Executive Summary
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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.
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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:
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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?
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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.
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The results from the first part of the analysis
(1) indicate that:
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Workers who are at risk of welfare recipiency are more than twice as likely
to be in alternative work arrangements as other workers.
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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.
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Educational levels are low, with about one-third of workers in alternative
arrangements lacking a high school diploma.
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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.
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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.
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At-risk workers in temporary work are less likely to have employer-provided
benefits than are at-risk regular workers.
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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)
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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)
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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.
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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.
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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.
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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.
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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.
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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.
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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)
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Temporary help employment is extremely responsive to the Gross Domestic
Product downturns in temporary help employment exactly match
downturns in economic activity.
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In addition, somewhat ominously, employment in this industry has taken a
very clear downturn in the latest two quarters for which data are available.
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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.
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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:
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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.
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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.
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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.
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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.
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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.
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