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Riding High In 'Jobless Recovery'
As American businesses shake off the recession and try to find their footing in the budding recovery, flexibility is their focus, particularly when it comes to hiring. Over the last 20 years, firms have increasingly turned to temporary or contract workers. According to data from the Labor Department, the number of temporary jobs in the U.S. climbed steadily from 1.16 million in 1990 to just over 2.3 million last month. It now accounts for 1.8% of the country's labor force, up from 1.1% in 1990 and 0.5% in 1982. Mark Allen, an analyst with SunTrust Robinson Humphrey, says the temporary staffing industry is a cyclical growth business that has grown larger with each passing recession. "It's cyclical, but at every successive peak it's larger," Allen said. "It's a function of corporations during each economic cycle, using a higher percentage of temporary workers than they did the last cycle because they see the benefits of being able to cut costs quickly if they get into a downturn." Businesses tend to cut back on temporary workers - as they do regular full-time workers - during recessions. But temp workers also tend to be the first ones they turn to when the recession ebbs. 1. CLIMATE The recent recession was no different. The number of temporary workers peaked in April 2000, shortly after the stock market hit its apex, then fell off. Then in May 2003, as the sometimes stumbling recovery took hold, the number of temporary workers began to rise. That has created a climate ripe for temp staffing companies. Because companies aren't sure whether demand will continue, they are reluctant to hire full-time workers. "Growth that's combined with uncertainty about the slope and duration of the growth is a very favorable environment for temporary staffing companies," said Allen. Unlike a full-time worker, temporary or contract workers can be cut quickly. "The point of using temporary workers is that when business demand slows down, companies can quickly shed labor costs to get right-sized quickly," Allen said. 2. BUSINESS The increased use of temporary workers has helped make the firms specializing in them among the best performing in the staffing industry, which also includes permanent placement firms and those specializing in other human resource functions. Traditionally, the temporary staffing industry was comprised mostly of light industrial and clerical workers. But over the years it's steadily moved into other arenas. Some businesses are better suited to using temporary workers than are others. Consider tech. "With information technology workers, you might have tech projects that are of a very finite duration," Allen said. "The project is going to last six or nine months, and we need people on our project team who have a certain skill set." In addition, temp staffing has spread to a slew of other occupations, including nursing, lawyering and substitute teaching. As for the temp staffing firms themselves, some have carved out a speciality in a certain industry, while others offer a full range of workers. Kforce falls in the latter category. About half of its business involves providing workers to tech companies. In addition, the firm in Tampa, Fla., offers staffing services to firms needing workers in a range of other fields such as accounting, finance, pharmaceutical and health care. The firm's earnings and sales marched north in the 1990s, then faded as the recession took hold and the bear market's claws took a particularly vicious swipe at IT companies. Not surprisingly, many tech firms slashed projects and employees. "We experienced a decline in our IT business largely as a result of the bubble and the decline in capital expenditures," said David Dunkel, Kforce's CEO. "At the same time, we worked diligently to focus on specific niches in IT areas such as infrastructure." They found that while firms had shelved plans for giant new systems, they still had to maintain the computers, routers and other infrastructure they had. That required workers. So Kforce focused on supplying them. "We identified the niche opportunities that were growth opportunities and pursued them," Dunkel said. "When Web activities were canceled or had been delayed, there were still areas in IT that received investment." During the downturn, Kforce also invested in beefing up the training of its own workers and in hiring new ones. The changes, combined with the start of the recovery, have helped strengthen the firm's bottom line. After dipping into the red in 2002, Kforce earned 16 cents a share last year and analysts expect earnings of 34 cents a share in 2004. Its stock price followed a similar path, shooting as high as 32.13 a share in 1998, only to swoon as low as 1.63 a share in 2002. It's since beaten its way northward and now trades around 11 a share. 3. MARKET Other staffing firms have zeroed in on a particular segment of the economy. One of these is Secure IT, a division of the privately owned tech staffing firm Comsys. The increased focus on homeland security and anti-terror efforts have fueled the need for some tech professionals, particularly those with security clearance who can work on sensitive government contracts. That's where Secure IT, which was started in October, comes in. It specializes in providing government contractors with IT contract workers who have passed security clearance. Bob Merkl, Secure IT's president, says the run-up in demand for workers in this field is similar to that of the tech industry overall in the heyday of the tech frenzy. "There's a parallel in the IT space in the federal market compared to what happened in the late '90s," Merkl said. "The demand is far exceeding the amount of labor to meet that demand." He notes that this time around the demand for such projects may be long term. In the late '90s many of the projects that kept IT workers employed were funded by venture capitalists. Some panned out. Some did not. "This time the demand is not coming from speculative entrepreneurial types of places," Merkl said. "It is coming from our federal government, which has declared war on terrorism." He added: "I think for at least the next five or six years, you're going to see increases of 10% in defense spending year over year in the IT space. A lot of the work is just now in its infancy in terms of systems installation." 4. OUTLOOK The top reason employers turn to temporary or contract workers is to deal with surprise upturns in demand, according to a survey by the W.E. Upjohn Institute for Employment Research. "What happens traditionally as we come out of a recession is that businesses begin to forecast when the recession will end, when demand will start picking up," said Rich Yamarone, chief economist with Argus Research. "Because they are uncertain of that, they take on temporary workers." If demand continues, firms hire workers full time. So far, that doesn't seem to be happening. "Since we've been out of this recession, we have had a significant increase in temporary employment," said Yamarone. "But unfortunately this time around that's a bit of a false signal in the sense that what's going on is not traditional. It's because businesses, particularly manufacturers, are only hiring workers on a temporary basis because they cannot afford to pay health care benefits." He thinks the use of temporary workers may become more widespread. "This might be an actual structural change in the labor markets," Yamarone said. "The use of the temporary or contract worker will become more accepted, a more common element and a larger part of the U.S. labor market. "As long as the prices of medicine and health care are skyrocketing - and I unfortunately see that for the foreseeable future - I believe temporary employment will be a mainstay of the work force." Back to Original Article: News You Can Use
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