How the temporary staffing industry affects the economy

Sally J. Nienhauser, Senior Vice President, Millennium Corporate Solutions

After losing 1.14 million jobs — 37 percent of its work force — between 2007 and 2009, the U.S. temporary staffing industry began to grow again. This turning point, which some might think to be specific to the staffing industry, may be indicative of a greater turnaround in the economy as a whole, if history is to be believed.

“As we pull out of the recession, companies should keep an eye on the temporary personnel industry because it can be used as an early indicator of a turnaround, to some degree,” says Sally J. Nienhauser, a senior vice president and partner with Millennium Corporate Solutions. “While it may be too early to say that the temporary personnel industry data supports a turnaround in the economy, it certainly is one indicator and a precursor to increased overall employment.”

Smart Business talked more with Nienhauser about how temporary staffing affects the economy, and what it means for all employers.

How are temporary personnel providers handling the economy?

The temporary personnel providers are part of the broader ‘contingent work force.’ This contingent work force includes not just temporary personnel but also contract labor, independent contractors and other forms of alternative work force solutions.

Temporary staffing firms lost 37 percent of their work force during the years 2007 to 2009.

So it really is no exaggeration to claim that the recession devastated the temporary personnel industry. However, the temporary personnel industry historically is one of the first employment sectors to show significant growth when the economy begins to show signs of recovery.

The Bureau of Labor Statistics reported in July 2010 that U.S. staffing companies have added more new jobs than any other sector since the recovery began. The American Staffing Association index for January 2011 was up 13 percent over January 2010. In fact, during the second half of 2010, my clients in the temporary staffing sector showed an average payroll growth of 20 percent. Some of my clients’ payroll growth climbed as high as 30 percent.

Why are many businesses turning to temporary staffing for their hiring needs?

With the recession and the attendant downsizing at most firms, businesses are especially reticent to re-staff to 2006 levels. They are rightfully cautious, and do not want to add staff only to have to make cuts again in the event of another economic dip.

Most businesses are looking for flexibility to help them ride out any future bumps in the economy. Therefore, many employers are finding that they may use a temporary staffing company to fill open positions. In some occasions, companies may even audition potential full-time employees by leaving them on the temporary services payroll until they are certain that the employee can meet the demands of the position.

Employers enjoy the flexibility temporary workers provide in times of economic uncertainty. Of course, companies have always used temporary staffing firms or the contingent work force to staff for busy times of the year or special projects.

During the recession, many companies were forced to downsize employees at many different levels, and they are finding that as they begin to grow once again, they may need to fill top management spots. In some instances, these companies are filling some top management positions with employees from temporary staffing firms. Again, flexibility is a key for most companies in overcoming the recession.

What advantages are there to using temporary personnel?

The advantages can be significant — flexibility being the most important advantage. If a temporary employee is unable to fulfill all the duties of the position, the employer has no obligation to continue to employ that individual in the position.

In addition, there are significantly fewer administrative burdens, as the temporary employee service is the employer of record, and as such they are responsible for all state and federal employment taxes and workers’ compensation for the temporary employees. Overall, companies are seeing the value of a more blended work force with traditional employees and contingent employees giving companies more controlled costs.

Will an increase in the hiring of temporary employees lead to more employees being hired on a full-time basis?

I believe that it will, because cautious employers are using temporary services to ‘try out’ employees before hiring them on a full-time basis. As the economy improves, and the temporary employee proves to be a valuable resource, many employers will take them on as full-time employees.

What does this turnaround mean for other employers, and the greater economy?

In past recessions, the turnaround in the temporary employment business has consistently signaled a turnaround in the overall economy. Even though there are still significant issues affecting recovery, including housing, consumer spending and state and local government deficits, the temporary employment business has always been a precursor to recovery. I believe it’s an important indicator of a pending turnaround in the overall economy, and therefore a sign of optimism for employers.

Sally J. Nienhauser, ARM, is a senior vice president and partner with Millennium Corporate Solutions. Reach her at (949) 679-7107 or [email protected]