Academic journal article The McKinsey Quarterly

Agencies of Change

Academic journal article The McKinsey Quarterly

Agencies of Change

Article excerpt

About two million people in the European Union work for private employment agencies, which make them available to other companies. Such agencies constitute a major and rapidly growing sector: in 1999, they had revenues of [epsilon]59 billion--a figure that is rising by more than 10 percent a year.

Yet in some parts of Europe--particularly Southern Europe--employment agencies are strictly regulated because they have a bad reputation among trade unions and the general public. In these countries, many people believe that such firms help businesses to circumvent the spirit of strict employment protection laws and to cannibalize permanent jobs. Furthermore, it is thought that those who accept agency work do so in desperation because they can't find permanent positions and that agency jobs are precarious dead ends.

To develop a comprehensive fact base on the sector's social and economic value, the International Confederation of Private Employment Agencies commissioned a study. [1] It concludes that private agencies could create 4.3 million new jobs in EU countries by 2010 and make a contribution to overcoming two major economic problems in Europe: low labor force participation rates and high unemployment.

Moreover, the findings of the survey of workers contradict the idea that people go to an agency because they can't find permanent jobs and that this kind of employment leads nowhere. When workers were asked about their motives for taking an agency job, a third replied that it was their preference. Flexible schedules, the opportunity to work for a variety of employers, and the ability to quit without giving notice were cited as important reasons (Exhibit 1). The flexibility provided by agencies attracts the jobless and thereby raises the labor force participation rate.

Although two-thirds of the respondents had started agency work because it was the first thing they found, just 39 percent of that subgroup had taken it primarily because they couldn't find permanent positions. Only this minority, comprising about a quarter of all agency workers, consists of people for whom agency jobs represent a clear second choice. Furthermore, the survey doesn't support the idea that working for agencies is a dead end; on the contrary, 43 percent of their employees found permanent jobs or fixed-term contracts within a year of starting at an agency (Exhibit 2, on the next page).

About half of these men and women thought that the experience they had gained through agencies helped them find those jobs. Agency work thus acts as a stepping-stone to more permanent forms of employment.

On the company side, too, the survey helped to undermine received ideas. Although companies are often thought to employ agency workers because they are a cheap substitute for permanent ones, the survey suggests that this explanation is correct in only a limited number of cases. In fact, agency workers primarily help companies manage peaks in the demand for their products or services, on the one hand, or troughs in the supply of their workers, on the other (Exhibit 3). Companies also make use of agency workers because their skills (for example, expertise in information technology) are not available in-house. In this way, private employment agencies permit companies that use their services to compete more effectively and flexibly.

Regulation is an important factor limiting the growth of employment agencies. Europe is divided between countries (such as Germany, Italy, and Spain) with strict regulatory regimes and countries (the Netherlands, Sweden, and the United Kingdom) with more liberal systems. Countries with tighter restrictions limit the sectors where agency workers can be used, the reasons for using them, and the length of their assignments (Exhibit 4).

If the agency sector were deregulated--making it possible to develop well-functioning private employment agencies while ensuring the proper protection of their workers--it could employ up to 6. …

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