Warehouse

Illinois grapples with rise in contingent workforce

By Karen Lentz

A bill under consideration in the Illinois legislature is drawing attention to a growing trend in today’s workforce: employers meeting long-term staffing needs by contracting with employment companies and temporary work agencies.

A contract company may handle a range of hiring tasks including recruitment, training, payroll, benefits, and other typical human resources functions. In providing services to its clients, a staffing service company may offer a form of “temporary” work in which a worker is employed by the agency and sent out to its clients on assignments, perhaps long-term.

Temporary employment accounted for 3.4 percent of the total workforce in Illinois in 2015, with 989 temporary staffing agencies operating in the state, according to data from the U.S. Bureau of Labor Statistics.

Use of staffing agencies can benefit employers by providing flexibility to meet short-term demand or fluctuating labor needs without investing resources in recruiting, hiring paperwork, onboarding and training. Sometimes, too, a staffing company has capacity to find particular skills or talents an employer requires.

Worker advocates worry that increasing use of staffing companies can put workers in a “permanent temporary” position where they face wage gaps, inadequate training, and job insecurity.

“A few decades ago, a worker without a college degree could get a good job. Today, they would go to a temp agency,” Brittany Scott, senior research strategist at the National Economic and Social Rights Initiative, said.

Illinois State Rep. Carol Ammons, D-Urbana, proposed the Responsible Job Creation Act, HB690, in January to ensure staffing agencies offer a living wage, and to increase transparency in hiring practices.

“We need good, responsible jobs in the state,” Ammons said in a press conference in Chicago on Thursday, adding that companies’ reliance on temporary jobs has repercussions in the state as low wages mean less money to spend in the local economy, and a smaller tax base to support schools and other services.

The bill would require temporary laborers to be paid at the same rate as permanent employees performing the same or similar work, and would require third-party clients of agencies to conduct a job hazard analysis for each job to which a laborer might be sent.

The bill, scheduled for a vote in the House Labor Committee on March 8, would also require staffing agencies to report to the U.S. Department of Labor the number of workers they have placed in permanent positions.

A 2012 study found that in 1990, office and administrative workers made up 41 percent of the temporary worker population, while blue-collar occupations represented 28 percent. By 2009, those percentages had flipped.

Chicago has half a billion square feet of warehouse space, employing about 150,000 warehouse workers in the region, according to the organization Warehouse Workers for Justice. Companies including Wal-Mart Stores Inc. and Home Depot Inc. have distribution centers in the area.

Almost all of these warehouses rely heavily on temporary workers, Ammons said.

However, industrial and warehouse jobs are only a slice of the growing staffing industry.

The U.S. Bureau of Labor Statistics projected in 2013 that the number of jobs in the employment services industry, comprising placement agencies, temporary help services, and professional employer organizations, would increase to almost 4 million by 2022, a 29 percent increase from 3.1 million in 2012.

“The demand for information technology, healthcare, and temporary help services is driving the employment growth in this industry,” BLS economist Richard Henderson noted in the release.

In 2016, according to the BLS, the professional and business services sector added 20,900 jobs in the Chicago-Naperville-Elgin metropolitan area, an increase of 2.6 percent. This category, which contains administrative, legal, waste management, employment, call centers, and other types of services, posted the highest gain of any sector during the year.

The Contingent Employment Industry

Workers employed through contract firms are part of a demographic known as contingent workers. Holiday retail workers, gig workers, and substitute teachers are all part of the contingent workforce. As the name implies, the prospects for the worker’s continued employment are conditioned on business cycles and demand.

According to the American Staffing Association, approximately 13 percent of temporary and contract employees work in the engineering, IT, and scientific sections.

A study of 700 IT leaders by IT staffing agency TEKsystems Inc., which has a location in Chicago, indicated the IT departments among those surveyed were made up of 80 percent full-time IT staff and 20 percent contingent staff; respondents expected the percentage to shift to 76 percent full-time workers and 24 percent contingent staff in 2017.

“The volume and depth of contingent hiring is expanding. Forty-three percent of IT leaders report they will increase contingent hiring this year. Because they also report that contingent staff will make up a larger portion of their staff, we can assume those increases will be fairly significant and they will be leveraging contingent staff to a greater degree compared to the previous year,” Jason Hayman, TEKsystems market research manager, wrote in an email.

The 2016 rankings by California advisory firm Staffing Industry Analysts show 134 U.S. firms each generating at least $100 million in revenue, for a combined $75.7 billion in staffing revenue. Topping the list is privately held Allegis Group in Maryland with $8.6 billion in staffing revenue and 6.5 percent market share. Milwaukee-based Manpower Group Inc. ranked fourth, with 2.7 percent of the market.

Delaware-based Integrity Staffing Solutions, which employs associates for assignments including Amazon.com Inc. warehouses in Joliet and Edwardsville, ranked 11th in the nation. Founded in 1997, the company owns 2 percent of the overall staffing industry market share and reached an estimated $554 million in annual revenue in 2015.

“The industrial segment has shown a more pronounced trend of market share consolidation than in any of the other skill segments of the staffing industry,” Staffing Industry Analysts Research Manager Timothy Landhuis said in a release on the rankings.

Landhuis added that the 15 largest industrial staffing firms held 58 percent of the market last year, compared with 43 percent in 2007, suggesting that economies of scale are playing an increasingly important role in the competition between industrial staffing suppliers.

Healthcare also represents a large portion of contingent staffing. Under a four-year, exclusive $30 million contract, New Jersey-based RCM Technologies Inc. handles hiring, training, and supplemental staffing to Chicago Public Schools.

Measuring the Contingent Workforce

Classifying the different types of temporary and contingent work arrangements is complex and lacks a standard set of measurements. For example, a college student who bartends on the weekends and a parent working two part-time jobs to support a family would both be considered some form of contingent worker.

The U.S. Bureau of Labor Statistics defines a set of “core contingent” workers, based on fundamental insecurity in the job position, which includes contract company workers as well as agency temps, on-call workers, and other temporary workers.

The last BLS Contingent Worker Survey was conducted in 2005; however, a 2015 survey based on the BLS questionnaire found that the percentage of workers engaged in alternative work arrangements–defined as temporary help agency workers, on-call workers, contract workers, and independent contractors or freelancers–rose from 10.1 percent in February 2005 to 15.8 percent in late 2015. The percentage of workers hired out through contract companies showed the sharpest rise, increasing from 0.6 percent in 2005 to 3.1 percent in 2015.

Alternative Work Arrangements
Source: 1995 and 2005 data from BLS Contingent Worker Survey; 2015 data is from RAND-Princeton Contingent Worker Survey conducted Oct.-Nov. 2015, as reported in NBER Working Paper Series. (Karen Lentz/MEDILL)

Based on the General Social Survey, a 2015 report by the Government Accountability Office estimated that core contingent workers–that is, those who were identified as working for a contract company and who usually worked at a customer’s worksite–comprised about 7.9 percent of the employed labor force in 2010, with contract workers representing 3 percent.

The 2015 GAO study used current population survey data to estimate that contingent workers were earning about 10.6 percent less per hour than standard workers. Taking into account variations in the number of hours worked, contingent workers averaged 16.7 percent less in earnings per week and 12.9 percent less per year than standard workers.

Job insecurity is implicit in the contract employment arrangement. Estimates from the 2010 General Social Survey show that core contingent workers were more than three times as likely as standard full-time workers to report being laid off in the previous year, and more than four times as likely to say that they were very or fairly likely to lose their jobs within the coming year.

Unsurprisingly, this has an impact on job satisfaction. A report published Thursday by the National Economic and Social Rights Initiative and the National Staffing Workers’ Alliance based on surveys and focus groups of temp workers noted that zero of 86 respondents preferred their temporary arrangement to a direct hire position.

While the population of temporary or contingent workers contains a number of subcategories, other surveys yield consistent findings. The 2015 GAO report based on estimates of previous survey data found that when asked “Would you prefer a different type of job?” 68 percent of agency temps and 48 percent of on-call workers and day laborers said yes, compared to less than 10 percent of self-employed and independent contractors.

The Bureau of Labor Statistics has stated it intends to resume the Contingent Worker Survey in 2017.

Dealing with Changing Labor Practices

The U.S. Department of Labor’s Wage and Hour Division investigates employer compliance issues, concentrating on industries with vulnerable populations who may lack protections or awareness of avenues to pursue complaints, as well as business models that obscure, or eliminate entirely, the link between the worker and the benefiting business.

“Fragmentation of employment relationships and the scope and complexity of industry structures (i.e., fissuring) combined with the contingent workforce present complex enforcement challenges,” the U.S. Department of Labor noted in a budget document for 2017. “As businesses have contracted out work, sometimes through several layers of contractors, more parties have a role to play in ensuring compliance with labor standards.”

Research conducted by the National Employment Law Project indicates that voters favor measures to address practices by some employers to classify workers as independent contractors, allowing them to cut costs related to minimum wage requirements and Medicare contributions. In addition, contract workers may be more vulnerable to unsafe working conditions because of less training or exemption from basic labor and employment protections.

“The lack of accountability arises when there’s more than one company involved in the work and none takes responsibility,” Christine Owens, executive director of the National Employment Law Project, said in a release on the study.

In addition to handling corporate compliance responsibilities, supporting contingent staff who work in an environment alongside permanent staff also creates challenges for the traditional human resource function of companies.

“It can lead to a sense of divide between employees that are full-time that have the benefits and advantages of feeling like they’re really part of a team, and then the contingent workers, so I think that HR needs to manage that perception and some of the conflicts that can come from that,” Evren Esen, director of workforce analytics at the Society for Human Resource Management, said in an interview.

“That’s where it does become important to create a culture of inclusion for those contingent workers: are they part of team meetings, are they allowed to come to social gatherings like the holiday party?” Esen said.

Companies will likely be working out these issues for some time. A 2013 report from the Federal Reserve Bank of Kansas City concluded that job opportunities have shifted away from middle-skill jobs toward high- and low-skill jobs, a trend known as job polarization.

While the authors of the report noted an assumption that the increasing wedge between job categories was driven mainly by a few sectors, such as manufacturing, which has seen significant losses in middle-skill jobs. However, the report found the same phenomenon across all industries.

Photo at top: Illinois warehouse jobs are increasingly being offered through temporary services. By Axisadman (Own work) [CC BY-SA 3.0 (http://creativecommons.org/licenses/by-sa/3.0) or GFDL (http://www.gnu.org/copyleft/fdl.html)], via Wikimedia Commons