How the 2% lives

AT THE BMW factory in Spartanburg, South Carolina, brand new sport-utility vehicles roll off the assembly line with the regularity of a German express train. Work rotas at the vast facility, alas, are not always so reliable. Between 2007 and 2009, amid the turmoil of the financial crisis and ensuing recession, BMW hired, then laid off and then re-hired some 700 temporary workers through a firm called Management, Analysis and Utilisation (MAU). Josef Kerscher, the luxury carmaker’s American boss, likened the conditions that prompted the wild fluctuations in Spartanburg’s temporary workforce to a “rollercoaster”. Such volatility is not uncommon for America’s temps, however, whose numbers are growing even as their lot in life diminishes.

Demand for temps has never been higher (see top chart). The industry now provides work for some 2.9m people, over 2% of the total workforce. The American Staffing Association, an industry group, reckons that it generated over $120 billion in revenue in 2015. Since the economic recovery began in 2009, temporary employment has been responsible for nearly one in ten net new jobs.

But as temping has grown, the quality of the jobs it provides has deteriorated. In the 1950s and 1960s temping was seen as a way for educated people with time on their hands—college students, school teachers on holiday and middle-class housewives—to earn a little extra cash. One early study found that about half of female temps during the 1960s had some college education, nearly twice the national rate. The typists, stenographers and other clerical workers supplied by temping agencies earned wages only slightly below those of permanent workers. Perhaps most important, temp agencies were not seen as second-rate employers. “There is nothing demeaning about working for such an organisation,” Barron’s wrote in 1962; “Many workers prefer to do so.”

According to the Census Bureau, temps today are disproportionately young, single and black or Hispanic. More than half are men. If the temps of the 1960s were relatively educated, today’s are more likely than permanent workers to be high-school dropouts. Just 8% of them have an advanced degree compared with 12% of permanent workers. Perhaps unsurprisingly, given all that, temps earn 20-25% less than their permanent counterparts. Even after controlling for demographic characteristics such as age and education, Lawrence Katz, an economist at Harvard University, reckons temps face a 15% earnings penalty. In 1970 8% of temporary workers lived below the poverty line; in 2014 it was 15%.

Such conditions have stigmatised temporary employment—so much so that workers seek out temping jobs only as a last resort. In 2005, the last year temporary workers were thoroughly surveyed by the Census Bureau, eight in ten said they would prefer a permanent job. More than half said they were working as a temp not for the added “flexibility”, a claim frequently made by industry boosters, but because it was the only work they could find. A survey by the Federal Reserve in 2013 found that a big share of temps consider themselves overqualified for their jobs. Less than a third see their job as a “stepping stone to a career”.

Although temps account for just 2% of America’s workforce, there is wide variation at the local level. In Queens County, New York (home to the borough of the same name), fewer than one in 200 workers is employed by temp agencies. In Greenville County, South Carolina, just a few miles from BMW’s factory, it is nearly one in ten. Big, concentrated and enduring pockets of temporary workers suggest that temping agencies are being used not just to smooth out fluctuations in demand, but also to lower labour costs.

The proliferation of ill-paid temp work affects temporary and permanent workers alike. Many of the costs that employers of temps avoid, including prevailing wages and health-care costs, are now borne in part by taxpayers in the form of increased spending on Medicaid, food stamps and other welfare schemes. More than 26% of temps participate in at least one of these social safety-net programmes, compared with 14% of permanent workers.

The growth of the temping industry affects labour markets in other ways. On the positive side, by offering positions to workers who might otherwise be unemployed, temping reduces the unemployment rate. Temps also insulate permanent employees from downturns in the business cycle, thereby improving job stability.

Yet according to a paper published in 2013 by David Pedulla of Stanford University, permanent employees who work alongside temps worry more about job security. They also take less pride in their firm and have worse relationships with managers and co-workers. A study published in 1999 by Mr Katz and Alan Krueger of Princeton University found that states with a higher share of temporary employment in the late 1980s experienced lower wage growth in the 1990s. These results have held up: in states where less than 2% of the workforce was employed by temping firms in 2000, wages of permanent workers grew an average of 3% a year between 2000 and 2015; in states with a higher proportion of temp workers, wages grew at an annual rate of 2.6% (see bottom chart). Such findings lend support to the view of David Autor of MIT that the use of temping agencies, while beneficial to individual workers and firms, “may exert a negative externality on the aggregate labour market—that is, it is a ‘public bad’.”