The expansion of temporary help employment in the US, 1982-1992: a test of alternative economic explanations

Abstract

Employment in the temporary help supply (THS) industry more than tripled in the US between 1982 and 1992. During that period, the variability and cyclical sensitivity of THS jobs, their average weekly hours and real hourly earnings were extraordinarily high. In addition, changes in temporary employment levels disproportionately affect aggregate employment flows over this period. One possible explanation of the dramatic rise and variability in THS jobs is demographic changes in the composition of the labour force towards groups believed to prefer impermanent job commitment or temporal flexibility in supplying labour services. A contrasting view considers it part of an explicit human resource strategy increasingly adopted by firms seeking greater 'numerical' or cost flexibility. This strategy may reflect an employer response to greater volatility in demand, intensifying price competition pressures in product markets and rising quasi-fixed costs incurred for permanent employees such as nonwage benefits. A two-sector model is developed that presents permanent and temporary (secondary) sectors as distinct labour market segments. Three-stage least squares estimation of non-nested models of aggregate employment in the help supply industry is conducted. The results more strongly support the hypothesizedeffect of the 'employer strategy/opportunity' set of variables in the model. Specifically, fluctuation in industrial output, intensified foreign competition, the relative magnitude of nonwage labour costs and extent of paid time-off are all positively associated with temporary employment. In addition, the diminished bargaining power of labour has allowed employers to exploit the labour cost savings of temporary hires. The only variable in a 'labour force composition' model at all positively associated with levels of temporary employment is the proportion of married women in the labour force. Implications are then drawn for public policy, given that the rapid rise in temporary jobs reflects labour input strategies adopted by employers more than a growing worker preference for such jobs.