Contracting Out in the United States: Prevalence and Implications Susan Houseman, Upjohn Institute Presentation prepared for the NELP conference on Outsourced Work: Insourcing Responsibility, May 12, 2014, Washington, DC

What do we know about contracting out in the US? (Very little from government statistics) Ongoing BLS household and establishment surveys o Collect information on employment by industry o Unless industry clearly made up of contract companies (e.g. temp help), can’t identify contract workers o Don’t know who is using contract workers BEA builds input-output tables for the economy o Should capture all contract relationships in the economy o Used to estimated labor used by one industry from another o I-O tables show significant increase in domestic contracting o But, data underlying estimates spotty—imputations crude Contingent Worker Supplements to the CPS o Administered 5 times from 1995 to 2005 o Designed to fill data gaps

Categories of Contract Work in CPS Supplement Independent contractors: o Includes independent contractors, independent consultants & freelance workers Temporary help agency workers o Survey collected information on where assigned Contract company workers: o Workers employed by a company that provides them or their services to other organizations under contract o Usually assigned to only one customer and usually work at the customers’ worksite o Survey collected information on client industry

Contract Workers as % of Workforce Source: CWS, average incidence Some concerns that survey understates true levels of contract work.

Focus on Temporary Help Best measured, most studied of contract employment types Experienced rapid growth in recent years Some of forces driving growth in temporary help employment likely causing growth in other types of contract employment.

Temporary Help Employment as a Percent of Total Payroll Employment,

Employment Growth Since Last Cyclical Peak Temp help industry experienced Much greater contraction during recession Much stronger recovery Temp employment now at all time high in numbers & as % of workforce

Why Employers Use Temporary Help Meet short-term staffing or project-based needs o Temp staffing allows firms to easily flex up and down workforce o More closely match workforce to needs Save on labor costs o Just in time workforce--only pay workers when need them o May save on hourly wages and benefits costs Screen workers for potential hire Employer mandate in ACA may boost demand for agency staffing

Occupational Distribution Source: OES, 2006 Low-wage, minority workers over-represented in temporary help.

How Temporary Are Temporary Help Jobs? Most assignments relatively short-lived: o Across all occupations: median 3 weeks; 90 th percentile 6 months o Reflects fact that many quit or terminated before assignment ends Most work occurs in assignments lasting much longer: o Across all occupations: half of all hours worked in assignments lasting 6 months or more; a quarter of all hours worked in assignments lasting 1 year or more o In production: half of all work in assignments lasting 5+ months o In science, engineering, and IT occupations: half of all work in assignments lasting 10+months.

Implications for Workers: Wages and Benefits Hourly wages not necessarily lower than hourly wages earned by comparable workers in direct-hire jobs. Quarterly earnings lower – because work is sporadic Temporary help workers rarely earn health insurance, retirement, or other benefits.

Implications for Workers: Are Temp Jobs Stepping Stones to Better Jobs? Temporary help not “great” jobs – most temp workers are seeking permanent, direct-hire employment Government employment programs in US and Europe place large share of clients with temp agencies: o Seen as a way to build contacts and experience o Stepping stone to better jobs Research evidence on low-wage workers: o Temp jobs, on average, do not help workers move to regular, more stable employment o Placing workers into direct-hire jobs results in higher earnings and employment over the medium term.