Labor market lessons from Georgia's temp workers

EconSouth,  Summer, 2004  

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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.

Table 1 confirms that the temporary help services industry is much more volatile than the rest of the labor market. The average employment growth in temporary help services during the 1990s' expansion was 3.2 percent per quarter, much larger than the average 0.9 percent growth in the remainder of the labor market. In addition, the job loss in temporary help services during the 2001 recession exceeded (in percentage terms) losses in the rest of the market. The larger percentages of net employment contributed by all activities (shutdowns, contractions, openings, and expansions) also point to greater churning in the temporary help services industry. In other words, a smaller percentage of workers in the temporary help services industry stay with their employer from one quarter to the next compared with workers in all other industries.

Dissecting the sources of job destruction and creation reveals that the temporary help services industry relies much more on extreme adjustments of temp agency firms shutting down and opening during an expansion than the rest of the labor market does. Indeed, temp agency firms shutting down and opening up accounted for an average of 21 percent of temporary help services employment during the expansion compared with only 8.9 percent of employment In the rest of the labor market. Furthermore, there was more opening and closing activity in temporary help services during the expansion than during the recession, but the rest of the labor market experienced more opening and closing activity during the recession. This pattern implies that the demand for temporary workers continues to grow through expansionary times, with many entrepreneurs starting up temporary employment businesses and many others failing.

Suffering through the recession

Workers in an industry that is particularly volatile can have a much different labor market experience across the business cycle than workers in a less volatile industry. To examine the potential impact of the volatility in the temporary help services industry on its workers through a recession, table 2 compares a number of different characteristics of workers in Georgia in temporary help services and other sectors of the labor market before and after the recession.

The volatility of temporary help services is apparent in the experience of its workers. In Georgia, only 64 percent of the workers employed in temporary help services in 2000Q1 were employed in 2002Q4, after the recession. In comparison, about 80 percent of Georgia's workers in manufacturing and other services and about 74 percent of workers in retail trade were still employed after the recession. In addition, temporary help services workers spent an average of 2.3 quarters unemployed during the recession, more than double the time spent unemployed by manufacturing and other service workers and one and a half times the period spent unemployed by workers in retail trade.