Special Features

Work In Progress-Interview with David Autor of MIT

For the NBR special "Work In Progress," NBR Washington Bureau Chief Darren Gersh spoke with David Autor, Associate Professor of Economics at Massachusetts Institute of Technology (MIT). What follows is a transcript of their entire conversation; an edited version appeared in the broadcast report.

Darren Gersh: How big is the temp industry and how fast is it growing?

David Autor: On an average day in the United States, it supplies about two and a half to three percent of all workers. That's not huge, relative to the entire economy, but that's a very large industry -- larger than Wal-mart, larger than the auto industry, for example. It’s about 2.8 million workers. That’s equivalent to about one-fifth of the manufacturing sector.

It's been growing at about 11 percent per year, since 1972 -- from a very small base -- but accounted for 10 percent of all net employment growth in the United States between 1990 and 2000. And, remarkably, accounted for about a third of all job losses between 1999 and 2002 when the industry contracted extremely rapidly during the recession. It's started to grow again.

Darren Gersh: How dramatically has the industry changed?

David Autor: One of the most important changes in the temporary help industry is many people think of temps as being Kelly girls -- clerical workers. And it is the case still that the majority of temporary workers are in clerical, white-collar occupations, but much of the growth has been in blue-collar work, particularly production employment, and helpers, cleaners, handlers and laborers at production and work sites. So at present about 35 percent of all temporary help employment is in production jobs. A lot of that is in the manufacturing sector. So it has turned into an increasing supplier of low and middle skill labor to...to manufacturing and to construction.

Darren Gersh: How important is the temp industry to the economy as a share of employment?

David Autor: It's about two and a half to three percent of daily employment, and of course a much larger share of all hiring, since they're, you know, temp jobs are usually short in duration, so many, many people cycle through the temporary help industry in the course of a month or in the course of a year. It's particularly important for relatively low-skilled workers. So dramatically over represents people without a high school degree; even conditional on that information, minorities are also overrepresented in the temporary help industry. And one population that I've studied is former welfare recipients, and about 20 percent of former welfare recipients who take jobs in the course of the year take a job in temporary help. So it's kind of the employer of first resort for many individuals who don't have stable, long-term employment relationships.

Darren Gersh: Why are temp agencies so popular with companies?

David Autor: One reason from research that I've done is it's gotten harder in the United States to fire people. There have been a series of decisions by state courts, starting in the 1970s and gathering speed in the 1980s that made it essentially riskier to hire people because when you fire them, you're more likely to face a lawsuit for so-called "wrongful discharge," or "wrongful termination." And temporary help firms are sort of one escape valve from that because there's no -- you can always let a temporary help worker go; you face almost zero probability of a lawsuit for doing so. So the evidence that I've collected shows that as state courts adopt these decisions in their states, firms start to outsource more of their employment to temporary help agencies.

Darren Gersh: Let’s go through the pros and cons. What valuable role does the temp industry play?

David Autor: First of all it provides a means to get employment quickly and get a paycheck quickly. And for a lot of people that's extremely valuable. Second of all, it potentially provides a foot in the door with a lot of employers. So employers may look askance at someone who's coming in and been unemployed for a while, hasn't held a job. But if they're coming through a temporary help agency, that already shows that they're making an effort, they're serious, and in the process of doing short term assignments, they could potentially build skills, they could make contacts, they could develop confidence, they could network. And so it could lead to direct-hire employment. And it does, in many cases. So in a minority, but an important minority of the cases, temporary workers are hired by the companies that bring them in initially through the temporary help firms.

It's called a temp-to-hire. So a temporary worker is supplied to a company, they work there for a while, and after a while the company says, "Hey, you're really good, I'd like to bring you on permanently, or full-time." And some employers, that's how they hire for certain positions. So for certain types of clerical jobs, for certain types of good production positions, it's a way to audition people for a job -- it's low risk, if you have to fire them it's costless, you just call up the temporary agency and say, "This worker didn't work out," or, "The assignment has ended." No hurt feelings, necessarily, and you can try lots of people until you find someone that's a fit. So there are many employers who do use temporary help agencies in the way of screening people for long-term positions. And when that occurs, I think it works to the benefit of the company and to the worker.

Darren Gersh: Are there jobs that wouldn’t exist without temps?

David Autor: I don't think there are any jobs that wouldn't exist otherwise. But there might be people who wouldn't be employed otherwise. So it's possible that the temporary help industry is able to hire people who would appear otherwise risky, have limited background, because it's almost costless to addition -- you hire someone for a day, if they don't work out you let them go. Many employers would be reluctant to post an ad in a newspaper, wait a while, interview someone, hire someone and then at the end of the day say, "Eh, you didn't work out, you're fired, let's start again." That's an unpleasant and costly process. But with a temp agency, they can take that risk. They can work with someone at arm's length. If they work out, they can keep them; if they don't work out, very little is lost. So I think that it has low barriers to entry for people with limited skills, limited employment prospects. It provides a way to get a job and a way to audition, potentially, for more stable employment.

Darren Gersh: But?

David Autor: But it doesn't always work that way. The alternative scenario is one in which people who might have gotten a good direct-hire job take a temporary help job, and instead of continuing to search for a direct-hire job, they just kind of work in this unstable employment. Most people agree temporary help jobs don't pay particularly well, and certainly very, very few offer any type of employment benefits, particularly health care. And so, instead of looking for a good direct-hire job, they may kind of churn through a bunch of temporary help jobs. And they may be distracted or focused -- understandably many people, if they're spending their full time working, they don't want to spend more time looking for a job. And so it may not lead anywhere. It could distract them from moving into stable employment. And research that I've done with economist Susan Houseman with the Upjohn Institute suggest that for welfare recipients, the predominant effect of temporary help jobs is to inhibit people from moving more quickly into stable, better-paying employment relationships.

Darren Gersh: Why is that a problem?

David Autor: We as a country have made a decision in the last 10 years, particularly in 1996, to quote "end welfare as we know it," and move many individuals who were dependent on the state for income and medical support into the workforce -- particularly unwed, single mothers, those are the largest population of welfare recipients. And so it's to our benefit, if that's our objective, to get them into jobs that are stable, pay reasonably well, and have some career prospects. And if that doesn't occur, they'll cycle in and out of unemployment, and in and out of welfare. So from the perspective of a welfare agency trying to get people employed, you want them in a job that's going to be lasting. And at least our research suggests that temporary help jobs have short-term benefits, in terms of raising earning, raising hours, but they don't seem to lead to greater employment stability the way that direct-hire job placements do.

The conclusion is that it's not the direction to push, it's not a long-term solution to moving less-skilled workers into the labor market. And many people have suggested welfare agencies ought to make more use of temporary help firms as a way of getting their clients to work -- because you know it does have very short-term rewards. And so our research has asked, well is that an effective policy? And the answer seems to be, no, pushing more in that direction doesn't really seem to benefit workers. You're better, if you have a choice, to try to push people, say, "Well, try a little bit harder, pound the pavement a little bit longer, look for that direct-hire job." It may be a little painful to find, it may take a while, it may be discouraging, but if you find it, it's probably more likely to be stable, probably more likely to have a longer-term payoff.