The Disposable Worker

No one's job is secure. Now companies are making the era of the temp more than temporary. That's because this recession's unusual ferocity has accelerated trends — including offshoring, automation, the decline of labor unions' influence, new management techniques, and regulatory changes — that already had been eroding workers' economic standing.

The forecast for the next five to 10 years: more of the same, with paltry pay gains, worsening working conditions, and little job security. More jobs will be freelance and temporary, and even seemingly permanent positions will be at greater risk.

The situation is especially difficult for young people, many of whom haven't been able to get a first foot on the career ladder. The percentage of people 16 to 24 who have jobs has plummeted by 13 percentage points since the beginning of 2000, while the share of workers 55 and over who have jobs has edged up over the period, despite the recession. Some young people are so desperate to get a start that they're working for free as semi-permanent interns. "Companies that used to use only one or two interns are now asking me for five or six at a time," says Lauren Berger, who runs a company that matches interns with entertainment, marketing, and media companies. Berger also reports a rise in the number of "adult interns," who work for free while trying to break into a new career.

Those internships might look like plum spots in years to come, for the gloomy trends in the labor market show no sign of abating. Consider some statistics. In the 2001 recession cycle, the economy lost 2% of its jobs and took four years to get them back. This time it has lost more than 5% of its jobs.

Peter Cappelli, director of the Center for Human Resources at the University of Pennsylvania's Wharton School, says the brutal recession has prompted more companies to create just-in-time labor forces that can be turned on and off like a spigot. "Employers are trying to get rid of all fixed costs," Cappelli says. "First they did it with employment benefits. Now they're doing it with the jobs themselves. Everything is variable." That means companies hold all the power, and "all the risks are pushed on to employees."

The era of the disposable worker has big implications both for employees and employers. For workers, research shows that chronic unemployment and underemployment cause lasting damage: Older people who lose jobs are often forced into premature retirement, while the careers of younger people are stunted by their early detachment from the working world. Even 15 years out of school, people who graduated from college in a recession earn 2.5% less than if they had graduated in more prosperous times, research has shown.

Employers prize flexibility, of course. But if they aren't careful they can wind up with an alienated, dispirited workforce. A Conference Board survey found that only 45% of workers surveyed were satisfied with their jobs, the lowest in 22 years of polling. Poor morale can devastate performance. After making deep staff cuts following the subprime implosion, UBS, Credit Suisse, and American Express hired Harvard psychology lecturer Shawn Achor to train their remaining employees in positive thinking. Says Achor: "All the employees had just stopped working."

In a typical downturn, the percentage decline in payrolls is about the same as the percentage decline in gross domestic product. But in the recessions that began in 2001 and 2007, the decline for payrolls was much steeper-1.8 percentage points more during the latest downturn. Worse yet, only about 10% of the layoffs are considered temporary, vs. 20% in the recession of the early 1980s.

The trend toward a perma-temp world has been developing for years. Bosses are no longer rewarded based on how many people they supervise, so they have less incentive to hang on to staff. Instead, the increasing use of bonuses tied to short-term profit performance gives managers an incentive to slash labor costs. The Iowa Policy Project, a nonpartisan think tank, estimates that 26% of the workforce had jobs in 2005 that were in one way or another "nonstandard." That includes independent contractors, temps, part-timers, and freelancers. Of those, 73% had no access to a retirement plan from their employer and 61% had no health insurance from their employer, the Iowa group said.

Temp employment in the U.S. fluctuates wildly, by design. The whole purpose of bringing on workers who are employed by temporary staffing firms such as Manpower (MAN), Adecco (ADO), and Kelly Services is that they're easy to shuck off when unneeded. While the number of temps fell sharply during the recent recession. The tally of Americans working part-time for economic reasons-that is, because full-time work is unavailable-has doubled since the recession began, to 9.2 million.

The world of temporary work used to be the domain of sneaker-footed admins. No longer. Last year, Kelly Services placed more than 100 people-including lawyers and scientists-in interim stints that paid more than $250,000 a year. At the forefront of the "leadership on demand" movement in the U.S. is the Business Talent Group, whose roster of 1,000 executives has done jobs at companies like mobile-phone content provider Fox Mobile (NWS), health-care company Healthways (HWAY), and private equity firm Carlyle Group. BTG says its client demand rose 50% in 2009.

For a glimpse of where things might be headed in the U.S., look at Europe, which makes a lot more use of temporary and part-time workers than employers do. That's in large part because of Europe's famously rigid labor laws; rather than hiring permanent workers, employers turn to temps and contractors who can be let go more easily during a downturn. In Spain, 85% of recent job losses in this recession were by temps or contractors. One big difference: Most European countries cover temps and part-timers with government health insurance and require that they receive wages and benefits comparable to those for permanent employees doing similar work.

Look far enough into the future and it's possible to see better times ahead for labor. A decade from now the retirement of the baby boom generation could cause labor shortages and hand some bargaining power back to younger workers, says Robert Mellman, a senior economist at JPMorgan Chase Bank (JPM). If that happens, woe unto employers. A survey in 2009 by the benefits consultant Towers Watson found that top-performing employees will be ready to jump ship as soon as a better offer comes along. Says Wharton's Cappelli: "The idea of loyalty-'I will stick with you and you will reward me'-that is effectively gone."

Source: Business Week, Peter Coy, Michelle Conlin and Moira Herbst, 1/8/10