A recession—and a recovery—like no other.
By Michael Beygelman
The behavior of both the permanent and the temporary employment markets strongly indicates that both have undergone structural change and are not trending within their historical cyclicality. This shift will ultimately impact companies that have ambitious hiring plans, and also HR services providers that might either capitalize on the trend or see their business erode over time.
The staffing sector—companies such as Adecco, Kelly, Manpower, Randstad, and such—historically has been countercyclical. But something different seems to be going on this cycle. Since most economists agree that the recession technically ended sometime in the middle of 2009, we are supposedly headed into the fourth year of an economic recovery. In terms of employment, by this juncture, we should be seeing a more pronounced demand shift from temporary workers to permanent employees, because as the economic conditions improve companies have historically tended to start relying more on full-time employees as opposed to temps or contractors. However, even though the permanent employee hiring market has seen upticks in certain industry segments, in general it is not picking up as substantially as expected.
Temporary staffing is continuing to perform quite well. The Bureau of Labor Statistics confirms that temporary employment in the United States is growing in the high single digits, even some four years after the end of the recession. If we were to compare this to historical norms, we’d see that in reality the rate of temporary staffing growth should be about half the current rate. This provides evidence that we are witnessing a secular change. Companies have much less appetite to hire permanent employees because of all the uncertainty. Recall that companies got burned during the last economic decline by having to layoff large numbers of permanent employees; it might be safe to say that companies will never go back to hiring permanent employees the same way they did before the most recent economic decline.
This secular shift is not merely a U.S. phenomenon. “According to the latest research conducted by Australian Council, nearly 83.1 percent of employers prefer to hire temporary workers for their long-term projects. They also intend to have at least 25 percent of their total work force to be hired on a temporary basis,” states staffing provider Tekniskill.
The temp industry is a classic symbol of the unfolding shift in the employment landscape, but some believe that “temping is the quintessential ‘bad’ job.” Erin Hatton, author of The Temp Economy: From Kelly Girls to Permatemps in Postwar America says, “on average, temps earn lower wages and receive fewer benefits; and they have less job security, fewer chances for upward mobility, and lower morale than those with full-time, year-round employment. What’s more, by increasing the flexibility of the labor supply, the temp industry contributes to downward pressure on wages, decreased employment security, and limited upward mobility for all workers, not just temps.”
While Hatton certainly has a biased point of view toward temporary employment, her point about pressure on wages and flexibility cannot be ignored; it is likely at the epicenter of our shift in the employment paradigm. Companies are displaying an insatiable desire for flexibility and scale that cannot be fed by traditional employment. Companies want to pay the absolute lowest possible wage for the absolute maximum amount of work, and as long as people continue to accept these arrangements companies will continue to prefer them. And while an IT contractor arrangement for say $75 per hour might not seem to be so harsh, consider that these arrangements might only last for three to four months.
This secular employment shift can also begin to impact HR services providers such as RPOs and payroll processors. RPO firms do not do contingent or temporary staffing because that is what staffing companies do, so RPOs instead focus on options for companies that want to outsource their permanent employee hiring. Payroll processor growth is driven by creation of new businesses that outsource their payroll function and/or companies adding to their internal permanent employee payroll. It is probably safe to say that if companies continue to increase their reliance on temporary labor, that the absolute number of permanent employment openings will decrease over time, thereby creating growth challenges for RPO firms, and the payroll processors will also experience minimal growth because the absolute number of businesses created or permanent employment jobs created is not going to match historic levels.
Many analysts are starting to note this shift. Some are trying to help their firms make the right puts and calls on companies that might benefit, while others in the public sector are trying to understand the long-term ramifications. Without question, the HRO space has already been impacted by this shift, as evidenced by the ebbs and flows of HR services providers. What remains to be seen is how this shift will enduringly impact our society.
Michael Beygelman is RPO president at Pontoon. He can be reached at email@example.com.