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Contracting Out in the United States: Prevalence and Implications

Contracting Out in the United States: Prevalence and Implications. Susan Houseman, Upjohn Institute Presentation prepared for the NELP conference on Outsourced Work: Insourcing Responsibility , May 12, 2014, Washington, DC.

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Contracting Out in the United States: Prevalence and Implications

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  1. Contracting Out in the United States: Prevalence and Implications Susan Houseman, Upjohn Institute Presentation prepared for the NELP conference on Outsourced Work: Insourcing Responsibility, May 12, 2014, Washington, DC

  2. What do we know about contracting out in the US? (Very little from government statistics) • Ongoing BLS household and establishment surveys • Collect information on employment by industry • Unless industry clearly made up of contract companies (e.g. temp help), can’t identify contract workers • Don’t know who is using contract workers • BEA builds input-output tables for the economy • Should capture all contract relationships in the economy • Used to estimated labor used by one industry from another • I-O tables show significant increase in domestic contracting • But, data underlying estimates spotty—imputations crude • Contingent Worker Supplements to the CPS • Administered 5 times from 1995 to 2005 • Designed to fill data gaps

  3. Categories of Contract Work in CPS Supplement • Independent contractors: • Includes independent contractors, independent consultants& freelance workers • Temporary help agency workers • Survey collected information on where assigned • Contract company workers: • Workers employed by a company that provides them or their services to other organizations under contract • Usually assigned to only one customer and usually work at the customers’ worksite • Survey collected information on client industry

  4. Contract Workers as % of Workforce Source: CWS, average incidence 1995-2005 Some concerns that survey understates true levels of contract work.

  5. Focus on Temporary Help • Best measured, most studied of contract employment types • Experienced rapid growth in recent years • Some of forces driving growth in temporary help employment likely causing growth in other types of contract employment.

  6. Temporary Help Employment as a Percent of Total Payroll Employment, 1989-2014

  7. Employment Growth Since Last Cyclical Peak Temp help industry experienced Much greater contraction during recession Much stronger recovery Temp employment now at all time high in numbers & as % of workforce

  8. Why Employers Use Temporary Help • Meet short-term staffing or project-based needs • Temp staffing allows firms to easily flex up and down workforce • More closely match workforce to needs • Save on labor costs • Just in time workforce--only pay workers when need them • May save on hourly wages and benefits costs • Screen workers for potential hire • Employer mandate in ACA may boost demand for agency staffing

  9. Occupational Distribution Source: OES, 2006 Low-wage, minority workers over-represented in temporary help.

  10. How Temporary Are Temporary Help Jobs? • Most assignments relatively short-lived: • Across all occupations: median 3 weeks; 90th percentile 6 months • Reflects fact that many quit or terminated before assignment ends • Most work occurs in assignments lasting much longer: • Across all occupations: half of all hours worked in assignments lasting 6 months or more; a quarter of all hours worked in assignments lasting 1 year or more • In production: half of all work in assignments lasting 5+ months • In science, engineering, and IT occupations: half of all work in assignments lasting 10+months.

  11. Implications for Workers: Wages and Benefits • Hourly wages not necessarily lower than hourly wages earned by comparable workers in direct-hire jobs. • Quarterly earnings lower – because work is sporadic • Temporary help workers rarely earn health insurance, retirement, or other benefits.

  12. Implications for Workers: Are Temp Jobs Stepping Stones to Better Jobs? • Temporary help not “great” jobs – most temp workers are seeking permanent, direct-hire employment • Government employment programs in US and Europe place large share of clients with temp agencies: • Seen as a way to build contacts and experience • Stepping stone to better jobs • Research evidence on low-wage workers: • Temp jobs, on average, do not help workers move to regular, more stable employment • Placing workers into direct-hire jobs results in higher earnings and employment over the medium term.

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