Economic Rebound Bolsters Temporary Hiring

CHICAGO (TheStreet) -- Already faced with shrinking benefits, a lack of job stability and the demise of pension plans, full-time employees may be on their way to becoming an endangered species.

A theorized corporate shift from a permanent workforce to a network of project-based freelancers has created a buzz among economists and financial analysts. Earlier this month, BusinessWeek weighed in on the matter with a cover story entitled "The Disposable Workforce."

A sea change in how companies hire employees may not seem so imminent based on recent employment statistics. According to the U.S. Census Bureau, third-quarter revenue for the employment services industry was down 7% from the same time a year earlier. Staffing Industry Analysts (SIA), a provider of information about the contingent workforce, projects that total staffing industry revenue declined 26% from 2009 to 2008.

If past history is any indication, that downward trend could reverse course as scaled-back businesses shake off the economic slump.

SIA data shows that employer spending on contingent labor spikes following recessions. In 2000, companies spent $81.5 billion on temporary labor. That number decreased between 2001 and 2003 as the economy declined to as low as $73.3 billion. By 2006, spending not only recovered, it increased to $95 billion.

Theories about such a redefinition of the workplace are nothing new. Back in 1994, a study by the Sloan School of Management at the Massachusetts Institute of Technology predicted that companies would downsize their traditional workforces and supplement them with larger networks of contingent workers.

With temporary employees, companies would be able to avoid paying for costly benefits, such as health insurance. These skilled workers would come together to form temporary organizations or "virtual companies" that would exist only until a given project was completed.

MIT predicted a date for such a shift as 2015, but some analysts believe that transition has already begun.

Research by Littler Mendelson, a Chicago-based employment and labor law firm, estimates that contingent workers will constitute 50% of the workers hired by companies after the economy recovers. Temporary employees could eventually make up 25% to 35% of the total workforce.

"You are constantly seeing businesses reinvent themselves," says GJ Stillson MacDonnell, a lawyer at Littler Mendelson. "This goes to the fundamental issue of how we produce things. Is there anybody five or 10 years from now who will be correct if they say they are a permanent employee?"

The use of contingency workers on a project-based basis is not a new business model. Littler Mendelson cites Hollywood film production companies as an example. These companies bring together talent from various sectors, from actors to caterers, to complete a specific project. Once a film is completed, they move on to the next available production.

The firm also points to Cox Communication, which assigns much of its infrastructure improvements on a project-based basis. Similarly, Nike ( NKE) may design and market its shoes in-house, but most other manufacturing needs have long been outsourced. Though the company has declined to give a definitive tally, analysts estimate that Microsoft ( MSFT) has as many as 88,000 contingent workers who supplement its more than 96,000 traditional employees.

The transition may not be as jarring as some fear. In fact, it may not differ much from what younger workers have already come to expect.

The average person will hold 10.8 jobs by age 42, according to the U.S. Labor Department. Younger people have grown accustomed to holding multiple jobs and are more comfortable with alternative work arrangements than their older colleagues.

Technology might also speed the process. The use of e-mail, social networks and instant messaging enable the sort of remote collaboration that had previously been a stumbling block for shifting to a just-in-time workforce.

But new problems may arise as the nature of the workforce shifts. Would the need for transient workers to hop from job to job mean they no longer have roots in a given area? Would frequent moves undermine the housing market? Would the lack of job stability take a toll on the mental health of workers?

MacDonnell also sees numerous tax issues arising from the shift to a temporary workforce as companies adjust to new compensation models.

-- Reported by Joe Mont in Boston.

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