Capital
Temp Workers
Have Lasting Effect
ON ANY GIVEN DAY, more Americans owe their jobs to temporary-help outfits than
are working in auto and aircraft factories. About 10% of the job growth in the 1990s was
in temp agencies, twice as much as in the 1980s. Manpower Inc. boasts of being America's
largest employer.
Is this a temporary feature of an economy in which workers have been scarce, one that
will vanish along with Alan Greenspan's halo if the U.S. is sliding into recession? Or has it
become a permanent feature, a key to the pleasurable mix of low unemployment and low
inflation? Clearly, it's good for employers. But is it good for workers?
Temp agencies grew rapidly after state courts in the late 1970s and 1980s limited
employers' ability to fire permanent workers. Temps were easier to fire than permanent
workers, so employers hired more of them. Perversely, efforts "to protect workers
against unjust dismissal have fostered the growth of ... jobs that offer less job security and
lower pay," says David Autor, a Massachusetts Institute of Technology economist.
Then many employers got hooked on temp agencies. Temp-agency payrolls zoomed in
the 1990s as the slogan of shopkeepers became "help wanted." By 1996, according to one
national survey, half of all employers and three-quarters of all manufacturers were using
temp firms. Today, more than 3.3 million workers are on temp-firm placements, mostly
in clerical or light-manufacturing jobs.
The temp boom is a huge change in the way the
economy works. It's one reason the U.S. has pushed
down the unemployment rate without pushing up the
inflation rate. Economists Lawrence Katz and Alan
Krueger estimate that the jobless rate consistent with
stable inflation might be four-tenths of a percentage
point higher if not for the expansion of the temp
agencies. Without temps, the Federal Reserve might
have put on the brakes sooner -- before the last
500,000 workers were hired.
That sounds good, especially for those half-million
workers. But how do temp agencies accomplish this?
One way is unambiguously good: They make it easier
for employers with openings and unemployed
workers to find each other. The other is mixed: They
allow employers to avoid raising wages.
AGENCIES HELP SOME workers get jobs they wouldn't get otherwise, often screening
and auditioning workers to save employers' effort. In some states, more than 20% of the
people leaving welfare for work spend time in a temp-agency placement; some wouldn't
get jobs unless a temp agency vouched for them. While it lasted, the tight labor market
helped. "Employers were so open-minded, we could place anyone who wanted to work.
Employers had the mirror test: Do they breathe?" says Debbie Barnowsky, manager of
Snelling & Snelling Inc.'s Auburn Hills, Mich., office. "But that's not true anymore."
Temp agencies also offer a quick, free way to brush up on computer skills. In a survey of
439 temp offices, Mr. Autor found that 30% of clerical hires get training, usually seven
hours of computer lessons. The firms aren't altruistic. Training allows them to charge
employers higher fees and to attract both workers and employers.
But that's not the whole story. Employers use temp agencies to lure sorely needed
workers without raising wages for existing workers. They tinker with wages in much the
same way airlines tinker with ticket prices to fill planes, says Susan Houseman, an
economist at the Upjohn Institute for Employment Research, in Kalamazoo, Mich.
Hospitals use temp-agency nurses because they say they can't fill vacancies otherwise.
They mean they can't fill vacancies at the wages they're paying.
"One reason temp agencies are able to get nurses and we're not is that they are paying
them outrageous dollars that we won't pay," a Michigan hospital administrator who uses
temps, told Upjohn economists, without apparent irony.
A BIG NORTH CAROLINA hospital hires as many permanent nurses as it can at $25.76
an hour in wages and benefits. Then it fills vacancies by paying $40 for temps, of which
the nurses get between $28 and $32 an hour with few fringe benefits. The winners: folks
who pay hospital bills. The losers: the $26-an-hour nurses who might otherwise make
more money if the nursing shortage forced hospitals to bid up wages across the board.
In factories, the dynamics are different. A Midwestern auto-parts plant pays $15.67 an
hour for permanent workers and $10.88 for temps, of which $7.50 goes to the workers.
The company can't hire seasoned workers at the higher wage. It takes a chance on
unproven workers because they're cheap and failures can be fired easily. If not for the
temps, Ms. Houseman figures, the company would raise wages to lure good workers
from other firms. She scores experienced workers as losers. But some temps are winners:
After successful tryouts, they get permanent jobs they would never have landed
otherwise.
A recession will reduce the appetite for temps. "It's pretty simple," says Jeffrey Joerres,
Manpower's president. "If a company has 500 workers and another 100 from a staffing
firm, and its business starts to look soft, the 100 people from the staffing firm are released
first." That began happening in December, he says.
The jobs are temporary. But the changes temp agencies are making to labor markets are
likely to last.
&!
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nbsp; -- David Wessel
Resources
For more on David Autor, including links to his National Bureau of Economic
Research papers on temporary workers, see:
http://web.mit.edu/dautor/www/3
For more on Susan Houseman, see:
http://www.upjohninst.org/staff/houseman.html4
For more on the Russell Sage Foundation's "Future of Work" project, which is
funding the Houseman work, see:
http://www.russellsage.org/programs/proj_reviews/future.htm5
For a summary of Lawrence Katz and Alan Krueger's explanation of low
unemployment and low inflation see:
http://www.brook.edu/es/macroeconomics/bpea1%2D99/1.htm6
For the Bureau of Labor Statistics latest survey on contingent work, see:
http://www.bls.gov/news.release/conemp.nws.htm7
For the temporary-help industry's views, see:
http://www.natss.org/8
For a General Accounting Office report on contingent workers, see:
http://www.gao.gov/new.items/he00076.pdf9 (The free Adobe Acrobat reader is
required to view this file and is available from www.adobe.com10.)
URL for this Article:
http://interactive.wsj.com/archive/retrieve.cgi?id=SB980971987286259994.djm
Hyperlinks in this Article:
(1) mailto:[EMAIL PROTECTED]
(2) http://interactive.wsj.com/CapitalExchange
(3) http://web.mit.edu/dautor/www/
(4) http://www.upjohninst.org/staff/houseman.html
(5) http://www.russellsage.org/programs/proj_reviews/future.htm
(6) http://www.brook.edu/es/macroeconomics/bpea1%2D99/1.htm
(7) http://www.bls.gov/news.release/conemp.nws.htm
(8) http://www.natss.org/
(9) http://www.gao.gov/new.items/he00076.pdf
(10) http://www.adobe.com/
