SI Review: August 2011

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Research Report: A Great Deal

A Great Deal

Why using temps gives buyers flexibility and savings

By Robert Balicki

If your firm’s expenses suddenly shot up 25 percent, with everything else staying the same, would your business be making money anymore? Would you even be able to stay in business? Probably not.

So consider this: Nearly a third of buyers of contingent labor indicated that their expenses would rise by 25 percent or more if they could not use contingent labor, according to a survey by Staffing Industry Analysts of 217 companies that employ 1,000 or more employees and purchase temporary labor. The survey was conducted in October and November of 2010. For these buyers, contingent labor is crucial.

“Contingent labor saves buyers a bundle if they know how to use it,” says Jon Osborne, vice president of research at Staffing Industry Analysts, which publishes this magazine. “Buyers we surveyed commonly reported that the use of contingent labor cuts costs by 10 percent, 20 percent or more.”

Buyers in the manufacturing and finance/insurance industries, as well as those employing 5,000 or more full-time employees and those that primarily purchase information technology staffing report the greatest savings. In general, increased contingent usage is also associated, naturally, with increased savings, at least up to a point.

Flexibility

So where do these savings come from?

The biggest source is simply the flexibility temporary labor provides in the face of unpredictable demand. It’s expensive to hire employees, and a large turnover rate can lead to excessive training costs and lower morale. On the other hand, temporary workers can be employed when business is good and let go when business is bad without affecting full-time employees’ spirits. Indeed, more than 80 percent of buyers said that variable or unpredictable workloads encouraged the use of contingent workers in their firm.

Academic research adds support to this premise: According to research by Yukako Ono and Alexei Zelenev for the Federal Reserve Bank of Chicago, states with highly variable industrial output tended to have higher temp penetration rates when growth in some industries was offset by declines in others.

In the researchers’ view, temporary staffing plays a macroeconomic role in stabilizing the demand for labor by shifting workers from contracting industries to growing ones. For instance, if manufacturing is booming but construction is lagging behind, temporary staffing companies allocate employees from construction to manufacturing. When the situation reverses, these same companies help facilitate the movement of labor back from manufacturing to construction.

Temporary help service “agencies can enhance the efficiency and flexibility of the labor markets in a number of ways,” Ono and Zelenev write. “The presence of [temporary help services] agencies in a region reduces job-search costs and informational asymmetries by helping to match the workers who are looking for a temporary work opportunity with the firms that need temporary help.”

They can also play this role within industries. For example, per diem healthcare staffing companies provide nurses in response to unforeseen spikes in hospital admissions, allowing hospitals to maintain government mandated minimum nurse-to- patient ratios, for example.

Staffing Industry Analysts survey data support in particular the value of flexibility to buyers. Notably, buyers who use contingent labor reported saving 44 percent more than those who said flexibility was not a factor.

Finding Qualified Folks

Of course, this added flexibility that contingents offer is not the only service that staffing companies provide. Staffing firms are also recruiting powerhouses, able to dig up hard-to-find candidates when ordinary internal recruiting efforts just aren’t enough.

Indeed, after flexibility the next most commonly cited factors encouraging contingent labor use were rapid firm growth (which typically involves the need for additional recruiting resources) and difficulty finding qualified applicants. These two factors were cited by 68 percent and 51 percent of buyers, respectively.

Buyer Attitudes

Buyers increasingly appreciate these cost savings and are getting comfortable with substantial use of contingent labor.

When Staffing Industry Analysts first surveyed buyers on attitudes toward contingent labor in 2004, 31 percent of buyers said that organization culture discouraged use of contingent workers and only 10 percent said that it encouraged use. Yet in 2010, those proportions have nearly reversed: 30 percent said organizational culture encouraged use and 18 percent said it discouraged use.

“Over the last several years that we have been surveying buyers regarding their plans, attitudes and contingent management methods, the general trend has been one of greater acceptance both of staffing firms and of the concept of contingent labor,” Osborne says. “Indeed, one of the most pervasive trends at the moment — integration of contingent labor management into the broader corporate planning cycle — is indicative of the higher-level recognition contingent labor is finally getting.”

Robert Balicki is a research associate at Staffing Industry Analysts. He can be reached at rbalicki@staffingindutry.com. For more information about buyer savings from contingent workers and factors encouraging and discouraging use of contingent labor, contact memberservices@staffingindustry.com.

 

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