Academic journal article Economic Perspectives

The Temporary Labor Force

Academic journal article Economic Perspectives

The Temporary Labor Force

Article excerpt

In this article we examine the characteristics of workers in the personnel supply industry, the great majority of whom are employed by temporary help supply firms.(1) We examine the changes that have occurred to the demographic and occupational composition of this industry's work force over the last decade. We also provide evidence on the labor force attachment and industrial mobility of temporary workers and examine how their wages compare to those of similar workers, as well as to their own wages on previous or subsequent "permanent" jobs.

Several factors motivate this undertaking. First, employment growth during the current economic expansion has been led by the service sector. One of the fastest-growing components of this sector has been the personnel supply industry, which supplies temporary and continuing workers to client firms (see table 1). Indeed, though the personnel supply industry currently comprises less than 2 percent of total employment, it accounted for over 15 percent of employment growth between 1992 and 1993, and many analysts predict continued rapid growth. Thus it is worth understanding the makeup of workers in this growingly significant sector.

Furthermore, the personnel supply industry has received attention because it is widely believed to be a leading indicator of employment conditions. As we confirm below, employment in the industry has led total employment during recent business cycles. Such leading indicators are useful to policymakers and others who need to base decisions on where the economy is headed rather than where it has been. However, there is evidence that the temporary help industry has undergone structural changes, including expansion into industrial settings. Assessing these structural changes can help us assess the implications of using employment growth in the temporary help industry as an indicator for the economy as a whole. Toward this end, in the pages that follow we examine micro data on workers.

The increasing use of temporary help in manufacturing has also been suggested as a possible explanation for the puzzlingly slow growth of manufacturing employment coming out of the recent recession. That is, it is possible that more workers were employed in manufacturing activities than the manufacturing employment totals would suggest, but that a sizable fraction of the workers were temporaries and so not counted in those totals. Examining occupational data on individual workers in the personnel supply industry helps us to evaluate this explanation.

Finally, there has been considerable controversy about the social desirability of temporary help. Some describe temporary workers as an underclass who, because of their contingent status, do not receive sufficient human capital investments to succeed in today's labor market.(2) Defenders of the temporary help industry point out that temporary employment provides workers with additional skills and serves a number of other important economic functions. They note that the industry has increasingly provided human resource services that were traditionally provided within client firms, and that the use of temporary workers has increased the efficiency and competitiveness of U.S. industry. While such controversies are beyond the immediate scope of this article, some relevant facts can be learned from the data on individual workers. For instance, from the micro data we can determine if temporary employment is a permanent condition, as implied by the "underclass" designation, or rather, a transitory state en route to permanent employment.

TABLE 1
Payroll employment by industrial sector

Annual average
(thousands of workers)

                                                  Personnel
                                                   supply
Year     Total     Manufacturing     Services     (SIC 736)

1990    109,423      19,076           27,934        1,535
1991    108,262      18,408           28,336        1,485
1992    108,599      18,105           29,050        1,630
1993    110,525      18,005           30,276        1,926

Annual growth rate
(percent)

                                                  Personnel
                                                   supply
Year     Total      Manufacturing    Services     (SIC 736)

1990      1. … 
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