Does the trend represent the "new normal"?
Does it present some interesting investment opportunities?
Short Profile of the Industry
Statistics Canada defines the temporary staffing services industry:
Temporary Staffing Services – NAICS 561320 This industry comprises establishments primarily engaged in supplying workers for limited periods of time to supplement the workforce of the client. The individuals provided are employees of the temporary staffing service establishment. These establishments do not provide direct supervision of their employees at the clients’ work sites. The main activity of these establishments is to supply personnel for temporary work assignments. The temporary staffing firm hires its own employees and assigns them to clients to support or supplement the client’s workforce in work situations such as employee absences, temporary skill shortages, seasonal workloads, and special assignments and projects. When working, these employees are under the direct supervision of the client, but being on the payroll of the temporary staffing firm it is the temporary staffing firm that is legally responsible for their actions and that specifies their pay, benefits, etc.
Temporary staffing agencies supply workers to many sectors:
There has been a trend for the increased use of temporary employment services by industry. I would urge readers to click on the following link and read the entire article for a quick introduction to the world of temporary work. Here is an extract:
The proportion of all men holding any type of job in the United States 63.5%, the lowest figure since 1948. Among prime working-age men between 25 and 54, 81% hold jobs. In 1969, 95% of all men in the prime working years had a job. Adecco, a temporary placement company, that the rate of growth in contingency workers three to four times the rate of traditional jobs and will soon comprise at least 30% or more of the global workforce.
http://business.financialpost.com/executive/careers/the-notion-of-contractor-workers-is-here-to-stay
Profile of the Canadian Staffing Market presentation
The above-noted profile presentation is worth reading in its entirety. Some key points:
- the market penetration of temporary placement companies in Canada is lower than elsewhere
- most contingent staffing is not done through temporary placement companies globally
- staffing market growth is directly correlated with GDP growth
- Canadian staffing market is more concentrated than in the US but much less so than in France and the Netherlands
- a variety of staffing models is presented ranging from the "traditional" in-house HR office to a more dispersed mode (this resonated with me as I've watched the evolution of employment practices over the past three decades)
The Canadian Staffing Index
The Canadian Staffing Index measures the hours of labour performed by a sampling of temporary and contract staffing in the staffing industry. The data collected is the largest sample size done in Canada provided by a number of Canadian staffing companies and accounts for approximately one third of total staffing industry sales. To preserve confidentiality the data is collected by Staffing Industry Analysts www.staffingindustry.com; an independent company specialized in staffing industry statistics. Data is available for the months starting July 2008 (the benchmark month) to the current month.
In review of similar Index research from the USA, many experts agree staffing industry employment data serves as an economic indicator. Historically, temporary employment improves as overtime hours increase and as unemployment claims decrease. This means the Index can provide a "near real time" indication of how the Canadian economy is performing.
In review of similar Index research from the USA, many experts agree staffing industry employment data serves as an economic indicator. Historically, temporary employment improves as overtime hours increase and as unemployment claims decrease. This means the Index can provide a "near real time" indication of how the Canadian economy is performing.
Profile of the US Staffing Market (presentation)
It is similar to the Canadian market. The performance of the American staffing and recruiting industry is linked closely with the state of the economy.
Temporary and contract staffing sales totaled $109.2 billion in 2013, according to the quarterly ASA Staffing Employment and Sales Survey. That was an increase of 4.3% over 2012.
Search and placement sales grew 8% in 2013, according to Staffing Industry Analysts. Applying SIA’s yearly growth estimates to the most recent (2007) U.S. Economic Census benchmark shows that search and placement sales totaled $13.2 billion in 2013.
Combining temporary and contract services with search and placement services, U.S. staffing industry sales set a new annual record at $122.4 billion in 2013, 4.6% more than in 2012. Search and placement sales accounted for 10.8% of total staffing and recruiting industry sales in 2013.
SIA forecasts U.S. temporary and contract staffing sales to grow 5% in 2014 and 6% in 2015; search and placement sales are expected to grow 7% and 10% in 2014 and 2015, respectively.
Here is a very revealing synopsis of the increased prominence of temporary employment in the US. emsi produces insightful reports on labour markets and you can subscribe to their offerings by visiting their web site: emsi
Here is a map showing the gains/losses in temporary employment in the US in 2013. Note that employment in the oil and gas sector has declined significantly since then and that the situation has changed especially in areas where fracking activity has declined.
There is reason to believe that the temporary employment sector will increase in importance. Hiring and management practices are changing.
Why?
Economic Uncertainty
While North American economies are improving, memories of recessions and the uncertainties regarding the future state of the economy have led employers to be more cautious in the hiring of full-time permanent employees.
Temporary workers are easier to dismiss in the event that they do not work out. Further, in some companies, the hiring of temporary workers provides an opportunity "to kick the tires" and screen potential long-term hires.
There is also some evidence that firms are reducing expenditures on in-house training to upgrade skills and productivity of their workers. A variety of reasons may account for this: budget austerity, corporate philosophies which discourage the practice, fear that newly-upgraded employees will look elsewhere for better wages, etc.
Just-in-Time - Flexibility to Meet Staffing Needs
Structural changes in the global economy have led to the rise of the just-in-time products/services delivery mode, meaning that a firm's employment needs can fluctuate significantly depending on demand. As opposed to maintaining an overhead of permanent employees, many companies opt to hire temporary workers even though they generally represent a higher short-term cost and often come with lower rates of productivity as they must adjust to company cultures and satisfy company-specific skills.
Boomers and Evolving Expectations re the Nature of Work
As the work force ages, many individuals opt to continue work for a variety of reasons: the lack of adequate retirement savings to meet their needs/wants, a desire to "keep busy", and the "freedom" that temporary work provides.
Whereas low skill workers face uncertain prospects and an unenviable outlook for employment and economic advancement, skilled, in-demand workers have more options. Increasingly, people do not regard employment with one company as a life-time commitment. Further, the traditional "contract" between companies and their employees has changed in that companies are less reluctant to "rightsize" quickly in the interest of the short-term bottom line. Many skilled people have opted to pursue contract work as it provides variety, an opportunity to expand networks, and comparable wages given that company employee benefits are gradually eroding in many sectors. As many skilled people near the ends of their careers, they discover that being rehired back as "consultants" can be exceptionally lucrative. Many of my compatriots have followed this course and enjoy vastly increased pay packets along with more discretionary time.
Companies
As a general observation, the companies in the US are more fragmented than in Canada, France and the Netherlands. There may be opportunities for consolidation on the part of well managed companies with strong balance sheets. Another growing aspect of employment management companies is management of contract work via the Internet. (See the Profile of the Canadian Staffing Market earlier in this post.)
I plan to explore potential investments in this sector in future posts.
The review will include companies in Canada and the US and may expand later to France, the Netherlands and countries in the EU and the upside down part of the world i.e. NZ and AUS.
For another perspective on the industry, it is instructive to peruse the investor presentation by Adecco, one of the world's largest staffing agencies. It provides a number of useful insights into the nature of the business and its prospects for growth. Highly recommended: http://e3.marco.ch/publish/adecco/239_3536/Adecco_-_Q1_2015_Presentation_Final_RS.pdf
Here are two very useful outlooks on the industry:
http://www.staffingindustry.com/row/Conferences-Webinars/Webinars/European-Staffing-Webinars/Archived-Webinars/Temporary-Staffing-Trends-Forecasts
www.staffingindustry.com/row/Research-Publications/Publications/CWS-3.0/Archive/2011/December-14-2011-Vol.-3.36/Plan-for-APAC
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