Labor market lessons from Georgia's temp workers

EconSouth, Summer, 2004

Not that long ago, people studying the U.S. labor market were concerned about the number of permanent jobs being filled by temporary workers. Today, however, much of that angst has been overshadowed by the headlines about U.S. jobs moving overseas. Though the debate has shifted away from temporary workers, temporary employment continues to play a vital role in the functioning of the labor market and in foretelling its movements.

Interest in the temporary workforce--which represents a relatively small sector of the labor market--began to rise in the mid-1980s as the share of temporary workers in the labor force began to increase. In 1985, workers in the temporary help services industry (the U.S. Census Bureau classification for temporary workers) accounted for less than 1 percent of overall nonagricultural, private employment in the United States. By 2003, employment in this sector had grown to 2.1 percent of total U.S. employment. This doubling of temporary workers' employment share is significant and is higher than growth in other areas, including computer system design services and business support services, two areas typically viewed as having grown significantly recently.

An article in an earlier issue of EconSouth ("Temps Have a Permanent Place in the Workforce," Third Quarter 2002) documented the use of and growth in a broader classification of temp workers throughout the states that make up the Sixth Federal Reserve District. The article discussed how businesses benefit from the flexibility afforded them by using temp workers. Hiring temps allows firms to absorb cyclical fluctuations in demand without incurring the costs of hiring and firing permanent workers or providing health benefits. Many businesses also use temp agencies to screen potential permanent workers; if a temp works out, he or she is then hired into a permanent position.

As these highly publicized advantages of using temp workers have resulted in the phenomenal growth experienced by this segment of the labor market, employment in temporary help services has also gained a reputation as a leading indicator of total employment (see chart 1). Coming out of the 1990-91 recession, the upturn in temporary help services employment led employment in all other sectors by eight months, and the downturn into the 2001 recession saw temporary help services leading the rest of the labor market by 11 months. It is too early to tell whether the slight upswing in the rest of employment that began in August 2003 will be sustained. If it is sustained, then temporary help services employment led the overall employment upswing by four months. The vacillations in temporary help services employment between January 2002 and April 2003 likely reflect firms' uncertainty regarding the recovery.

What is clear from chart 1 is that temporary workers, as a group, play an important role in the overall labor market. Unique data on individual workers in the temporary help services sector make it possible to investigate the instability of the sector through the business cycle, temp workers' experience during the most recent recession, and temp workers' earnings compared to those of workers in other sectors. These factors help define the experience of individual workers employed in temporary help services, which may be very different from those of workers in other sectors. Understanding the experiences of these individuals can help businesses and policymakers better grasp the role such workers play in the functioning of the labor market.

A unique look at individual workers in Georgia

A quarterly report that firms are required to file with their state's department of labor details the number of workers the firm employs each quarter in that state as well as how much each worker is paid that quarter. These nonpublic data, made available to the author on a restricted basis, provide a tmique opportunity to look at the experiences of individual workers rather than just workers in the aggregate. The data also furnish details about employment gains and losses in a specific industry. In other words, the data make it possible to follow workers over time to see how temp workers fared during the recession. Did temps spend more time unemployed? Did they work for more employers? Did they experience greater earnings losses or gains? Data from the Georgia Department of Labor provide answers to these questions for workers in Georgia

In addition, the quarterly data also show how the temporary help services industry responds to changes in demand for its workers. Is job creation in temporary help services dominated by new firms opening or by existing firms expanding? Is job destruction in temporary help services dominated by firms closing or by firms reducing their employment numbers? While only the experiences of Georgia's temp workers are examined here, the data provide details about this sector and its workers that have never before been analyzed.

Temporary help services are volatile

The level of employment in each quarter is determined by a number of factors. Jobs are lost as firms shut down or lay off workers, and jobs are created as new firms open or existing firms hire more workers. The sum of this job destruction and creation yields the changes in total employment shown in table 1. The data gathered by the Georgia Department of Labor can be used to break down the total employment change from one quarter to the next into each of its components.