The rise of the permanently temporary worker

May 5, 2011: 11:05 AM ET

Temp jobs are in and permanent ones are out, for now. And it doesn't look like there's a surefire route to go from one to the other, posing serious risks to worker morale and corporate growth.

By Elizabeth G. Olson, contributor

FORTUNE -- It's a glass half full/half empty situation. Well, maybe American employers just stole half a glass from their workers. The rise in temporary worker hires may be a smart business move, insulating employers in a volatile economy, or it could be creating a permanent wedge of cheaper, benefit-less workers that eventually supplants a big chunk of the full-time workforce.

It all depends on how you interpret a sliver of data on temporary hiring from the U.S. Department of Labor, which tracks job placements by temp agencies but not temp hiring by individual companies. The department also doesn't keep tabs on how often companies downgrade positions from permanent to temporary status.

The latest federal data show that 2.3 million people held temporary jobs in March, up from a low in mid-2009 of 1.7 million, as companies seek to satisfy customer demand without making long-term commitments to worker salary and benefits.

"Employers know that the economy could change at any time," says Jon Osborne, vice president for research at Staffing Industry Analysts, which follows temporary staffing agencies, "so by hiring somebody temporarily, companies have staffing for their peak needs but can let them go when they are no longer needed."

Companies stand to benefit from this flexibility, with the economy seesawing in the midst of a recovery that may take as long as five years. But it underscores the uncertainty for employees, with a huge number of workers -- 8.4 million -- reporting that they are involuntarily employed part-time, according to the latest federal statistics. Some of the underemployed are likely working for temporary agencies, while others are in informal settings.

Labor experts warn that these hire-and-fire positions can undermine company morale and long-term prospects.

"Temporary workers don't want to devote their lives and loyalty to an employer," observes Lauren Appelbaum, research director for the UCLA Institute for Labor and Employment.

Temporary workers are often paid less than full-time workers, and are not likely to receive any benefits. Such workers, according to a recent U.S. General Accountability Office report, are less likely to have health insurance or retirement benefits, or be protected by labor laws. Not providing health insurance means that ailing workers often rely on emergency room treatment or Medicaid, treatment scenarios in which the costs are largely covered by the public, adding to the taxpayer burden -- a charge, for example, that has been made against giant retailer Wal-Mart (WMT).

The disappearance of benefits and job security are part of a larger trend in which work has become increasingly informal in recent years, says Nik Theodore, director of the Center for Urban Economic Development at the University of Illinois.

"Temporary jobs are the tip of the iceberg of ways that work has become casual-ized," he says.

Universities to professors: You're on your own

Some professions, including academia, information technology and the law, already have undergone a significant shift toward on-your-own employment. A recently published survey of  1,300 colleges and universities found that more institutions were employing part-time professors or instructors who were not on a track to earn tenure. Also, more graduate students -- who cost even less than part-timers -- are teaching college courses, according to a survey by the American Association of University Professors.

In the past three years, the number of tenure-track university jobs in America, which provide greater economic security and academic freedom, decreased by 4% while non-tenure track faculty hires rose 8%. Non-tenure track positions now comprise about 75% of faculty, a notable increase from the 66% registered in a 1995 survey, according to the association.

The trend at colleges and universities has created a noticeable income gap among faculty members. At public colleges and universities, the average salary for a tenured professor was $118,054, while it was $69,777 for an assistant professor, according to "It's Not Over Yet: The Annual Report on the Economic Status of the Profession, 2010-11."

Universities and colleges are now hiring "part-time positions limited to a single course for a single academic term and full-time fix-term positions, most often for one to three years of employment, that do not lead to consideration for tenure," says John Curtis, director of research and public policy for the association and co-author of the report.

Why hire temps when you can just hire abroad?

The temp jobs trend has also had an impact on the legal profession, with lawyers and paralegals often hired to perform fixed-term tasks like document searches. Rather than maintaining a cadre of expensive lower-level legal help, law firms are increasingly outsourcing tasks to locations abroad like India, where an educated labor force works in English.

In January, San Francisco law firm Morrison & Foerster said in its annual "Global Sourcing Trends for 2011" report that legal services outsourcing expanded significantly in 2010, as law firms and corporate law departments cut costs to meet recessionary pressures.

Domestically, the Staffing Industry Analysts estimates that temporary legal industry hiring -- as measured by revenues -- plummeted by 40% from 2008 to 2009. That contrasted with a 6% increase from 2007 to 2008. That plunge was greater than decreases in other types of hiring, including information technology temps -- where revenues for agencies fell 20%, or half as much, as those for legal temps.

Legal outsourcing is likely to grow as more firms look to save on labor-intensive tasks. A report by ValueNotes, a research company in India, found that the number of Indian firms offering legal related services has nearly tripled, to 140, in the past five years, and is expected to have $1.1 billion in revenues by 2014.

But it's not just law firms, according to recent U.S. Commerce Department figures, that are sending work abroad so consistently that it appears unlikely these jobs will ever return to the United States. Over the past decade, major American companies have cut their domestic ranks by 2.9 million while adding 2.4 million jobs overseas, according to federal data.

Temp jobs: Is there a path to permanence?

For now, temporary hiring still has the leading edge when it comes to job growth. Osborne, of Staffing Industry Analysts, says that a recent survey of client companies suggested tepid workforce growth over the next two years and an increase in the overall share that temporary workers make up in the American labor pool.

Experts caution against expecting temporary or contingent jobs to turn into full-time positions. "Temporary help is really cyclical, governed by business cycles," says Heidi Shierholz, an economic at the Economic Policy Institute, a research group.

"When unemployment is still high and continuing, there is not a lot of pressure to create or convert those jobs to permanent status."

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