Tuesday, February 16, 2010

USA Today: Use of Temps to Fill Jobs May No Longer Signal Permanent Hiring

The theme of this USA Today story is a concept I've been debating mentally the past few months; for many years in the manufacturing field there has been something called 'just in time' inventory to promote efficiency.  Now we might be moving to an era of 'just in time' labor - easily hired, easily fired.  Or in 1980s lingo - wax on, wax off!  The implications for the society are profound, but for economic reasons it might make one of the commonly used 'old school' barometers of economic recovery less useful - that is "temporary hiring surges before full time employment recovers".  Ironically "just in time" inventory had its nexus in Japanese manufacturing, and "just in time" employment also has the same origins.  Although there is now a massive backlash among Japanese workers after embracing "Anglo Saxon type employment" practices to become "more competitive" globally.  [Sep 21, 2009: NYT - Japan Struggles to Balance Growth and Job Stability]

Mr. Hatoyama is especially critical of changes championed by the former prime minister, the pro-American, free-market Junichiro Koizumi. Among other things, Mr. Koizumi took aim at Japan’s stagnant labor market, lifting a ban on the use of temporary laborers at factories.  He hoped to increase flexibility in hiring at Japanese companies, many of which are saddled with more employees-for-life than they need, protected by labor laws and social norms. The inability to fire these redundant workers even in lean times keeps productivity at ailing companies low, while hurting upstarts that could use experienced workers.

But critics blamed those changes for a widening income gap between lifetime workers and their poorer “temp” colleagues.  The number of temporary workers, with low pay, few benefits and little job security, has surged in the last decade, reaching a third of the work force of 67 million. The plight of temporary workers let go en masse in the fallout from the global financial crisis has prompted a public outcry.

People started to see high levels of economic inequality. The quality of jobs started going down, and there was a growing number of temporary workers,” said Steven K. Vogel, a professor of political science at the University of California, Berkeley.

Now of course the cultures of the 2 countries are night and day - but the trends seem identical.  It is obviously too soon to make a clear judgement if the US is going the same route but from anecdotal evidence it seems so.  Let's keep this in the back of our cranium as we watch the employment data over the next year.*  I have not had time to repost a most excellent BusinessWeek article on this subject from a few weeks ago, will try to fit that in, in the coming weeks. 

*please ntoe - the employment data for the next 6 months will be useless to tell us how US economy is truly doing as the mass hiring of a million+ census workers will skew the data mightily.  Hence we'll have to circle back to the jobs data next fall for more of a realistic take. [Dec 20, 2009: NYT Economists See Lift in 2010 Census]

Via USA Today:
  • It's not the signal it used to be. When employers hire temporary staff after a recession, it's long been seen as a sign they'll soon hire permanent workers.  Not these days.
  • Companies have hired more temps for four straight months. But they remain reluctant to make permanent hires because of doubts about the recovery's durability.  Even companies that are boosting production seem inclined to get by with their existing workers, plus temporary staff if necessary.
  • "I think temporary hiring is less useful a signal than it used to be," says John Silvia, chief economist at Wells Fargo. "Companies aren't testing the waters by turning to temporary firms. They just want part-time workers."
  • The reasons vary. But economists and business people say the main obstacle is that employers lack confidence that the economic rebound has staying power. Many fear their sales and the overall economy will remain weak or even falter as consumers spend cautiously.  Companies also worry about higher costs related to taxes or health care measures being weighed by Congress and statehouses.
  • DeCapua says corporate demand for temporary workers has surged. That's especially true for manufacturing-related jobs involving driving forklifts, assembling products, packing merchandise and loading it on trucks.  That demand hasn't spilled over into a demand for permanent workers, and DeCapua doesn't see it turning around anytime soon.
  • For years, economists have regarded increased hiring of temp workers as a bridge between no hiring and healthy job creation. It meant employers would soon expand their permanent payrolls to keep up with rising customer demand.  After the 1990-1991 recession, for instance, gains in temporary hiring starting in August 1991 led almost immediately to stepped-up permanent hiring. And after the 2001 recession, temporary hiring rose for three straight months in the summer of 2003. By September, employers were adding permanent jobs each month.
  • Now, because this recovery seems more tepid and fragile than previous rebounds, temporary hiring may have lost its predictive power, economists say.  "I think a lot of it is manufacturing," says Mark Zandi, chief economist at Moody's Economy.com. "It may be that manufacturers are relying more on temps than in the past because they are more unsure about the ongoing demand for what they produce."
  • For the unemployed, temporary jobs provide a paycheck at a time when the unemployment rate remains near double digits. Still, these jobs generally offer few or no benefits.

With the United States being the only major Western country that requires its companies, large or small, to foot the bill for employee healthcare - my only surprise is that this trend has not happened earlier.  The longer healthcare costs go unchecked in this country, the higher the marginal cost will be to hire each employee - which will be a drag on full time employment.  Another conundrum for America.

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