Dynamic pricing comes to the labour markets. A review of the temp market on
employment, especially wages. From the Wall Street Journal.
THURSDAY, FEBRUARY 1, 2001 (A1)
Temp Workers Have Lasting Effect ---- By David
Wessel
The Wall Street Journal
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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