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What’s going on with the staffing market?

Staffing Industry Review

What’s going on with the staffing market?

Barry Asin
| October 7, 2024
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Over the past year, we at SIA have been intrigued by the staffing industry’s atypical performance. Specifically, we’ve asked, “Why is staffing declining while the economy and the labor market are growing?” And, perhaps more importantly, “Is this change permanent?”

The last few years have been tough for staffing. Industry revenue fell by 14% in 2023 and will likely drop another 10% in 2024, according to SIA forecasts. The decline has been so widespread that we are now back at 2014 levels of around 2.7 million workers.

This wouldn’t be so confusing if the overall economy and the labor market were declining. A regression of historical GDP versus temp help suggests that in 2023 temporary help employment should have grown by 5.4% given positive GDP growth. Instead, we had a decline of approximately 7%, according to the Bureau of Labor Statistics.

So, what is going on?

A recent SIA report, Insights on the Recent Downturn in US Temporary Staffing 2024, highlights a range of reasons for this atypical behavior.  

First, there’s been a pullback from unsustainable levels that were achieved in 2022, according to SIA’s VP of research, Timothy Landhuis, who authored the report. Travel nursing alone grew by more than fivefold at the height of the pandemic and is now declining quickly. Other staffing-dependent industries that boomed during the pandemic’s e-commerce rush — such as warehousing/distribution and manufacturing — have also weakened.

At the same time, the general labor shortage has raised temp wages quickly, making temp labor relatively more expensive.

Add on to that labor hoarding by employers that were burned when they cut staff early in the pandemic and struggled to rehire as the economy recovered. This has pushed organizations toward full-time/traditional hires.

Finally, there are even more alternatives to temp staffing; the report points out in particular the move toward using independent contractors. This trend has been growing at a faster pace than temp staffing over the past decade. Uber and DoorDash are prime examples of an independent contractor model that has appealed to workers. Outside of the report, SIA researchers note that the labor market is much less dynamic in 2024 than it was in 2022 when quits and hires were 20% to 30% above pre-pandemic levels. Today, those figures are below where we were in early 2019.

Quits and hires are a sign of churn in the labor force, and the big decline in the past few years indicates fewer opportunities for staffing firms to fill job openings.

Additionally, recession fears have played a big role. In an insightful Staffing Stream article, Aaron Haskins and Hugo Malan of Kelly wrote that the “Anxious Index” — a measure economists use to forecast recession probability in the next quarter — can help explain recent variability in temp help penetration and employment. The logic goes that a recession was highly anticipated over the last couple of years, causing a decline in temp hiring, yet it never quite happened. Add to that the relative leverage of workers who strongly prefer full-time/traditional work, and you can see why temp labor has contracted during a time of economic growth.

New Normal?

Of course, all that raises some pertinent questions: How long this will go on, and do these circumstances represent a new normal?

I believe that the current disconnect between the labor market and staffing is a largely temporary phenomenon. Here’s why: It’s not just temp staffing that has been weak the last several years. We’ve seen similar declines in job boards, freelance platforms and perm placement, among other areas. If, somehow, the underlying drivers of temp help usage had changed, the industry is not alone.

Moreover, our surveys of large clients of staffing continue to show an appetite for contingent labor. In the survey conducted earlier this year, the average percent of companies’ workforce that is contingent was projected to grow to 26% from 22% percent over the next decade.

It’s not surprising that we are still seeing shocks and ripples through the labor market just a few years after the pandemic. But we are already seeing signs of stabilization and even improvement in some of our indicators. Commercial staffing hours rose to their highest level of the year in the week ended Sept. 21, according to the SIA | Bullhorn Staffing Indicator - October 1, 2024 report. I am optimistic for a more normal relationship between temp staffing and the overall economy as we look into the future, and I look forward to seeing our recent disconnect as a temporary lull in the growth of an important tool for workforce flexibility.