Could Surge In Temp Workers Lead To Jobs Improvement?

Moses Kim discusses the possibility that the surge in temp workers might be a precursor to growth in the market for desperately needed permanent jobs. It could also be a false prophet as temp workers are often cheaper alternatives for employers and are the easiest to eliminate from their payroll. See the following post from Expected Returns.

From the New York Times, Labor Data Shows Surge in Hiring of Temp Workers:

The hiring of temporary workers has surged, suggesting that the nation’s employers might soon take the next step, bringing on permanent workers, if they can just convince themselves that the upturn in the economy will be sustained.

As demand rose after the last two recessions, in the early 1990s and in 2001, employers moved more quickly. They added temps for only two or three months before stepping up the hiring of permanent workers. Now temp hiring has risen for four months, the economy is growing, and still corporate managers have been reluctant to shift to hiring permanent workers, relying instead on temps and other casual labor easily shed if demand slows again.

Temp hiring has risen the last 4 months, which is a positive sign. However, companies do add to their work force during the holiday season due to seasonal factors. If labor conditions were truly strong, we would see a rise in the hiring of permanent workers, which we just aren't seeing yet.

Here's a visual representation of the increase in temporary work. As you can see, the increase in temp work isn't that considerable in the grand scheme of things. Quite simply, the increase in temp work has been a long-term trend as companies do anything to increase their bottom-line

Government Statistical Games

The rising employment of temp workers is not all bad. However uncertain their status, they do count in government statistics as wage-earning workers, adding to the employment rolls and helping to bring down the monthly job loss to just 11,000 in November. Indeed, the unemployment rate fell in 36 states in November, the Bureau of Labor Statistics reported last week, partly because of the growing use of temps.

The bureau, which issues the monthly employment reports, does not distinguish between permanent and casual employment, with one exception: it has a special category for temp workers, the men and women supplied by Manpower, Kelly Services, Adecco and other agencies.

Last month 52,000 temps were added, greater than the number of new workers in any other category. Not even health care and government, stalwarts through the long recession, did better.

The example above is telling in the way our government can manipulate government statistics. There is an obvious qualitative difference between temp work and permanent employment, but that distinction is not made by our government. Temporary workers do not enjoy benefits such as defined benefit plans, which is a huge issue moving forward.

The move away from defined benefit plans (pensions) to defined contribution plans (401k's), along with the shortfall in Social Security, will result in a mass of Baby Boomers working into old age. Considering the fact that we have just come out of the worst decade for stocks in quite some time, Baby Boomers who have relied on their 401k's to retire are in for a world of pain.

From Temp to Out-of-Work

“An actual employee with benefits costs more than a temp or a contract worker,” Ms. Baker said, “and as long as I can still get highly skilled temps, I’ll go that route. It gives me more room to reverse course if the economy weakens again and sales do finally sink.”

Given the nature of the upturn, that could happen. After 18 months of contraction, the economy expanded from July through September at a 2.8 percent annual rate, and many economists expect the expansion to be even stronger in the fourth quarter, approaching 4 percent. The rebound is robust mainly because of a “turnaround in inventory policies from breakneck liquidation to slow accumulation,” Mr. Wojnilower said.

If this restocking of shelves and warehouses were to stop or slow next year, a possibility that concerns Mr. Littlefield and Ms. Baker, then the temps, freelancers and contract workers they and many other employers now use would have a harder time moving from casual to regular employment.

The increase in temp hirings can easily backfire and cause another spike in unemployment, since temporary workers are the most vulnerable to layoffs. I believe we will experience another dip down in the economy in 2010, which will be reflected by an increase in unemployment. Expectations of a V-shaped economic recovery are overly optimistic since we have yet to address the fundamental problem, which is debt. 2010 will be a very interesting year since it coincides with an election, which means our government officials will do anything to forestall an economic collapse, including massive stimulus measures that will drive the dollar to new lows.

This post has been republished from Moses Kim's blog, Expected Returns.