-minimizing tool.
25 See also similar arguments by Larson (1996) and Nollen (1996).26 Median weekly earnings of workers in both categories vary significantly by occupation (BLS 1997).
38
5 Summary and discussion
In recent years, growth rate of temporary employment has far surpassed the
growth rate of aggregate non-farm employment. Market uncertainty, such as the rapid
pace of technological change, has given rise to a practice where employers hesitate to
hire workers into their core workforce. The result is a just-in-time practice of human
labour in which employers purchase skills on an as-needed basis, much like the ways in
which commodities are bought and sold in the commodities exchange. The growth of
temporary employment can be attributed to its spot market features which allow
employers to adjust freely to market changes while minimizing transaction costs.
The increasing use of temporary employment practices has attracted some
attention from policy-makers. There is rising concern that temporary workers are being
exploited, and that employers are filling temps into positions which would otherwise be
held by permanent workers. Although policies aimed at bettering the benefits and well-
being of temporary workers have been introduced (e.g. Part-Time and Temporary
Workers Protection Act) none are yet to be legislated. The reason for this hesitation is
believed to be an economic one. If such a policy were enacted, it would raise the cost of
using temporary workers relative to permanent workers, and the incentive to use
temporary labour would diminish. While this in itself may be an intended effect, the
loss of flexibility would imply overall rigidity in the labour market. Efficiency loss will
be inevitable, and eventually stunt economic growth. Perhaps the optimal solution rests
in the hands of the market forces, for now.
39
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