Temporary Workers Shrink Along With the Economy

Temporary workers are among the first casualties in a slowing economy as businesses grapple with sluggish demand and struggle to cut costs.

The number of people employed by temporary-personnel supply firms has declined for six straight months after reaching a record 3.89 million in September, the same month that unemployment fell to a 30-year low, Labor Department figures show.

Firing temporary workers is easier for businesses because they’re able to escape severance payments and other costs associated with elimination of full-time workers.

“Temp workers are the first to go because permanent workers recently acquired were so difficult to hire in the tightest labor market in 30 years,” said Chris Rupkey, senior financial economist at Bank of Tokyo-Mitsubishi Ltd. in New York.

In March, providers of temporary help eliminated 76,000 jobs, the Labor Department reported last week. U.S. businesses overall eliminated 86,000 workers, the first decline in payrolls in seven months. Unemployment rose to 4.3%.

Cisco Systems Inc., the No. 1 maker of computer-networking equipment, said it would fire as many as 4,000 contract workers. Teradyne Inc., the No. 1 maker of semiconductor-testing equipment, reduced its temporary staff by more than 1,400 workers. And ADC Telecommunications Inc., a maker of phone equipment, announced plans to shed 1,000 temporary workers.

The number of temporary workers at U.S. companies more than doubled from 1.5 million in 1990 to an average of 3.8 million in 2000 as the record economic expansion--which entered its 11th year last month--created labor shortages. Since then, personnel-services firms’ payrolls have slipped, totaling 3.6 million in March.

“The last couple of years, all we needed were warm bodies,” said Michael Tich, owner of Dunhill Staffing Systems Inc. in Baltimore. “It’s slowly changing” because of the economy.

And with DuPont Co., the largest U.S. chemical company, announcing plans last week to shed contract workers, the number of temporary workers may shrink further.

“Initially you see the slowdown occurring with larger clients, and then you see it with smaller clients as well,” said Catherine Candland, chief executive of Advantage Human Resourcing, an employment agency in Stamford, Conn.

“The market correction that is going on right now is forcing the larger companies to look at how they are managing their inventory of talent.”

Another reason temporary workers are among the first recipients of termination notices is a shift in the relationship between companies and labor.

Business built up their temporary work forces to gain flexibility to expand or shrink activity at a moment’s notice.

“Businesses were going to temp workers so they could be more flexible,” said Joel Naroff, president of Naroff Economic Advisors in Holland, Pa. “As businesses had to downsize, instead of getting rid of their own full-time workers, they were getting rid of people who were just filling in.”