Employee Attachment and Temporary Workers

Abstract

In 1992, in the wake of turmoil and tremendous change, the US economy emerged from a brief recession and began an expansion of unprecedented length. From the late 1 960s and early 1970s onward, the economy had faced growing competition within global product markets, structural change as computer technology evolved and trade increased, and deregulation of financial and product markets. Merger and acquisition activity blossomed in the wake of financial market deregulation as firms sought to compensate for sagging levels of profit and reorganize into more efficient units. Mergers and acquisitions were also used to increase the power of shareholders and to induce management to maximize shareholder value (Jensen 1988). There was pressure for high short-run returns on equity since high stock prices please owners and discourage corporate raiders (Allen 1994). In the wake of falling profits and with growing shareholder pressure, many firms responded to the risks associated with uncertain input costs and production for volatile product markets by shifting employment risk to employees (Belous 1989; Duca 1998). The perception held by many corporate managers was that the solution to a profit squeeze was to be a lean, mean machine able to respond quickly to changes in product markets and to shareholder pressure. Rigid labor markets and implicit job security, deriving in part from non-market institutions, broke down as market forces drove the move to a more flexible labor market (Abraham and Houseman 1993, Kinnear 1999; Golden 1990; Champlin 1993; Gordon 1996). Businesses increasingly used nonstandard and part-time workers to gain flexibility at lower cost. A key result for workers during this structural change was decreasing job tenure and employment uncertainty (Abraham 1998; Abraham and McKersie 1990; Gordon 1996).