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



The role of alternative work arrangements  temporary help, independent contractors, on-call workers, and contract company workers  has caught the attention of both policy makers and academic researchers alike. Current research indicates that 1 in 10 workers are employed in one of these four alternative work arrangements and employment in the temporary help services industry grew five times as fast as overall non-farm employment between 1972 and 1997.

This growth is likely to have important implications for low-income workers, particularly since the establishment of the Temporary Assistance for Needy Families (TANF) block grant, authorized by the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA) of 1996, which dramatically transformed the nation's welfare system. This welfare reform, in conjunction with a strong economy, has resulted in an increasing number of low-income individuals entering the labor force. Thus, alternative work arrangements, especially for those with limited work histories, might be expected to be a natural pathway to work for such workers. However, little is known about the prevalence of alternative work arrangements as a gateway into the labor force or the resulting labor market outcomes for low-income workers and those at risk of welfare dependency.


Research Question and Methods

The goal of this project was to examine the role of alternative work arrangements in today's labor market, paying particular attention to the effect of such arrangements on low-income workers in alternative arrangements and those at risk of being on public assistance. This research question was split into two components:

  1. How do alternative work arrangements differ from other arrangements in the characteristics of workers holding the jobs and in the characteristics of the jobs?  How have these characteristics changed over time?
  2. How do outcomes for low-income and at-risk individuals who have worked in alternative work arrangements compare with those of similar workers  both those at-risk and not at-risk  who have worked in traditional employment and with those of nonemployed persons?

We also briefly consider the possible effects of an economic downturn on this segment of the population, given the importance of a strong economy in assisting former welfare recipients and low-income individuals in obtaining and retaining employment.


Core Results

The results from the first part of the analysis (1) indicate that:

  • Workers who are at risk of welfare recipiency are more than twice as likely to be in alternative work arrangements as other workers.
  • At-risk workers in alternative work arrangements by and large look quite similar to at-risk workers in standard work in terms of age and education. However, the number of at- risk women in such arrangements has increased from less than half of at-risk temporary workers in 1995, to more than two-thirds by 1999, even though women account for just over half of at-risk workers in standard employment.
  • Educational levels are low, with about one-third of workers in alternative arrangements lacking a high school diploma.
  • The number of industries drawing on temporary help workers has increased, and the median education level of temporary workers employed in these industries is quite high. In almost all of these industries in 1999, the median education level of workers is beyond high school, and in telephone communications and computer and data processing services the median worker is a college graduate. This suggests that at-risk workers will be increasingly less able compete in these industries.
  • Workers at risk of welfare receipt fare worse in alternative work arrangements than do other workers in such arrangements across a variety of dimensions: wages, incidence of part-time work, job duration, and employer-provided benefits.
  • At-risk workers in temporary work are less likely to have employer-provided benefits than are at-risk regular workers.
  • Not surprisingly, at-risk workers are also less happy with their work and more likely to be in the job out of necessity than are other temporary workers.(2)
  • Although one might expect there to be some relationship between the industries and occupations that predominantly hire low-wage workers and those that predominantly hire temporary help workers, the data and the literature suggest this is not the case. The decision to hire low-wage workers appears to be driven by long-term production decisions, which is evident from the stability of the types of industries that hire low-wage workers. In contrast, the need for temporary help workers is driven by short-term staffing needs and will tend to reflect economic conditions as a whole.

Analysis of the second part of the research question uncovered some quite striking results:(3)

  • Individual work histories are an important contributor to whether individuals were employed by temporary agencies. Simple comparisons of outcomes for workers in alternative work arrangements with those in standard arrangements are likely to be misleading because the workers' underlying characteristics (e.g., work histories) are different.
  • The alternative to work in temporary work might not be standard employment, but, rather, nonemployment. Thus, in an examination of outcomes such as wages, employment duration, and benefits a year later, it might be more appropriate to compare temporary help workers with nonemployed workers rather than workers in standard employment.
  • Individuals who had a spell in temporary work had worse earnings and employment outcomes a year later than did similar individuals with a spell in standard employment.
  • Individuals who had a spell in temporary work fared substantially better a year later than did similar individuals who had a spell in nonemployment  for example, they are nearly twice as likely to be working one year later than were their counterparts.
  • Temporary workers also had a lower incidence of welfare receipt and household income below 200 percent of the poverty line compared with nonemployed individuals. However, there was not a significant difference between temporary workers and those employed in nontemporary work in either welfare receipt or poverty status.
  • Although temporary workers do fare worse than those employed in standard work, their outcomes one year later are much closer to those of standard workers than those of nonemployed workers.
  • These results also hold for workers at-risk of welfare recipiency.

An important policy question is the likely effect of an economic downturn on at-risk workers in alternative work arrangements. Preliminary analysis found:(4)

  • Temporary help employment is extremely responsive to the Gross Domestic Product  downturns in temporary help employment exactly match downturns in economic activity.
  • In addition, somewhat ominously, employment in this industry has taken a very clear downturn in the latest two quarters for which data are available.



The results suggest that the answer to the initial research question "Does alternative employment improve outcomes for at-risk workers?" depends critically on whether the comparison group is those who were not employed during the observation period, or those who were employed in nontemporary employment. Temporary work appears to be a better alternative than nonemployment.

The effect of an economic downturn on at-risk workers in alternative work arrangements in an economic downturn is a cause for concern. Our review of the literature suggests that while there are many reasons for firms to use alternative work arrangements, the main source of demand comes from primarily short-term firm staffing needs. In addition, the very nature of temporary work means that there are likely to be very low rates of job-specific skill acquisition, and hence that there are minimal firing costs to employers. In addition, since all temporary workers are outside the standard employment relationship, there are few penalties associated with layoff. All of these factors have unsettling implications about the impact of an economic downturn on at-risk workers in temporary work, since their lower education levels may make them more vulnerable during layoffs. However, the SIPP and CPS data do not permit this to be quantified.

Even without an economic downturn, the differences in educational attainment between at-risk and not at-risk temporary help workers could prove to have important implications for the employability of at-risk workers. Skill demands have increased, even for temporary help workers: both because the main employers of temporary help workers increasingly require more skill of their employees and because the types of occupations in which temporary help workers are used increasingly demand higher levels of skill. Since three out of four at-risk workers are either high school graduates or high school dropouts, this is a cause for concern.

Our analysis considered only earnings from work, not welfare, and, thus the impact of work in alternative work arrangements on overall economic well-being remains unknown. However, it is possible that income from time-limited welfare is a less desirable outcome when compared to income from employment, particularly when the latter is more likely to lead to long-term independence as a result of both work experience and potentially skill enhancement.


Directions for Future Research

This research was a first foray into exploring the prevalence of low-income and at-risk workers in alternative work arrangements, trends over time, and the employment outcomes of these workers one year later in comparison to low-income and at-risk and other workers in standard work arrangements. However, a major constraint in this research was that the small sample sizes and inadequate work history information in the CPS meant that it could only be used for tabular purposes. While the SIPP provided better work history information, the definition of temporary work was not nearly as rich as the one provided by the CPS, and, again, insufficient sample size meant that only one definition of at-risk workers could be used, rather than the plethora of possible measures. In addition, the differences between temporary help employment estimates derived from household surveys, such as the CPS, and establishment surveys, such as the CES, are troublingly large. A valuable focus for short-term future work would be to incorporate the 1996 SIPP into the analysis. Longer-term future work might center on exploiting a new and different data source to analyze the research question.

The Census Bureau is developing just such a data source, in the Longitudinal Employer Household Dynamics (LEHD) program. This important new database includes a federal component, which extends the SIPP by adding detailed (employer level) earnings histories, and a state component, which combines state unemployment insurance records (with quarterly earnings, industry, place of work and place of residence for the 1990s) with limited demographic information (date of birth, place of birth, race and sex) on all workers, and more detailed demographic information for those workers who match to CPS, SIPP and the American Community Survey. The next steps using these data could include the following:

  1. Construction of better quality work histories to structure better comparison groups.
    The validity of the comparisons in the study depends critically on the ability to create good comparison groups, which, in turn, depend on the quality of the work histories. The ability to exploit the detailed employer-level earnings histories on both the SIPP and the CPS will improve the quality of the comparisons.
  2. Inclusion of macroeconomic variables to capture the effect of economic changes on temporary help employment.
    The relatively small sample size in both CPS and SIPP, combined with an extended economic recovery in the 1990s, makes it difficult to capture the effect of an economic downturn. However, the large state-level datasets from the LEHD program, combined with substantial cross-state variations in economic activity, should permit much more accurate economic modeling of macroeconomic effects.
  3. An analysis of the sensitivity of the results to the definition of alternative worker and of at-risk individual.
    The addition of the UI wage record earnings histories from the LEHD program to the CPS would permit the CPS to be used for the model-based analysis, and enable the use of the rich CPS measures of alternative work arrangements and at-risk individuals in the model-based analysis. This would then permit a sensitivity analysis.
  4. An investigation into the reasons for the marked differences in employment growth in temporary help services in establishment and household surveys.
    One of the most troubling findings was the differences in these two sets of estimates. The LEHD data provide the potential to understand the difference by linking establishment-based data to the household based data and documenting the source of the difference.
  5. An investigation into the types of firms that hire at-risk workers and the impact of the firm on worker outcomes.
    Since the growth of temporary help employment is a business response to economic conditions, an important policy question is whether employment by certain types of firms can result in "better" outcomes for at-risk workers. The LEHD data, which provide information on the characteristics of the firm, as well as the characteristics of the worker, permit such an investigation.