Reasons to cheer a jump in temp hiring

December 29, 2010, 3:00 PM UTC

Companies are hiring, but more often they’re bringing on temporary employees to meet their labor needs. Will a rise in temps lead to more permanent hiring?

With more than 15 million people in the U.S. out of work and the latest unemployment rate edging slightly higher, it’s hard to see how anyone could build a case proving today’s job market isn’t all doom and gloom.

Last week, The New York Times chronicled how companies are hiring again — but this time, they’re favoring no-strings, easily fireable temporary workers instead of benefits-earning permanent employees. The rise of temps, the Times suggested, was a bad a thing, putting workers in a tough spot that promised less job security.  Since January, employers have added 307,000 temps, which is more than one quarter of the 1.17 million private sector jobs added in total. In November alone, temps made up about 80% of the 50,000 jobs added by private companies.

It’s true that most would prefer a permanent job rather than something temporary. But the rise of temps may portend more aggressive hiring trends ahead.

Tig Gilliam, who runs Adecco Group’s North America operations, says the trend isn’t necessarily all bad news for the millions searching for work today. If anything, the surge in temp hiring over the past year signals that there’s demand for labor following a period of very deep job cuts and could lead to more permanent positions in the private sector.

“Temporary workers are the first to be let go and the first to come back,” Gilliam says.  Since 2007, the economy shed virtually all temporary jobs – approximately 900,000. And since the recession officially ended in June 2009, about 400,000 temp jobs have been added, meaning we’re almost halfway back to 2007 levels.

“We’re well into the temporary segment of the recovery and now we’re moving into permanent,” he says.

It’s not just executives in the temporary employment business who are so optimistic about the latest upswing in temp hiring. Economist  David Autor at Massachusetts Institute of Technology says historical trends show that temp jobs boomed when the economy emerged from recession and then contracted as employers hired longer-term or permanent employees.

History of hiring

While it’s certainly welcome news that companies are hiring temps, Autor adds that the relationship between the increase in temp hires leading to a rise in permanent hires has weakened over the years. After the 1991 recession, temp jobs grew very rapidly for a decade even when the job market returned to health.

Autor says given that the latest recession is even deeper it’s uncertain how the trend might pan out this time around.

“It’s good news that someone is hiring,” he says. “It’s bad news if a large share of the new jobs created will remain temporary-help jobs, since these jobs do offer less security. But that depends on the strength of the recovery, not the temporary help sector per se.”

Certainly things are far from rosy; there are plenty of obstacles ahead. The latest U.S. jobs report showed that the economy in November added just 39,000 jobs – down from the gain of 172,000 jobs in October. And few believe this is the calm before the big job storm.

While private companies are actually adding jobs, local governments experiencing huge budgetary shortfalls are shedding employees. Just when it seemed like the unemployment rate was at least staying steady, it actually rose slightly in November to 9.8% from 9.6% in October. With governments cutting jobs, more hiring in the private sector hasn’t been enough to reduce unemployment or even to keep pace with people entering the work force.

What’s more, the number of jobs open at private companies have risen 44% since the month after the recession ended, according to the Labor Department. This is good news, but as Fortune’s Nina Easton highlighted earlier this month, there are as many as 3 million jobs going unfilled for various reasons, from mismatched skills to employers being choosier about who they hire.

So while Gilliam might have good reason to be optimistic about the private sector hiring more permanent workers, other variables could very well discount the positive development.  And Gilliam is well aware.

“I believe we’re going to see a continued improvement in the attitudes of the private sector,” he says. “We’re going to see that move up over the next six months. The problem is that it’s not going to move enough that it’s going to reduce unemployment dramatically.”

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