The Expansion of Temporary Help Employment in the U.S., 1982-1992 : A Test of Alternative Economic Explanations

Employment in the temporary help supply (THS) industry more than tripled in the U.S. 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 is that the dramatic rise in THS jobs stems from demographic changes in the composition of the labor force toward groups believed to prefer impermanent job commitment or temporal flexibility in supplying labor services. A contrasting view considers the growth in temporary jobs as a human resource strategy increasingly adopted by firms seeking lower labor cost or increased numerical flexibility in labor input utilization. Such a strategy may be the employer's response to greater volatility in aggregate output demand, intensifying price competition pressures in globalizing product markets and rising fixed labor costs incurred for permanent employees. A model is developed that presents permanent and temporary (secondary) sectors as two distinct labor market segments. Three-stage least squares estimation of non-nested models of aggregate monthly employment in the THS industry is conducted. The empirical test results more strongly support the hypothesized effect of the "strategy/ opportunity" set of variables in the model. Specifically, the fluctuation in aggregate industrial output, relative international value of the U.S. dollar, and the relative magnitude of non-wage labor costs are all positively associated with the log of the level of temporary employment over the period 1982 to 1992. In addition, the changing relative bargaining power of labor is a contributing factor to growth of temporary employment, facilitating the hiring of more temporary employees. None of the variables in a "labor force composition" non-nested model, with the exception of married women as proportion of the labor force, is positively associated with levels of temporary employment. Given that the rapid growth in temporary employment is more a demand-side phenomenon, public policies are discussed which might serve to curb the growth of THS jobs to the rate at which such jobs are preferred by workers