Low-Income and Low-Skilled Workers' Involvement in Nonstandard Employment:

Chapter 2:
A First Look at the Evidence

[ Main Page of Report | Contents of Report ]

Contents

• How did alternative work arrangements develop?
• What are the different types of alternative work arrangements?
• Why do firms use alternative work arrangements?
• How many workers are in alternative work arrangements, and who are they?
• A First Look at How Labor Market Outcomes Differ For Workers In Alternative Work Arrangements
  • Earnings
  • Benefits
  • Job Tenure
  • Job Satisfaction
  • Summing Up
• A First Look at How Alternative Work Arrangements Affect Low-Income and At-Risk Workers
• A First Look at Whether Alternative Work Arrangements Help Workers On The Path To Regular Employment

Endnotes

How did alternative work arrangements develop?

Although the terms contingent work and alternative work arrangements are relatively recent,⁽¹⁰⁾ similar arrangements have existed for many decades or longer. The concept of temporary help services and workers dates to the late 1920s, and major temporary service firms began to operate shortly after World War II. Two of the largest temporary help services firms that still exist today--Manpower, Inc. and Kelly Girl, Inc.--were started in the late 1940s.⁽¹¹⁾ Manpower, Inc (established in 1948) is the largest temporary help services firm and is also the largest private employer in the country. With $11.5 billion in sales, Manpower employed 2.1 million employees worldwide in 1999.⁽¹²⁾

The literature suggests that firms have responded to market stimuli on both the demand and supply side. On the demand side, firms developed alternative work arrangements because technological advances and the consequent job specialization made it possible for firms to hire employees for specialized tasks rather than relying on employees with broad, generalized job descriptions. This had the additional advantage of allowing firms both to respond to the needs of consumers by expanding or contracting the size of the workforce and to change the mix of skills of employees. On the supply side, the increased number of women and young people in the workforce has increased the total number of workers in the labor force.⁽¹³⁾ More total workers in the labor force results in more workers being available for flexible employment.

The literature also suggests that the development of alternative work arrangements has led to increased government regulation through labor law.⁽¹⁴⁾ The past three decades have seen substantial changes to the common law doctrine "employment at will" which held that employers and employees have unlimited discretion to terminate the employment relationship at any time for any reason unless a contract exists stating otherwise. By 1995, 46 state courts limited employers' discretion to terminate workers, thus opening employers up to potentially costly litigation. The effect of state courts' changes to the employment-at-will doctrine explains up to 20 percent of the growth in the temporary help services industry, accounting for 336,000 to 494,000 additional workers daily in 1999.⁽¹⁵⁾ It is possible that the legislative environment will change as a result of an August 2000 legislative decision by the National Labor Relations Board (NLRB) that expands collective bargaining rights for temporary help services employees. Although the impact of NLRB's ruling will not be known for some time, labor unions are already beginning to move to include agency temporaries in their membership.⁽¹⁶⁾

[Go to Contents]

What are the different types of alternative work arrangements?

Alternative work arrangements are defined by the nature of the hiring arrangement between the worker and the employer.⁽¹⁷⁾ The work provided by temporary help agencies is one example of these arrangements, while others include independent contractors, on-call workers and contract company workers. These are quite different types of work: for example, independent contractors might be real estate agents or freelance writers, while on-call workers include nurses, substitute teachers, and construction workers, and contract company workers include building security and cleaning workers and some computer programmers.⁽¹⁸⁾

It is worth examining the definition of temporary service work in more detail, both because it is quite complex and because it will be the focus of this report. The complexity is apparent in the conflicting estimates that come from worker-based surveys (the Current Population Survey (CPS)) and establishment-based surveys (the Current Employment Statistics survey (CES) and the Occupational Employment Statistics (OES) survey). In the CPS temporary help agency workers are those workers who said their job was temporary and answered affirmatively to the question, "Are you paid by a temporary help agency?" Workers who said their job was not temporary and answered affirmatively to the question, "Even though you told me your job was not temporary, are you paid by a temporary help agency?" are also included in the estimate of temporary help agency workers.⁽¹⁹⁾ According to 1999 CPS data, approximately 1.2 million workers--about one percent of all workers--were temporary help agency workers. This estimate includes both workers placed by the temporary agency and a small amount of permanent full-time staff of these agencies--estimated to be about 3.2 percent of all workers employed by a temporary agency.⁽²⁰⁾

In establishment-based surveys, such as the CES, the measure refers to the temporary help agency workers using the Standard Industrial Classification (SIC) code 7363--help supply services. Thus, while the CPS surveys people the CES surveys firms and, thus, counts the total number of temporary help services jobs. The help supply services code includes: "Establishments primarily engaged in supplying temporary or continuing help on a contract or fee basis. The help supplied is always on the payroll of the supplying establishments, but is under the direct or general supervision of the business to whom the help is furnished."⁽²¹⁾ Thus, help supply services include employee leasing services workers and permanent staff at temporary help agencies as well as temporary help service workers. Because workers in employee leasing firms are not likely to resemble other agency temporaries, the presence of these firms within this classification makes comparisons using these data less reliable.⁽²²⁾

Finally, it is worth noting that not all alternative work arrangements are transitory in nature. In fact, the Bureau of Labor Statistics makes a clear distinction between contingent work and alternative work arrangements, defining the former as: "Contingent work is any job in which an individual does not have an explicit or implicit contract for long-term employment or one in which the minimum hours worked can vary in a nonsystematic manner."⁽²³⁾ The difference is evident in an examination of Table 2.1 which indicates that although the majority of contingent workers are in alternative work arrangements, a small percentage of contingent workers are in traditional work arrangements, ranging from 3.2 to 3.6 percent from 1995 to 1999. Within the alternative work arrangement category there is substantial variation: independent contractors resemble workers in traditional arrangements and temporary help agency workers are at the other end of the spectrum.

[Go to Contents]

Why do firms use alternative work arrangements?

The reasons for firms to use alternative work arrangements are almost as varied as the different types of these arrangements. Firms elect to use workers in alternative work arrangements for a variety of reasons. Cost effectiveness is one: contingent employment and alternative work arrangements enable employers to lower wages and benefit costs. Another is the flexibility provided by contingent workers that allows employers to expand and contract their workforce with the economy. Researchers have also suggested that employers use temporary help agencies to screen workers for permanent positions, thereby reducing turnover costs and training costs.⁽²⁴⁾

Several surveys of employers have been conducted in recent years to better understand employer use of alternative work arrangements--the most recent is a nationally representative survey of employers conducted by the Upjohn Institute for Employment Research.⁽²⁵⁾ This survey of 550 private sector employers with five or more employees asked firms questions about their use of the following alternative work arrangements: agency temporaries, on-call workers, independent contractors, short-term hires,⁽²⁶⁾ and regular part-time workers. We will limit our discussion to those work arrangements previously defined as alternative: agency temporaries, on-call workers, and independent contractors. Upjohn gathered information on (1) which employers use flexible staffing arrangements; (2) how much these employers use them; (3) why they use them; (4) how the wages and benefits of flexible workers compare to traditional workers; and (5) whether employers have increased or decreased their relative use of these arrangements since 1990, and if so, why.⁽²⁷⁾

The first finding is that the use of alternative workers is pervasive, but varies by firm size and industry. As shown in Table 2.2, Houseman (1997) reports that the Upjohn Survey found that 27 percent of surveyed firms used on-call workers, 46 percent used agency temporaries, and 44 percent used contract workers in 1995. Between 1990 and 1995, the overall percentage of firms using on-call workers and agency temporaries stayed about the same, with equal shares of firms increasing and decreasing their use of such arrangements. Houseman also reports that the incidence of alternative work arrangements increases with firm size. However, even among small firms (with five to nine employees), use of such arrangements is non-negligible. Approximately one-sixth of small firms used agency temporaries and on-call workers, while one-third used contract workers. The industry variation is substantial: 72 percent of manufacturing firms used agency temporaries, while the use of on-call workers was highest in the services industry (44 percent), and the incidence of contract workers was highest in the mining and construction industries (see Table 2.2) (Houseman, 1997).

Houseman (1997) provides empirical evidence as to why firms use alternative work arrangements. The Upjohn Institute survey⁽²⁸⁾ showed that the reasons vary by work arrangement, but staffing reasons are more frequently cited than others (see Table 2.3). Firms most often use on-call workers and agency temporaries to fill in for an absent employee who is sick, on vacation, or on family medical leave or to provide needed assistance at times of unexpected increases in business. Firms also report frequently using agency temporaries to fill a vacancy until a regular employee is hired, while a smaller percentage of firms hire temporary or on-call workers to meet seasonal fluctuations in their workload.

The screening hypothesis is not borne out by the empirical evidence--firms are less likely to cite non-staffing reasons for hiring on-call workers and agency temporaries. Only one in five firms hires agency temporaries to screen them for regular jobs, and only 8 percent of firms hire on-call workers to screen them for permanent positions. On-call workers were used by about 16 percent of firms for their special expertise, while agency temporaries were used by about 10 percent of firms for their expertise.

Although saving on wage and/or benefit costs has often been cited as an important reason for the use of workers in alternative work arrangements, the evidence in Table 2.3 does not support this. In fact, as Table 2.4 shows, most firms report that hourly pay costs are about the same for on-call workers as regular workers in similar positions while hourly pay costs are actually higher for agency temporaries for the majority of firms. The story changes somewhat when benefit costs are added to the hourly pay costs. Nearly three-quarters of firms say their costs for on-call workers are lower than benefit and wage costs for regular workers in a similar position. On the other hand, firms report that their costs for agency temporaries are about the same or lower than benefit and wage costs for regular workers in similar positions. However, firms may still be saving money overall since the flexibility of alternative work arrangements allows them to hire workers for short-term needs.

In sum, the empirical evidence suggests that while there are many reasons for firms to use alternative work arrangements, firms' staffing needs--primarily short term--are the main source of demand for on-call workers and agency temporaries. Firms do not often use alternative work arrangements to screen employees for full-time, permanent positions--although some firms do use these workers for their special expertise in a particular area. And, only five percent of companies report hiring agency temporaries to save on training costs. The cost savings in terms of wages and benefits are also not a major element in firms' decisions, as shown by the small percentages of firms that cite such savings as a reason for hiring temporaries or on-call workers.

[Go to Contents]

How many workers are in alternative work arrangements
and who are they?

The Contingent Work supplement to the CPS in 1995, 1997, and 1999 splits employment into eight mutually exclusive groups--Independent contractors, on-call workers, temporary help agency workers, contract company workers, direct-hire temporary workers, regular self-employed (excluding independent contractors), regular part-time workers, and regular full-time workers. The first four categories of these are alternative work arrangements. As is clear from Table 2.5, the proportion of workers in temporary help services is approximately one percent, and has not changed substantially in the past five years. Although the proportion of workers in alternative work arrangements is higher if the definition is broadened--particularly if on-call workers are included--there is no discernable trend from these data. This stands in marked contrast to estimates derived from using establishment-based data (Table 2.6), which suggest that temporary help employment grew from 1.4 percent of total employment in 1991 to almost 3 percent of total employment by 1999. The reasons for this discrepancy are not fully understood by the Bureau of Labor Statistics, which publishes both series, so here we are unable to do more than simply note the difference.⁽²⁹⁾

Not surprisingly, there is as much heterogeneity in the workers in alternative work arrangements as in the types of these arrangements and the reasons for firms using them. As Table 2.7 shows, according to 1999 BLS data, independent contractors are the most prevalent of the alternative work arrangements at 6.3 percent of all workers. Independent contractors are more likely to be white (91 percent) and male (66 percent) than traditional workers, who are 84 percent white and 52 percent male. On average, independent contractors are more often part-timers and are marginally more educated than workers in traditional work arrangements. Over half of independent contractors are in two industries--construction (20 percent) and services (42 percent).

On-call workers are second most common and have a gender and racial distribution similar to that of traditional workers. However, half of on-call workers work part time compared to 17 percent of workers in traditional arrangements. On average, on-call workers are somewhat less educated than traditional workers with 13 percent having less than a high school diploma compared to 9 percent of traditional workers. Half of on-call workers work in the service industry with the most likely occupations being professional specialty (e.g., teachers, lawyers, engineers, architects) (24 percent) and services (24 percent).

Agency temporaries, who comprise nearly one percent of all workers, are more likely than the average worker to be female (58 percent compared to 48 percent of traditional workers), black (21 percent compared to 11 percent), and Hispanic (14 percent compared to 10 percent). Agency temporaries are the least educated group of workers, on average, and 79 percent are full-time workers, compared to 83 percent of traditional workers. Not surprisingly, nearly 40 percent of agency temporaries work in the services industry, compared to 35 percent of traditional workers, with the most common occupations among agency temporaries being administrative support and clerical positions (36 percent).

The smallest group of alternative workers is contract workers--0.6 percent of all workers. Contract workers, like independent contractors, are more likely to be men (71 percent) than traditional workers (52 percent) but have a similar racial distribution to traditional workers. Contract workers are somewhat more likely than any other group to be full-time workers (87 percent) compared to traditional workers (83 percent), the next highest group. On average, contract workers are more educated than those in any other work arrangement--39 percent of contract workers are college graduates, compared to 31 percent of workers in traditional arrangements.

[Go to Contents]

A First Look at How Labor Market Outcomes Differ For Workers In Alternative Work Arrangements

No single definitive statement can summarize the impact of alternative work on employees. The impact depends on the factors mentioned above: the kind of work arrangement the worker is in, the reason the firm hired the worker, and the demographic characteristics of the worker. The type of work arrangement may also affect many elements of a worker's labor market experience including earnings, job tenure, health insurance coverage, and pension benefits. And, although it is natural to compare the outcomes of alternative work arrangements with those resulting from regular work, this may not be appropriate for some demographic groups such as those for whom the alternative may be nonemployment or welfare receipt. An argument can be made that people who would otherwise be on public assistance or receiving unemployment insurance are better off working in an alternative work arrangement.

Earnings

Earnings in this sector tend to be lower than for traditional work (although this depends on the type of arrangement). As Table 2.7 indicates, in 1999, the median of earnings for workers in traditional arrangements was $540 per week. This was significantly higher than the median earnings of agency temporaries at $342 per week--nearly $200 per week lower than traditional workers--and on-call workers at $472 per week. Contract workers earned more than workers in any other arrangement with $756 in median weekly earnings in 1999. Independent contractors earned $100 more than workers in traditional arrangements, with $640 in median weekly earnings.

It is possible that differences in educational attainment or in the total hours worked per week contribute to these aggregate discrepancies in earnings. On-call workers and agency temporaries have the lowest educational attainment while independent contractor and contract workers are most highly educated, indicating a strong correlation between earnings and education. In addition, contract workers are more likely than any other group to be working full-time. Full- or part-time status cannot explain all the gaps in earnings, however, since agency temporaries are the second most likely to be working full-time and they have the lowest median weekly earnings.

In a study that controlled for some of these differences, Segal and Sullivan (1998)⁽³⁰⁾ find that a 15 to 20 percent wage differential exists between wages earned in temporary work and the wages that would be expected from traditional work based on the work history of the individuals in the sample. This differential dropped to about 10 percent when wages were compared to those earned at the types of jobs that the individuals would probably find if not involved in temporary work.

Benefits

In general, one disadvantage to alternative work arrangements is the lack of health insurance and employer-provided pension plans. Indeed, Farber (1997) uses the presence or absence of such plans as one of his measures of "good" or "bad" jobs.⁽³¹⁾ While workers in all alternative work arrangements are less likely to have health insurance and pension plans than workers in traditional arrangements, the coverage varies quite a bit by alternative arrangement. As Table 2.8 indicates, BLS data show that 83 percent of workers in traditional arrangements have health insurance coverage and 58 percent have coverage provided by their employer. While contract workers have nearly the same health insurance and pension plans as workers in traditional arrangements, other alternative work arrangements provide health insurance coverage and pension plans less frequently. In terms of health insurance, agency temporaries are the worst off, since only 41 percent have health insurance from any source and 9 percent have employer-provided insurance. Two-thirds of on-call workers have health care coverage from any source and one-fifth receive health care coverage from their employer. Nearly three-quarters of independent contractors have health insurance; however, it is never supplied by the employer.

Fifty-four percent of workers in traditional arrangements are eligible for an employer-provided pension plan and nearly half are included in their employer's pension plan (see Table 2.8). Again, contract workers most closely resemble workers in traditional work arrangements with 54 percent eligible for an employer-provided pension plan and 40 percent included in that plan. Only 12 percent of agency temporaries are eligible for an employer-provided pension plan and 6 percent are actually included. Independent contractors fare the worst in employer-provided pensions with 3 percent eligible and 2 percent actually included. Thus, health insurance coverage and employer-provided pensions are provided less frequently to workers in alternative work arrangements, and many workers must purchase these amenities on their own if they wish to be covered.

Job Tenure

Evidence indicates that, with the exception of independent contractors, job tenure in alternative work arrangements is shorter than in traditional arrangements. The median tenure (in the arrangement) for independent contractors was 7.7 years, according to 1997 CPS data, while traditional arrangements had a median tenure of 4.8 years. Temporary help agency workers had the shortest tenure with six months, and on-call workers and contract workers both had a median tenure of 2.1 years in 1997.⁽³²⁾ This is reinforced by Segal and Sullivan's (1997a) research, which finds that temporary employment spells are dramatically shorter than permanent spells. Their estimates lead them to conclude that 32 percent of temporary employment spells for one employer last for only one quarter (compared to 11 percent of permanent spells), 78 percent last four quarters or fewer (compared to 35 percent of permanent spells), and the average is about two quarters.

Job Satisfaction

As Table 2.9 shows, in 1997, independent contractors, on-call workers, and agency temporaries reported vastly different reasons for their decision to work in alternative arrangements. Independent contractors were much more likely to cite personal reasons⁽³³⁾ (76 percent) over economic reasons⁽³⁴⁾ (9 percent). Among independent contractors working in an alternative arrangement for a personal reason, flexibility of schedule was the most commonly cited reason. On-call workers were split nearly evenly between personal reasons (41 percent) and economic reasons (39 percent). Of on-call workers citing economic reasons, most said it was the only type of work they could find while those citing personal reasons most often cited flexibility of schedule as the primary reason. Agency temporaries, on the other hand, were more than twice as likely to cite economic reasons (60 percent) as they were to cite personal reasons (29 percent). Temporary workers most often said that this was the only type of work they could find and that they hoped this job leads to a permanent position.⁽³⁵⁾

Summing Up

Given the evidence about earnings, job tenure, health insurance coverage, pension benefits, preference for traditional employment, and reasons for working in alternative arrangements, it is clear that the advantages and disadvantages to alternative work vary by work arrangement. Earnings, health coverage, and employer-provided pensions are common among independent contractors and contract workers while many on-call workers and agency temporaries lack these benefits and, on average, have low median earnings. Independent contractors also report preference for their alternative arrangement while on-call workers are split and agency temporaries report strong preference for a traditional arrangement. Finally, agency temporaries cite economic reasons for alternative employment while on-call workers are split and independent contractors cite personal reasons. We can conclude from this that independent contractors and contract workers are much more likely to enter alternative work arrangements willingly and to benefit financially from work more than agency temporaries and somewhat more than on-call workers. The heterogeneity among positions using an alternative work arrangement is reflected in the heterogeneity of the effects on the well-being of the workers.

[Go to Contents]

A First Look at How Alternative Work Arrangements Affect Low-Income and At-Risk Workers

In order to address this core research question, it is necessary to define low-income and at-risk workers. Unfortunately, there is no clear consensus on either definition. In defining low income or low wage, income from many different sources (e.g., wages, public assistance, child support), over many different time periods (e.g., hourly, weekly, annually), and many different units (e.g., individual, family, household) may be considered (see Theeuwes, Lane, and Stevens 2000; Brown 1999; Dickert-Conlin and Holtz-Eakin 1999; Hudson 1999). Different thresholds are often used as well: some absolute, such as a multiple of the minimum wage (see Brown 1999) or wages necessary to lift a family of four above the poverty threshold (see Hudson 1999)., and some relative, such as the relative position in the income distribution (e.g., lowest 20 percent of the income distribution) (See Theeuwes, Lane, and Stevens 2000; Dickert-Conlin and Holtz-Eakin 1999; and Hudson 1999). There is similarly no clear definition of at risk of welfare recipiency because of the wide variety of income eligibility rules for TANF in each state. Thirty-six of 50 states have a gross income test--income before deductions and disregards, resulting in an income variation ranging from $616 (Oregon) to $1,955 (Alaska) in monthly income,^{(36) (37)} or if translated into poverty thresholds, a range of from 56 to 177 percent of the 1999 poverty threshold for a family of three. Similar variation occurs if we consider Medicaid income eligibility which translates into a range between 48 and 209 percent of the 1999 federal poverty threshold, although the national threshold for food stamps is 135 percent of poverty level. In any event, the gross monthly income limits for the three major public assistance programs range from 48 to 209 percent of the 1999 federal poverty threshold.

Can the terms low wage, low income, and at risk of welfare recipiency be used synonymously? Research by Dickert-Conlin and Holtz-Eakin (1999) suggests that low-wage workers and poor workers are not the same, and, in fact, only 15 percent of low-wage workers--with wages below $5.93--the lowest quintile of the wage distribution--are poor. They also find that poor workers are much more likely than low-wage workers to receive public assistance. Twenty percent of poor workers receive public assistance while only about 7 percent of low-wage workers receive some form of public assistance. This is not surprising given the lower incomes of households with poor workers ($9,431) compared to households with low-wage workers ($38,384). Thus, a definition of low income that is based on the poverty level is much more likely--although by no means certain--to include individuals at risk of welfare recipiency than a definition of low income that is based on wage rates.

No CPS-based study has focused exclusively on low-income workers in alternative work arrangements, possibly because of the small number of workers in alternative arrangements. As Table 2.10 shows, the number of public assistance recipients in alternative work arrangements nationwide is rather small. However, there is some evidence that workers in alternative work arrangements are over-represented among low-wage workers and workers with incomes below or near the poverty line.⁽³⁸⁾ In a recent study analyzing the 1999 February CPS,⁽³⁹⁾ GAO found that about 8 percent of standard full-time workers had annual family incomes below $15,000, as compared with 30 percent among agency temporaries. Likewise, GAO found that nearly every category of alternative workers--including agency temporaries, direct-hire temporaries, on-call workers, independent contractors, and part-time workers--had a greater percentage of workers with family incomes below $15,000. In fact, only self-employed and contract workers had a lower or similar percentage of workers with family incomes below $15,000 annually.⁽⁴⁰⁾

Houseman (1999) used the February Supplement to the 1997 CPS and matched files for the February and March 1995 CPS to analyze both hourly wages and poverty levels for workers in alternative arrangements compared to regular employees. This descriptive data analysis⁽⁴¹⁾ uses the 1997 CPS data to calculate the percentage of workers earning at or near the minimum wage--between $4.25 and $5.15 in 1997. She finds that some workers in alternative arrangements do better than regular employees while others do worse.⁽⁴²⁾

There is evidence from Unemployment Insurance (UI) wage record data that temporary help jobs for welfare recipients are not of high quality. Pawasarat (1997) examines over 42,000 jobs held between January 1996 through March 1997 by over 18,000 single parents who received Aid to Families with Dependent Children (AFDC) benefits in December 1995. In particular, Pawasarat found that temporary help jobs were often part time or short term: of those hired by a temporary agency over the five quarters, only 30 percent used that agency as the sole source of employment. Additionally, earnings were low. Between 48 and 52 percent of those employed by temporary employment agencies earned under $500 per quarter in wages. Only 9 to 13 percent of the temporary workers earned the equivalent of a full-time salary (at least $2500) in a temporary job in a given quarter.

However, he finds that temporary agencies provide an entry point into the labor market for AFDC recipients, and are important in a numerical sense. In particular, he finds that 30 percent of all jobs held by these workers were concentrated in temporary agencies compared to 23 percent in retail trade, and that over the five quarters studied, 42 percent of AFDC recipients who had a job were employed at least once by a temporary agency.

It is certainly clear that a greater percentage of agency temporaries, on-call workers, and other short-term direct hires earn near the minimum wage than do regular employees (Table 2.11). These low wages translate into low family incomes and thus a greater percentage of workers in alternative arrangements earn below or near the poverty line as compared with regular workers. Furthermore, since workers in alternative work arrangements are more likely to work intermittently or for fewer than full-time hours, it is not surprising that their overall incomes are lower than those of regular employees.

These findings are reinforced by Houseman's (1997) analysis of the February 1995 CPS. She finds that workers in alternative work arrangements are “much more likely to receive low wages, live in poverty, and have no benefits, than are workers in regular full-time jobs.” Further evidence indicates that while workers in alternative work arrangements account for about 25 percent of wage and salary workers, they account for 57 percent of those in the bottom ten percent of the wage distribution, 56 percent of those not eligible to receive employer-provided health insurance, and 42 percent of the working poor.⁽⁴³⁾

Despite the evidence that workers in alternative work arrangements are more likely to have earnings below the poverty line, it would be premature to conclude that low-income alternative workers are hurt by their alternative work arrangements. It is not clear that without these alternative work arrangements these workers would be better off since many might be unemployed or discouraged workers, particularly in view of the low levels of human capital held by these workers.

[Go to Contents]

A First Look at Whether Alternative Work Arrangements Help Workers On The Path To Regular Employment

Some TANF agencies have begun using temporary help agencies to help place welfare recipients in jobs.⁽⁴⁴⁾ This may well become an important trend--as more former welfare recipients go to work and the caseload becomes harder to serve, welfare agencies are likely to rely more heavily on intermediaries that either provide services to help clients with employment barriers (e.g., substance abuse treatment) or assist with job search activities including teaching clients "soft skills" necessary to succeed in interviews. While this may be helpful to some workers with few skills and little or no work history, opponents fear that the temporary agency jobs are low paying with only a small chance of the job becoming a permanent position.⁽⁴⁵⁾

Survey-based evidence suggests that few temporary jobs lead to permanent employment--only 5 percent of companies report hiring agency temporaries to fill positions for more than one year. A recent study using CPS data confirms that there is a significant amount of job turnover for agency temporaries. In an analysis of labor market transitions for personnel supply services workers (SIC 736) between 1983 and 1993, Segal (1996) found that half of personnel supply services workers were employed in a different industry after one year. In each year between 1983 and 1993, on average, 20 percent of those who were personnel supply services workers in the preceding year were without a job in the subsequent year, either out of the labor force (13.8 percent) or unemployed (6.3 percent).⁽⁴⁶⁾

UI wage record data also suggest that few temporary jobs become permanent. In Washington, fewer than half of temporary employment spells (42 percent) result in a transition to a permanent job (Segal and Sullivan 1997a). In Wisconsin, only 5 percent of the single parents who worked for temporary agencies at any point in the five quarters had nontemporary agency earnings over $2500 during the first quarter of 1997. Roughly 6 percent of persons with temporary agency jobs may have obtained full-time nontemporary employment through a temporary job. Most of these successful persons had the characteristics of the population most likely to leave AFDC with or without a temporary job placement, i.e., 69 percent had 12 or more years of schooling and 57 percent were already employed in first quarter 1996 at the start of the study period.⁽⁴⁷⁾ In addition, even after controlling for demographic characteristics as well as work and welfare histories, the Pawasarat (1997) study generally found significantly lower probabilities of working in all four quarters in the year after leaving welfare if a welfare recipient had worked in a temporary agency as compared to other industries.

Although most jobs do not convert to permanent jobs, some firms do provide the opportunity. The Upjohn Institute's survey found that about 43 percent of employers using agency temporaries and 36 percent of employers using on-call workers said they often, occasionally, or sometimes move employees into permanent positions. This is confirmed by a survey conducted by the National Association of Temporary Staffing Services, which found that more than one-third of temporary agency workers surveyed said they had been offered a permanent job by their employers.⁽⁴⁸⁾

[Go to Contents]

Endnotes

10.  Polivka, Anne E. "Contingent and Alternative Work Arrangements, Defined." Monthly Labor Review, October 1996b.

11.  Moore, Mack A. "The Temporary Help Service Industry: Historical Development, Operation, and Scope." Industrial Labor Relations Review, 1965.

12.  Manpower Inc. "Manpower Inc. Facts." Manpower Inc. <http://www.manpower.com/en/story.asp>. 2000.

13.  Lee, Dwight R. "Why Is Flexible Employment Increasing?" Journal of Labor Research XVII, no. 4, Fall 1996: 543-53.

14.  Autor 2000; Lee 1996.

15.  Autor 2000.

16.  Swoboda, Frank. "Temporary Workers Win Benefits Ruling." The Washington Post, August 31 2000, A1.

17.  It is worth making the point that there is a difference between contingent work and alternative work arrangements: the latter describe the relationship between employer and employee, the former is closely tied to the expected duration of employment

18.  Cohany, Sharon R. "Workers in Alternative Employment Arrangements." Monthly Labor Review October 1996.

19.  Cohany 1996.

20.  Houseman, Susan N. and Anne E. Polivka. "The Implications of Flexible Staffing Arrangements for Job Stability." Upjohn Institute Staff Working Paper No. 99-056, May 1999.

21.  U.S. Department of Labor. "SIC Description for 7363." Occupational Safety and Health Administration. <http://www.osha.gov/cgi-bin/sic/sicser2?7363>. 2000.

22.  Typically a company will contract with an employee leasing firm and then dismiss their employees only to have them hired by the leasing company and leased back to the original firm. The leasing company provides wages, payroll taxes, and benefits to the employees for a set fee. See KRA Corporation. Employee Leasing: Implications for State Unemployment Insurance Programs. Unemployment Insurance Service, Department of Labor, 1996.

23.  Polivka, Anne E. and Thomas Nardone. "On the Definition of 'Contingent Work'." Monthly Labor Review December 1989.

24.  Abraham, Katherine G. and Susan K. Taylor, "Firms' Use of Outside Contractors: Theory and Evidence" Journal of Labor Economics, July 1996: 394-424.

25.  Houseman, Susan N. "Temporary, Part-Time, and Contract Employment in the United States: A Report on the W.E. Upjohn Institute's Employer Survey on Flexible Staffing Policies." U.S. Department of Labor. June 1997.

26.  The Upjohn Survey defines short-term hires as individuals who are employed directly by the organization for a limited and specific period of time. Short-term hires include workers hired for the December holiday season or during the summer and they may work part-time hours.

27.  Houseman 1997.

28.  The Upjohn Institute survey reports establishment responses about alternative work arrangements. Thus, the perspectives of alternative workers are not reflected in these data. Also, the averages in the data represent the typical firm, rather than the firm whether the typical worker is located.

29.  It is worth discussing the discrepancy between these results and those reported based on establishment employment statistics in some detail. The Current Population Survey (CPS), which covers households, and the Current Employment Statistics survey (CES), which covers firms, do not agree on the level of employment in the United States for a number of reasons, but primarily because the former series covers workers and the latter covers jobs. However, in the 1990s the gap between the two series grew markedly: employment as measured by the CPS grew by only 8 million (from 110 million to 118 million) from 1994 to 1998 while the CES showed an employment growth of more than 12 million (from 113 million to over 125 million) (Nardone 1999). The reason for this discrepancy is not known--it could be due to changes in multiple job holding, undocumented illegal immigration, Census undercounts (and hence misweighting in the CPS), or changes in establishment reporting practices. Although understanding the causes for these differences has important implications for knowing how much true employment growth has actually occurred in the temporary help sector, and is an important area for future research, it is beyond the scope of the current study.

30.  The authors use Unemployment Insurance (UI) data from the State of Washington to examine wage differentials and employment duration, respectively, among workers in the temporary help supply services industry.

31.  Farber, Henry S. "Job Creation in the United States: Good Jobs or Bad?" Princeton University Industrial Relations Section Working Paper 385, July 1997.

32.  Cohany, Sharon R. "Workers in Alternative Employment Arrangements: A Second Look." Monthly Labor Review November 1998.

33.  Personal reasons, as defined in the CPS, include: flexibility of schedule; family or personal obligations; in school or training; and other.

34.  Economic reasons, as defined in the CPS, include: employer laid off and hired back as temporary employee, only type of work I could find, hope job leads to permanent employment, retired/social security earnings limit, nature of work/seasonal, and other.

35.  Cohany 1998.

36.  Center for Law and Social Policy and Center on Budget and Policy Priorities. "State Policy Demonstration Project." <www.spdp.org/medicaid/table_3.htm>. January 2000.

37.  For reasons of comparison, we selected gross income limits and the 1999 poverty threshold for a family of three.

38.  U.S. General Accounting Office. "Contingent Workers: Incomes and Benefits Lag Behind Those of Rest of Workforce." GAO/HEHS-00-76, June 2000; Houseman, Susan N. "Flexible Staffing Arrangements: A Report on Temporary Help, On-Call, Direct-Hire Temporary, Leased, Contract Company, and Independent Contractor Employment in the United States." DRAFT, June 1999; Houseman 1997.

39.  All of the studies with income information for alternative workers discussed here rely on data from the February Contingent Workers and Alternative Work Arrangements supplement to the CPS or March CPS.

40.  U.S. GAO 2000a.

41.  This paper provides descriptive statistics; the estimates do not control for other factors that may affect human capital.

42.  Houseman's definition of "regular employees" is not clear from the paper, however, it likely refers to workers in traditional arrangements and may or may not include part-time employees along with full-time employees.

43.  Houseman 1997.

44.  Pavetti, LaDonna, Michelle Derr, Jacquelyn Anderson, Carole Trippe, and Sidnee Paschal. The Role of Intermediaries in Linking TANF Recipients with Jobs. Mathematica Policy Research, Inc. U.S. DHHS/ASPE, February 2000; Houseman 1999.

45.  Houseman 1999.

46.  Segal, Lewis M. "Flexible Employment: Composition and Trends." Journal of Labor Research XVII, no. 4 Fall 1996: 523-42. See Table 6 on page 539.

47.  Pawasarat, John. "The Employment Perspective: Jobs Held by the Milwaukee County AFDC Single Parent Population (January 1996-March 1997). Milwaukee, WI: Employment and Training Institute, December 1997.

48.  Houseman 1997.

Where to?

Top of Page | Contents

Main Page of Report | Contents of Report

Home Pages:
Human Services Policy (HSP)
Assistant Secretary for Planning and Evaluation (ASPE)
U.S. Department of Health and Human Services (HHS)