As the economy fitfully climbs out of the crater dug by the Great Recession, manufacturers are staffing up warily, following a strategy similar to the one they employed after the previous two recessions: relying heavily on staffing agencies and temporary workers.
This strategy is certainly not a slam-dunk cure-all for manufacturers. It has its downsides. But a crucial advantage is that it enables companies to grow cautiously without overextending themselves. And cautious growth is a compelling watchword as we observe the fifth anniversary of the 2008 economic meltdown.
“Over the last two decades there has been a clear trend in U.S. manufacturing toward greater use of temporary staffing agencies," says Susan Houseman, senior labor economist with the Upjohn Institute and author of several research studies on manufacturers' use of staffing services and temporary workers. “We saw a big increase, especially in the 1990s, and it continued to increase in the early 2000s but at a lesser level."
Citing two recent studies she co-authored on the subject, Houseman says the percentage of temporary help in manufacturing employment has followed a regular pattern since the early 1990s. The curve stagnates and drops during recessions and shoots up rapidly during ensuing economic recoveries.
Manufacturers' outsourcing of hiring and worker placement to staffing agencies smooths out some of the volatility in employment levels caused by economic upswings and downswings, Houseman says.
“When a recession hits, layoffs are inevitable, especially in the manufacturing sector," she says. “Now, for companies that have a lot of temporary workers, those will be the first workers they let go. So a large proportion of the downturn will get absorbed through their temp workers. Conversely, as manufacturers expand during a recovery, a lot of the increases in staffing will be absorbed by adding temporary help. The use of temp workers helps make the overall employment swings less volatile."
Houseman cites a number of reasons that manufacturers have relied more heavily on temporary workers in recent years: Using staffing agencies creates efficiency and economies of scale in hiring; it can be a less expensive way of staffing up quickly; it is an effective way to screen workers for potential full-time employment; and it gives companies flexibility by enabling them to quickly increase production without committing to big increases of permanent staff.
“Obviously, manufacturing is a seasonal and cyclical industry," Houseman says. “This is particularly true with durable goods, which is highly cyclically sensitive. So employment levels really need to be able to fluctuate."
A potential downside that manufacturers should consider is the control they relinquish when they outsource the staffing function to an agency.
“Generally, manufacturers outsource the function because they feel an agency has staffing expertise, so they should be able to do the job more efficiently," Houseman says. “But we have seen instances where a manufacturer outsources and isn't happy with the result: 'Jeez, look what they sent us. Look at the costs. We could have done the job better ourselves.' They lose control over the hiring function, which can be critical."
This loss of control has the potential to lead to problems such as production errors and higher worker injury rates. “There certainly has been some attention given by federal and state regulators to the high incidence of injury among temp workers on the job," Houseman says.
In addition, manufacturers need to be aware that using temporary help can lead to friction when temps work alongside permanent full-time workers for extended periods.
“You sometimes have a situation where these folks work side by side on the line, and [the temps] are paid less and don't get benefits like health care coverage," she says. “If that persists for too long a time, resentment can build up. You have to be aware of morale issues when you've effectively got a two-tier wage system in your plant."