This blog post originally appeared on RealMoney Silver on Aug. 2 at 8:15 a.m. EDT.

U.S. corporations have a renewed emphasis on temporary hirings at the expense of permanent job placements.

Years ago, inventory on-demand solutions arose at manufacturing companies around the world, resulting in improved returns on industrial invested capital and corporate profitability both in the U.S. and abroad.

Not surprisingly, today, the trend of a broader use of temporary workers is the next generation of return optimization in an age of broad uncertainty and a wider-than-usual set of economic outcomes.

Prior to the 2008-2009 Great Decession, temporary employment growth has signaled permanent hiring strength.

The chart below plots the year-over-year percentage change in temporary jobs in the U.S. against the overall rate of change in overall nonfarm employment.

Temporary Jobs Lead Overall Employment Gains
U.S. Bureau of Labor Statistics
CLICK HERE FOR FULL VIEW

Out of the 1990 recession, temporary jobs first began consistent positive year-over-year growth in December 1991. Overall nonfarm employment turned positive four months later (April 1992).

Following the 2001 recession, the "jobless recovery" produced a sputtering in temporary job growth throughout all of 2002 and did not post positive percentage growth until mid 2003. Six months later, total employment exhibited year-over-year growth.

In the current recovery, temporary jobs crossed into the positive growth region in January 2010 and then surged into double-digit growth with gains of 19.4% in June, following year-over-year rises of 16.9% in May and April's 14.6%, but total nonfarm employment has yet to grow year over year, since the series first turned negative 26 months ago (May 2008). The job loss was under 1% in June, however, and the chart above suggests that total employment will cross into the year-over-year positive region soon. As of now, the lag is five months, still shorter than the six-month lag between temp jobs and all jobs year-over-year recovery in 2003. If the lead-lag relationship holds up this time, year-over-year U.S. job growth should become positive sometime in the second half of the year, but the growth will likely be modest relative to past cycles of employment growth.

In other words, a rise in cyclical unemployment appears to be morphing into structural unemployment in the U.S.

We can trace a number of reasons behind the movement that favors temporary workers:
  • The severity of the 2008-2009 downturn coupled with the reduced accessibility of credit has made small businesses cautious.
  • The economic recovery of late 2009/early 2010 has been shallow (by historical standards), and growth expectations have diminished -- slower growth in output translates to a reduced pace of hiring.
  • As businesses deleverage and become more cost-efficient, temporary workers represent a way to avoid the higher costs of permanent employees.
  • Temporary hiring enables a business to maintain staffing flexibility, allowing it to adjust more quickly to workload fluctuations and rapid changes in business conditions.
  • Limited or no need for employer contribution to workers' compensation insurance or unemployment, no employer liability for Social Security or Medicare taxes and no need to provide job benefits, including health insurance or retirement plans.
  • Increased economic and policy uncertainty.
  • A wedge of political and regulatory uncertainty.
  • Rising health care costs.
  • The likelihood of ever more populist initiatives favoring employees at the expense of employers.
  • The need for more specialized workers for shorter periods of commitment.
What are some of the ramifications of this new era of temporary job growth?
  • less buoyant and dynamic domestic economic growth;
  • a less consistent rate and more unstable trajectory of domestic economic growth;
  • sustained and higher-than-historic corporate profit margins;
  • less of a potential corporate commitment to permanent growth initiatives in hirings and in new capital plans;
  • less inflows into the domestic stock market through 401(k) plans and other retirement programs;
  • dampened consumer confidence; and
  • greater demand for renting over home ownership.
This trend warrants a closer look at the shares of Manpower ( MAN) and Robert Half International ( RHI), the two largest temporary employment companies.

While, historically, the rise in temporary job growth (above chart) signals a broader improvement in the employment markets, I am less certain in the current cycle and, for that matter, over the course of the next few years.

Economic bulls have been incorrectly predicting stronger jobs growth since fourth quarter 2009.

They have been disappointed and are likely to continue to be disappointed in the decade of the temporary worker.

Doug Kass writes daily for RealMoney Silver , a premium bundle service from TheStreet.com. For a free trial to RealMoney Silver and exclusive access to Mr. Kass's daily trading diary, please click here.

At the time of publication, Kass and/or his funds had no positions in the stocks mentioned, although holdings can change at any time.

Doug Kass is the general partner Seabreeze Partners Long/Short LP and Seabreeze Partners Long/Short Offshore LP. Under no circumstances does this information represent a recommendation to buy, sell or hold any security.

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