24 Jan This Time, the Growth in Temps May Be Here to Stay

by John Zappe Jan 24, 2012

“Unemployment is expected to remain above 8 percent for the next four years.” That gloomy assessment of the U.S. economy from FedEx Chief Economist Gene Huang is echoed in any number of reports and economic predictions.

“Most predictions,” says an economic analysis by the Society for Human Resource Management, “are less optimistic now than they were when 2011 began.”

What especially worries economists is whether the slow job growth is due to employer cautiousness — in which case growth will accelerate when economic confidence returns — or whether it is structural, meaning some jobs have been permanently eliminated, much the way automation obsoleted elevator operators.

“It is a fair bet that aggregate demand remains the main problem while pockets of skills mismatches persist, despite the high number of job seekers,” says the SHRM analysis.

The latest economist to weigh in is Gad Levanon, director of macroeconomic research for The Conference Board. Last week, he dissected recoveries of the past to examine the rate of job growth across multiple industries. What he found is that “the current employment recovery is the second slowest on record.”

His analysis led him to conclude that job growth this year is going to be a lot like last year.

Like Huang, the St. Louis Federal Reserve doesn’t see unemployment moving much below 7 percent before 2014 and even then, the Fed says it might even be up around 8 percent. That’s despite the Fed’s guess that real GDP is likely to be over 3 percent, possibly even up to around 4 percent.

Levanon’s analysis, though, offered some support for the SHRM view that it is weak demand that’s limiting job growth. One look at the chart and two things jump out. The first is how small the percentages are now compared to recoveries of the 60s, 70s, and 80s. The other is how robust the growth in temporary workers is.

The latter is a good sign. It suggests, at least, that the current pace of job growth is likely to continue. While a nearly 32 percent growth in temporary staffing since June 2009 would historically signal a spurt in full-time job growth, that may not be the case in this recovery. Instead, it may evidence that some structural changes are occurring in how employers manage their workforce.

This is not the same as automation eliminating jobs, but is a response to business cycles — as when retailers add staff in the fall for the holiday season — or project-based needs, or the natural ebb and flow. In other words, more employers may be including the use of temps as a strategic part of their workforce, and not merely as a precursor to fulltime hiring.

This so-called “secular growth” theory is certainly debatable. A Morgan Stanley research paper last spring challenged the notion that temporary and contract workers are becoming a strategic part of corporate employment in the U.S. and worldwide.

However, in a provocative and data-laden analysis of the staffing industry, BMO Capital Markets says “it may be different this time.” While the firm doubted the secular growth notion, now it’s not so sure. The research report issued earlier this month says:

However, by this point in the cycle, we should have seen a significant switch from “temp” to “perm,” but we have not; temp jobs represented nearly 15% of totals jobs added in the current recovery – by far the highest of the first 21 months in the past six post-recession periods – and given the current sluggish rebound, total employment may not return to its pre-recession peak for the first time ever.

There’s evidence now, says BMO, that the proponents of secular growth may be right “and the industry is seeing some secular growth as corporations use temporary staffing more strategically as part of their overall human resource policies.”