CWS 3.0: September 11, 2013

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High Unemployment and Contingent Labor

This June marked the four-year anniversary of the end of the Great Recession, and now seems like a fitting time to assess the condition of the U.S. workforce and to examine the implications for owners and executives of staffing firms. We make three observations. First, historic levels of unemployment and underemployment in the U.S. continue to threaten growth of the U.S. economy. Second, as high unemployment appears persistent in relation to both commercial and professional staffing, winning staffing firms are those that can best locate, filter or train workers from an abundant pool of available candidates. Third, record levels of unemployment and underemployment bring a heightened opportunity for staffing firms to position themselves as providing the social good of helping individuals find work.

Un- and Underemployment at Record Levels
At first glance, 2013 has brought the kind of signs of economic recovery that have been long awaited. Home prices have finally started to rise, increasing the wealth of home owners and bringing back construction jobs. The stock market rose more than 15 percent through July. And the national unemployment rate dropped to 7.4 percent in July, down from its peak of 10.0 percent in October 2009.

But a closer look at U.S. workforce data from the BLS reveals that the declining unemployment rate is not as rosy as it may first appear. Although low compared with the past four years, 7.4 percent unemployment is very high by historical standards. Even more worrisome is that the unemployment rate does not capture two important and somewhat offsetting trends: record underemployment and the increased number of “discouraged workers” who have quit searching for work and are therefore not counted in the unemployment rate.

Although the number of unemployed Americans has declined from 15 million during the recession to less than 12 million this year, the number of underemployed Americans working part-time jobs spiked to a record 9 million during the recession from 4 million prior, and has since only declined to 8 million Americans. Similarly, the proportion of part-time jobs to total jobs in the U.S. economy rose to 20 percent during the recession from 17 percent, and this percentage has held steady over the past four years, suggesting that these part-time jobs are not going away. Another 1 million “discouraged” workers have given up looking for a job (about triple the average level during the pre-recession period from 2006 to 1994 when this statistic began), and are therefore not included in the unemployment rate. The trend in the level of discouraged workers is holding steady near its record level.

Until the trend in the level of underemployed part-time workers and discouraged workers show improvement, staffing firms should understand that the economy has not yet reached a full recovery.

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Strategic Opportunities
While unemployment rates are currently extremely low for certain niche occupations in high demand (such as petroleum engineers and physicians), the unemployment rates for most occupations are at historically high levels, including both commercial and professional occupations. In fact, the unemployment rate for college graduates (a proxy for professional workers) and the unemployment rate for high school graduates (a proxy for commercial workers) are both about 70 percent above their pre-recession averages (from 1996 to 2006). This implies that except for very niche staffing firms, the current high unemployment rate environment applies to the majority of staffing firms, both commercial and professional alike. This era of unusually large supply of candidates implies a strategic opportunity for staffing firms who can successfully tap this pool of talent. Indeed, many staffing firms have invested in new technology to gain a competitive advantage in their ability to search and source candidates from today’s labor pool. Other firms have developed or partnered with training resources to recruit the unemployed and then “produce” workers with the skills demanded by clients. Whether staffing firms choose to search better or train better or another strategy, there are clearly many profitable models for engaging the 20 million Americans who are currently unemployed or underemployed.

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Providers of a Social Good
Record levels of unemployment give staffing firms an increased opportunity to tout themselves as job providers and firms that reduce unemployment in their communities. Not only do staffing firms provide immediate employment via contract work, but staffing firms provide a significant opportunity for permanent employment (staffing firms reported a median 15 percent probability for a temp-to-hire conversion according to Staffing Industry Analysts’ 2012 Staffing Company Survey Report.)

Whether operating on a global scale or on the scale of a local branch office, staffing firms have never been more needed by Americans looking for work. And this is an opportunity for staffing firms to proclaim their value.