heroes of the current economic boom -- Microsoft and
health-maintenance organizations (HMOs) -- are already being
portrayed as villains by Washington. Don’t be surprised if the
temporary staffing industry is the next target. But before reporters
uncritically accept such attacks (as they have attacks against
Microsoft and HMOs), they should consider some important facts.
The temporary staffing
industry has significantly enhanced the competitiveness of U.S.
firms by providing labor on a "just-in-time" basis. Your average MBA
knows that firms should concentrate on the activities that win them
business and keep everything else to a minimum. But what do you do
when you need someone to build a database in a pinch? Or when you
want an accountant at tax time? Or when your receptionist quits and
you just need someone to answer the phones? In those situations,
temporary staffing companies, like Manpower and Kelly Services, come
to the rescue.
Labor unions and their
political allies have issued alarmist warnings that the United
States is turning into a nation of involuntary temps. In fact,
however, the for-profit staffing industry would disappear if it
weren’t providing value to the temps themselves. It functions as an
intermediary in the labor market, matching employers and employees
just like buyers and sellers are matched on the trading floor.
During tight labor markets,
staffing firms also must compete vigorously against one another to
attract and maintain workers. That is one of the factors that has
led to an increase in the average hourly wage of temps (up to $10.11
in 1997 from $7.56 in 1994) and to more temp companies offering
health benefits and even 401(k) plans.
Of course, temps do have
lower-than-average levels of health benefits and overall
compensation. But this is unsurprising, since they also tend to be
younger and have less work experience. Moreover, since the average
tenure of a temp is three to four months, many do not place a high
priority on maximizing benefits in what they likely view as an
Few temporary employees
remain "stuck" in their positions over the long term. Quite the
contrary, temps often are entrants to the labor market looking to
learn new skills, gain job references, and earn some cash in the
interim. Often, temporary staffing firms sponsor free optional
training sessions on computer software applications, knowing that
companies will pay more for higher-skilled workers. Raising skill
levels of employees is another way that temp help firms serve the
public interest. Richard Belous of the Economic Policy Institute has
credited staffing companies with doing "more to train inner-city
residents than all the government training programs combined."
As Nobel laureate Friedrich
Hayek has noted, free markets create "spontaneous order" among
people with seemingly divergent interests. Employers have work to
get done, but they want to avoid a tedious hiring process, keep
their organization lean with low fixed costs, and pay only the going
market rate for each hour of labor. Workers want to quickly procure
a job, increase their future value in the labor market, and earn as
high a wage as possible. Staffing companies earn their profits by
creating a clearinghouse where both parties can feel assured that
they are getting a fair deal.
In contrast, labor unions
fight only for the interests of their members, not the average
worker looking for his first job. Unions operate as a cartel,
attempting to monopolize the selling of labor in certain industries
or at an individual company. They suppress competition from
outsiders and make demands on employers that may even be injurious
to the long-term viability of jobs at the company. Witness, for
example, the decline in market share -- and therefore, the slowing
of job creation -- at UPS after last year’s strike.
companies are much more compatible with the realities of the
Information Age economy and with the ideals of a free society. Given
the state of political gamesmanship in Washington -- and the
go-ahead received by unions in California to spend members’ dues on
political ads without their consent — it won’t be surprising if
staffing companies are the next big government scapegoat. Fair
reporters will at least present the other side.
Brad Lips is a
management fellow at the Atlas Economic Research Foundation. This
editorial is adapted from his article in the latest issue of the
Cato Institute's Regulation magazine (Vol. 21, Number 2).