TEMPORARY WORKERS AS MEMBERS OF THE CONTINGENT LABOR FORCE

TEMPORARY WORKERS AS MEMBERS OF THE CONTINGENT LABOR FORCE

Order Code RL30072
CRS Report for Congress
Received through the CRS Web
Temporary Workers as Members of the
Contingent Labor Force
February 16, 1999
Linda Levine
Specialist in Labor Economics
Domestic Social Policy Division
Congressional Research Service ˜ The Library of Congress

ABSTRACT
This report opens with a discussion of the contingent work force and the public policy issues
associated with this labor market development. The focus of the report then narrows to
analyze in detail one component of the contingent labor force, namely, temporary workers.
Who and how many are they? Why have firms increased their use of temps supplied through
staffing companies? Does temporary status in and of itself confer relatively low wages and
few benefits? What policy responses have been advocated? The report is not intended to
track legislation. It will not be updated. A related report is: CRS Report 98-695, Part-Time
Job Growth and the Labor Effects of Policy Responses: An Overview.

Temporary Workers as Members of
the Contingent Labor Force
Summary
Contingent work is, broadly speaking, any employee-employer relationship other
than a full-time, secure position at a firm which offers benefits. Contingent workers
may include temporary workers, part-time workers, on-call workers, leased
employees, day laborers, the self-employed, independent contractors, and employees
of contract services firms. Some observers dispute the inclusion of all these groups
because they think not all nontraditional employment relationships are insecure. The
lack of consensus on an operational definition for contingent work arrangements
means that agreement also is absent on the size and growth of the phenomenon.
Without knowing these things it is difficult to gauge whether a legislative response is
warranted and, if one were, what would be the appropriate remedies.
Temporary workers employed by staffing companies for placement in
assignments of varying duration at client firms are widely considered part of the
contingent labor force. Agency temporaries are disproportionately young, female and
minorities, and in clerical as well as low-skilled blue-collar occupations. They more
often give economic (e.g., only kind of job they could get) than personal (e.g., family
obligations) reasons for being in a nontraditional job. Most would prefer to have
traditional jobs. They are more likely to be unemployed than permanent workers.
Some analysts believe the rapid growth of the temporary help supply (THS)
industry has been fueled by changes in the economy that put a premium on staffing
flexibility and labor cost savings. Agency temporaries afford a type of flexibility
which, it is suggested, has become increasingly important to client firms — trying out
workers before making permanent job offers. The temp-to-hire route enables firms
to avoid poor hiring decisions which could become costly firing decisions. Many
agency temporaries are not utilized in this way, however. Others argue that THS jobs
have increased because they allow user firms to avoid costly legal obligations
associated with the direct employment of workers (i.e., health benefits, pension plans,
social security and unemployment insurance).
Policies to address the contingent worker issue most often are justified on the
basis of workplace equity, that is, similarly endowed individuals who perform like jobs
should receive equivalent hourly wages and benefits as well as equal treatment under
labor regulations regardless of their employee-employer relationship. Because
contingent workers at firms that fail to provide discretionary benefits would not be
helped by certain proposals (e.g., shorter vesting periods and portability for pensions),
some have suggested requiring all employers to offer a minimum benefit package.
Rather than transforming discretionary into mandated benefits, others have
recommended loosening the connection between work and benefits (e.g., encouraging
people to self-insure through tax-favored treatment of health care expenses and
retirement savings). Still others question the appropriateness of across-the-board
measures being applied to the several different kinds of contingent work
arrangements, and are concerned about balancing extension of the social welfare
system with the loss of staffing flexibility for firms as well as the loss of jobs for those
workers who prefer nontraditional employment.

Contents
The Contingent Labor Force . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
For Want of a Definition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
The Connection to Public Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Narrowing the Focus to Temporary Workers . . . . . . . . . . . . . . . . . . . . . . . 5
Who are Temporary Workers? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Demographic Characteristics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Occupational and Industrial Composition . . . . . . . . . . . . . . . . . . . . . . . . . . 8
The Trend in Temporary Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
The Cyclical Dimension . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
The Long-Term Trend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Reasons for Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Temp-to-Hire or Permatemps? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Two-Tier Compensation Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Wages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Policy Implications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
List of Tables
Table 1. Selected Demographic Characteristics of Agency Temporaries and
Workers in Traditional Jobs, February 1997 . . . . . . . . . . . . . . . . . . . . . . . . 7
Table 2. Employment Trends in the Temporary Help Industry . . . . . . . . . . . . . 12
Table 3. Persons in Alternative and Traditional Work Arrangements with
Health and Pension Benefit Coverage, February 1997 . . . . . . . . . . . . . . . 18

Temporary Workers as Members of the
Contingent Labor Force
The report opens with an overview of the contingent labor force before focusing
on one of its component groups, namely, temporary workers. The personal and job
characteristics of workers supplied to client firms by temporary help agencies are
analyzed. Employment trends in the temporary help supply industry are examined
along with explanations for its long-term rise. The report closes with a discussion of
the public policy implications of temporary employment and other contingent work
arrangements.
The Contingent Labor Force
Contingent work is, broadly speaking, any employee-employer relationship other
than a full-time, secure position at a firm which offers a range of benefits. Variations
on the traditional or permanent employment relationship have become more prevalent
in recent decades as they embody one response of firms to heightened global price
competition and volatility in the demand for goods or services. (In this report, the
terms contingent, nontraditional, flexible, and nonstandard are used interchangeably.)
For Want of a Definition
Contingent workers may be defined to include some or all of the following:
! agency temporaries (workers employed by staffing companies for placement
in assignments of varying duration at client firms),
! short-term hires or direct-hire temporaries (workers whom firms put on their
payrolls for limited periods of time, e.g., department stores during the winter
holiday season and amusement parks during the summer),
! on-call workers (individuals who often make up a pool from which employers
regularly hire as needed and who may be scheduled to work for several days
or weeks in a row, e.g., construction workers supplied by union hiring halls,
substitute teachers and nurses),
! day or casual laborers (people who get jobs by waiting at a location to which
employers customarily come to pick up workers),
! the self-employed (owners of businesses, e.g., restaurants and law offices),
! independent contractors, consultants, or freelancers (individuals who obtain
customers on their own to whom they provide products or services),
! leased workers (employees of professional employer organizations that
specialize in payroll, benefit, and other personnel administration matters who
work under contract on an ongoing basis at a client firm’s location), and

CRS-2
! contract services workers (employees of firms that provide services to other
companies under contract who may or may not work at the contractee’s job
site and who may or may not work for more than one contractee; examples
include accounting, cleaning, computer and data processing, and protective
services firms).
Part-time workers are often considered to belong to the contingent labor force
because they work shorter than full-time schedules and have relatively low wages as
well as limited access to employee benefits. But, many part-timers lack what some
consider to be a necessary property of contingency, that is, the absence of a long-term
relationship with a single employer. And, because persons in the above-describe
1
d
employment relationships may be scheduled to work less than 35 hours a week, the
consideration of part-timers as a separate category of nontraditional workers can
result in double counting. There also
2
are analysts who dispute the inclusion of the
self-employed in the contingent labor force because many of these individuals have
stable employment situations (e.g., doctors).
Because little was known about contingent workers and because not all flexible
employment relationships may be inherently tenuous, the U.S. Bureau of Labor
Statistics (BLS) began to collect data in 1995 that distinguishes between alternative
and contingent workers. The four alternative work arrangements that were identified
— independent contractors, on-call workers, temporary help agency workers, and
employees of contract firms — are composed of persons who obtain employment
through labor market intermediaries (e.g., temporary help agencies and other business
services companies) or whose place, time, or quantity of employment may be
unpredictable. In 1997, the latest year for which data are available, about 12.6 million
workers reported they were in alternative work arrangements. The proportions of
these individuals who said they did not expect their employment to last long — that
is, who said they held contingent jobs — ranged from 3.5% for independent
contractors to 57% for agency temporaries.3
Many analysts nonetheless consider alternative and contingent work to be
synonymous. They believe the distinction “complicates the popular understanding”
of who is a contingent worker and think that the BLS’ means of determining
contingency “cannot be used to describe business hiring practices because a firm does
not hire a person based on his or her perceived job security. A firm hires on the basis
of an employment arrangement.”4
1 In 1997, just 1 out of 10 part-time workers said they were in contingent jobs (i.e., they
lacked an implicit or explicit contract for long-term employment). U.S. Bureau of Labor
Statistics (BLS). Contingent and Alternative Employment Arrangements, February 1997.
USDL News 97-422, December 2, 1997.

2 In 1997, 20% of temporary help agency workers were employed on a part-time basis as were
53% of on-call workers, 26% of independent contractors, and 17% of workers provided by
contract services firms. Ibid.

3 Ibid.
4 Barker, Kathleen, and Kathleen Christensen. Charting Future Research [in] Barker and
(continued...)

CRS-3
Rather than using “a sense of impermanence” about one’s job as the sol
5
e
defining attribute of contingent labor, some researchers rely on multiple criteria. One
set of characteristics that has been suggested is: little or no job security, irregular or
variable work schedules that are dependent on management decisions rather than
individual preferences, no access to benefits that firms provide to their employees, and
lack of attachment to a particular company. Another example of a multipar
6
t
definition is the following:
Nonstandard arrangements differ from standard jobs in at least one of the
following ways:
(1) the absence of an employer, as in self-employment and independent
contracting;
(2) a distinction between the organization that employs the worker and
the one for whom the person works, as in contract and temp work; or
(3) the temporal instability of the job, characteristic of temporary, day
labor, on-call, and some forms of contract work.7
The lack of consensus on what constitutes contingent work means that
agreement also is absent on the size and growth of the phenomenon. Estimates of the
number of contingent workers range widely: perhaps 5.6 million or 4.4% of
employed persons in 1997 according to the U.S. Bureau of Labor Statistics broadest
definition;
8 perhaps 34.0 million or 25.2% of the civilian labor force in 1996 according
to the National Planning Association’s (NPA) narrowest definition.9 The NPA’s
definition indicates that almost one-third of all jobs created between 1980 and 1996
were contingent positions, which expanded by 36% over the period or nearly 10
percentage points greater than growth in the overall labor force.10
Without knowing the size and growth of the phenomenon as well as the extent
to which contingent workers would prefer traditional jobs, it is difficult to gauge
whether the labor market development warrants a legislative response and, if it does,
(...continued)
4
Christensen (eds.) Contingent Work: American Employment Relations in Transition.
Ithaca, NY, Cornell University ILR Press, 1998. p. 307.
Larson, Jan. Temps are Here to Stay.
5
American Demographics, February 1996. p. 26.

6 Nollen, Stanley and Helen Axel. Managing Contingent Workers: How to Reap the Benefits
and Reduce the Risks. NY, AMACOM, 1996.
7 Economic Policy Institute and Women’s Research & Education Institute. Nonstandard
Work, Substandard Jobs: Flexible Work Arrangements in the U.S. Washington, DC,
Economic Policy Institute, 1997. p. 8.
8 Hipple, Steven. Contingent Work: Results from the Second Survey. Monthly Labor
Review, November 1998.
Belous, Richard S. The Rise of the Contingent Workforce:
9
Growth of Temporary, Part-
Time, and Subcontracted Employment. Looking Ahead, v. 19, no. 1, June 1997.
A comparable time-series
10
is not available from the BLS’ contingent and alternative work
supplement to the Current Population Survey because data were first collected for 1995.

CRS-4
what are the appropriate remedies. The very heterogeneity of the contingent labor
force also could complicate the crafting of public policy.
The Connection to Public Policy
Concern has arisen in some quarters that the public-private social welfare system,
which evolved with the traditional employee-employer relationship in mind, is not
adequately serving an expanding share of the labor force. It is argued that while
business has reaped benefits from its use of nontraditional employment arrangements
(e.g., staffing flexibility and labor cost savings), the members of the contingent labor
force have borne a variety of costs (e.g., limited opportunity for productivity-
enhancing training and for union representation, and small paychecks that result in a
low standard of living both in work and retirement years). More specifically,
temporary and part-time workers may be unable to meet the eligibility requirements
of certain mandated benefits, among them the unemployment insurance (UI)
program’s quarterly earnings and hours threshold or the Family and Medical Leave
Act’s annual hours threshold. When firms offer discretionary benefits, temporary and
part-time workers also may find it difficult to qualify for participation:
Paid holidays were provided to 71% of temporary workers employed by temporary
help supply firms [in 1994]; 74% worked for firms that provided paid vacations;
and 49% for firms that offered health care coverage. However, because of
minimum service and contribution requirements, less than 10% of workers
employed in the temporary help supply industry received paid holidays and
vacations or participated in health plans.11
Others have countered that flexible work arrangements actually help those in the
labor force and in the population generally by strengthening the competitiveness of
U.S. firms and thereby promoting economic and job growth. They assert that further
extending labor protections would inhibit expansion of the economy and prompt
companies to cut or slow job growth in response to higher employment costs.
Because some workers want flexibility in their schedules in order to engage in other
pursuits — young workers, schooling; older workers, leisure activities; parents, family
responsibilities — policies that would curb nonstandard work arrangements could
adversely affect these individuals. In addition, it is noted that temporary help agencies
offer training and benefits to their employees, and provide a pathway to traditional
jobs.12 For example, training in such skills as data entry and word processing was
available to nearly 9 out of 10 temporary workers employed by staffing companies in
1994.13
There also is consternation in the public policy community that firms may be
deliberately misclassifying employees as contingent workers in order to evade various

11 BLS. Occupational Compensation Survey: Temporary Help Supply Services, November
1994. Bulletin 2482. Washington, DC, U.S. Govt. Print. Off., 1996. p. 1. (Hereafter cited
as BLS, Occupational Compensation Survey).
12 Pearlstein, Steven. Business and the Temp Temptation. Washington Post, October 20,
1993.
BLS,
13
Occupational Compensation Survey.

CRS-5
employment laws. Because independent contractors are self-employed rather than
14
employees of the company to which they are providing a good or service, client firms
are not required to contribute on the contractors’ behalf toward workers
compensation, UI, and social security benefits. Independent contractors similarly are
not covered by wage and hour protections, among other labor standards that apply
to employees of firms as variously defined in federal statutes.15
In recognition of the greater diversity of employment relationships that exist
today, policymakers have introduced proposals and held hearings to study or reshape
the nation’s public-private social welfare system.
16 Federal agencies (e.g., the Internal
Revenue Service, Department of Labor, and National Labor Relations Board) and the
courts have become involved in defining who is an employee as well as which firm(s)
the individual works for. Legislation also has been proposed and hearings held on
17
the classification of workers as independent contractors or employees.18
Narrowing the Focus to Temporary Workers
Although the subject can be approached as though contingent workers are
homogenous, such treatment masks important differences between the demographic
and job characteristics of the member groups, their preferences for nonstandard versus
traditional employment, and their compensation (i.e., earnings and benefits) compared
to that of traditional workers. This report will analyze one prominent segment of the
contingent labor force — temporary workers — for whom data are available over
many years.

14 Houseman, Susan N. Labor Standards and Alternative Work Arrangements. Labor Law
Journal, v. 49, September 1998.

15 For definitions of “employee” in federal statutes, see: CRS Report 93-622, Employees and
Independent Contractors, by Marie B. Morris.
Legislation in
16
the 105th Congress included H.R. 1695 (Retirement Savings Commission Act
of 1997) and H.R. 2997 (Fairness in the Workplace Commission Act). Legislation in the
104
th Congress included H.R. 3657 (The Contingent Workforce Equity Act of 1996) and H.R.
3682 (The Part-Time and Temporary Workers Protection Act of 1996). During the 103rd
Congress, the Subcommittee on Labor of the Committee on Labor and Human Resources held
two hearings on the labor market development: Conference on the Growing Contingent Work
Force: Flexibility at the Price of Fairness?, S. Hrg. 103-472, February 8, 1994 and Toward
a Disposable Workforce: The Increasing Use of “Contingent” Labor, S. Hrg. 103-620,
June 15, 1993.

17 Speakers Agree on Need for Better Test to Determine Employee/Contractor Status. Daily
Labor Report, February 3, 1999; and Coskey, Susan L. Vizcaino v. Microsoft Corporation:
A Labor and Employment Lawyer’s Perspective. Labor Law Journal, v. 48, February 1997.
In
18
the 105th Congress, legislation was introduced (H.R. 769 and H.R. 770) that concerned
federal contractors’ classification of persons as employees or independent contractors. H.R.
3722 and H.R. 4622 (Independent Contractor Tax Simplification Act of 1998) as well as S.
473 (Independent Contractor Tax Reform Act of 1997) dealt specifically with the Internal
Revenue Service’s test for determining who is an employee.

CRS-6
Who are Temporary Workers?
Information on temporary workers largely is limited to employees in the
temporary help supply (THS) industry. Consequently, the analysis in this report is
confined to THS workers, also known as agency temporaries, rather than direct-hire
temporaries. (See page 1 for definitions).
Demographic Characteristics
Agency temporaries are disproportionately young, female, and minorities. As
shown in Table 1, over one-fifth of THS workers were below 25 years of age in 1997
while the same was true for under 15% of workers in traditional employment
relationships. Women accounted for more than one-half of temps in contrast to less
than one-half of traditional workers. A little over one-fifth of agency temporaries
were black; a little over one-tenth of workers in traditional jobs were black. And,
about 12% of temporary workers in 1997 were of Hispanic origin compared to almost
10% of traditional workers.
Agency temporaries have completed somewhat fewer years of schooling than
have workers in traditional employment relationships. In 1997, about 22% of temps
age 25-64 were college graduates compared to almost 30% of traditional workers.
Among young (16-24 year old) workers, many fewer agency temporaries (16%)
than traditional workers (43%) were enrolled in high school or college in 1997. It
19
appears, then, that the overrepresentation of youth employed as temps is not primarily
motivated by a desire to combine school attendance and labor force participation.
Similarly, mothers do not seem to rely heavily on staffing companies to provide them
with a flexible means of combining paid work and family responsibilities. Fewer
women employed as temps were raising children (48%) than was true of women in
traditional jobs (56%).20
Indeed, agency temporaries much more often offered economic than personal
reasons for their employment relationship. In 1997, three out of every five temporary
workers said that economic reasons (e.g., only kind of work they could get) explained
their employment at staffing companies. Female temps were much more likely to
indicate personal reasons than were male temps (35% and 22%, respectively). Most
THS workers — three out of five — also reported they would have preferred
traditional jobs. Female temps were somewhat more likely than male temps t
21
o
prefer their flexible work arrangement to traditional jobs (35% and 31%,
respectively).
BLS,
19
Contingent and Alternative Employment Arrangements, February 1997.

20 Cohany, Sharon R. Workers in Alternative Employment Arrangements: A Second Look.
Monthly Labor Review, November 1998. (Hereafter cited as Cohany, Workers in Alternative
Employment Arrangements).
21 Ibid.

CRS-7
Table 1. Selected Demographic Characteristics of Agency Temporaries
and Workers in Traditional Jobs, February 1997
(numbers in thousands)
Agency temporaries
Workers in traditional jobs
Characteristic
#
%
#
%
Age
Total, 16 or older
1,300
100.0
114,199
100.0
16-24
293
22.5
16,907
14.8
25-64
970
74.7
94,424
82.7
65 or older
37
2.8
2,868
2.5
Sex
Men
581
44.7
60,180
52.7
Women
719
55.3
54,019
47.3
Race & hispanic
origin
White
976
75.1
96,834
84.8
Black
277
21.3
12,480
10.9
Hispanic origin
160
12.3
10,928
9.6
Full/part-time
status
Full-time
1,044
80.3
93,955
82.3
Part-time
256
19.7
20,244
17.7
Educational
attainmenta
Less than high
109
11.2
9,159
9.7
school diploma
High school grad.,
298
30.7
30,971
32.8
no college
Less than bachelors
352
36.3
26,439
28.0
degree
College graduate
211
21.8
27,855
29.5
Source: U.S. Bureau of Labor Statistics. Contingent and Alternative Employment Arrangements,
February 1997. USDL 97-422, December 2, 1997.
Covers only 25-64 year olds.
a

CRS-8
Most agency temporaries (80%), like traditional jobholders (82%), work full-
time (i.e., 35 or more hours a week). Full-time temps averaged only one or two fewer
hours a week than full-time workers in traditional jobs. However, relatively more
temporary (9%) than traditional (3%) workers were involuntarily employed part-time,
that is, they would have preferred to work more hours but were unable to do so for
economic reasons.22
In addition to the greater extent of underemployment among THS workers, they
are more likely to be unemployed or out of the labor force than permanent workers.23
Differences in the personal and job characteristics of temporary and traditional
workers account for a portion of these disparities in labor market outcomes.24
Nonetheless, the increased use of agency temporaries is unlikely to have had much
impact on aggregate job stability (i.e., number of workers switching jobs and number
unemployed) because this nonstandard work arrangement still comprises a small
proportion of all jobs in the nation. (See section on The Trend in Temporary
Employment.)
Occupational and Industrial Composition
Agency temporaries are concentrated in administrative support (including
clerical) and comparatively low-skilled blue-collar (i.e., operators, fabricators, and
laborers) occupations. In 1997, these occupational groups accounted for almost two-
thirds of THS workers compared to about 30% of individuals holding traditional
jobs. Because so many blue-collar jobs are in manufacturing industries, it is no
25
t
surprising that agency temporaries are overrepresented at factories. Almost 32% of
temps, as opposed to nearly 18% of traditional employees, worked at manufacturers
in 1997.26
With few exceptions, most of these demographic, occupational, and industrial
patterns have remained largely unchanged over time.27 Two related exceptions are
that the incidence of male and of blue-collar temps has increased substantially.
Between 1989 and 1994, for example, temporary help agencies increased blue-collar
workers on their payrolls by 96% which led to a 10 percentage point rise, to 40%, in
22 Ibid.
23 Segal, Lewis M. and Daniel G. Sullivan. The Growth of Temporary Services Work.
Journal of Economic Perspectives, v. 11, no. 2, spring 1997. (Hereafter cited as Segal and
Sullivan, The Growth of Temporary Services Work).
Houseman, Susan N. and Anne E. Polivka.
24
The Implications of Flexible Staffing
Arrangements for Job Security. Unpublished paper, revised December 1998. (Hereafter
cited as Houseman and Polivka, The Implications of Flexible Staffing Arrangements for Job
Security).
Cohany, Workers in Alternative Employment Arrangements.
25
26 Ibid.
Segal and Sullivan, The Growth of Temporary Services Work.
27

CRS-9
the blue-collar share of temporary employment. As a consequence, many mor
28
e
factory jobs probably are being filled by temps today than was true in the recent past.
Manufacturers’ greater use of agency-supplied temporary workers could thus be
understating the number of people whose livelihood actually depends on goods
production and also could be contributing to sluggish hiring at the nation’s factories
since the 1990-1991 recession’s end.29
Another potential exception to the historical pattern concerns businesses’ use of
temps to fill technical jobs. There are reports that technical and professional workers
(e.g., those with information technology skills) have been a fast-growing portion of
the THS industry in the 1990s.30
The Trend in Temporary Employment
At least part of the job growth in the THS industry could reflect a shift from
firms directly hiring individuals for short-term assignments to firms instead obtaining
them through staffing companies.31 To the extent such a shift has occurred, the
observed employment gains at temporary help agencies would overstate the actual
expansion of temporary jobs in the economy.
Based on the very limited data available, there appear to be many more direct-
hire than agency-supplied temporaries. Direct-hire temps may have accounted for
32
2.7% of employed persons in 1995; agency temps, 1%.33
The Cyclical Dimension
Employment in the THS industry is quite sensitive to changes in the business
cycle. Based on 1972-1995 data of the National Association of Temporary and
Staffing Services, the industry’s annual employment growth ranged from -8% during
28 BLS, Occupational Compensation Survey.

29 Kuczynski, Sherry. Does Upturn in Temporary Hiring Mask Growth in Factory Payrolls?
Investor’s Business Daily, January 5, 1994.

30 Contract Staffing to Increase in Next Few Years. Daily Labor Report, January 15, 1999;
Brenner, Chris. Computer Workers Feel the Byte: Temp Jobs in Silicon Valley. Dollars and
Sense, September/October 1996; and Gallaga, Omar L. High-Tech Firms Rely More on New
Breed of Temp Worker. Wall Street Journal, July 31, 1996.
Polivka, Anne E.
31
Are Temporary Help Agency Workers Substitutes for Direct Hire
Temps? Searching for an Alternative Explanation of Growth in the Temporary Help
Industry. Unpublished paper, revised December 16, 1996.
32 Houseman and Polivka, The Implications of Flexible Staffing Arrangements for Job
Security.

33 These data are based on a survey of households so they describe the number of people with
jobs. The data in Table 2 are based on a survey of establishments so they describe the
number of jobs. Because an individual may have more than one job, the number of jobs is
likely to exceed the number of employed persons.

CRS-10
recessions to +30% during expansions, while the all-industries’ annual job growth
fluctuated much more narrowly during the downswings (-2%) and upswings (+5%)
of the business cycle. Similarly, changes in national ou
34
tput from its 1972-1986 trend
level produced much greater employment responses in the industry than in the total
nonfarm economy.35 As shown in Table 2, THS employment contracted slightly
more (-1.5%) during the 1990-1991 recession than employment across all nonfarm
industries (-1.1%).
These findings are consistent with the notion that client firms partly use agency
temporaries to address short-run fluctuations in demand for goods and services.36
Contracting with temporary help agencies for workers on an as needed basis allows
firms to minimize the number of workers on their payrolls who become surplus and
subject to termination when output demand subsequently slackens. In other words,
agency temporaries seem to be used to insulate a firm’s core or permanent employees
from the vagaries of the business cycle. The painful corporate downsizings of the
deep 1981-1982 recession have been credited with business’ desire to stay “lean and
mean” in order to avoid such large-scale layoffs in the future.
The rapid increase in temporary employment immediately after the 1990-1991
recession may reflect employers’ reluctance to hire employees until they are certain
that an economic recovery is well underway. Between 1991 and 1994, jobs at
temporary help agencies rose 59% as against almost 6% across all nonfarm industries.
(See Table 2.) Although the pace of employment gains in the THS industry (40%)
compared to the economy overall (10%) has diminished considerably since the mid-
1990s, some analysts believe the industry’s still fast-paced job growth reflects a
fundamental change in the way that business is utilizing labor. (See section on
Reasons for Growth.)
The Long-Term Trend
Employment gains in the THS industry have been much greater than across all
nonfarm industries on average. Since 1982 the number of jobs in the industry has
risen 577%. In contrast, jobs throughout the nonfarm economy have increased by a
much smaller 41%. This disparity elevated the industry’s share of all nonfarm jobs
from a negligible 0.5% in 1982 to over 2% today. (See Table 2.)
Segal and Sullivan, The Growth of Temporary Services Work.
34
Abraham, Katherine G. Restructuring the Employment Relationship: The Growth o
35
f
Market-Mediated Work Arrangements, in: Abraham, Katherine G., and Robert B. McKersie
(eds.) New Developments in the Labor Market: Toward a New Institutional Paradigm.
Cambridge, Mass., The MIT Press, 1990. (Hereafter cited as Abraham and McKersie, New
Developments in the Labor Market).
36 Ibid.; and Golden, Lonnie. The Expansion of Temporary Help Employment in the US,
1982-1992: A Test of Alternative Economic Explanations. Applied Economics, v. 28, 1996.
(Hereafter cited as Golden, The Expansion of Temporary Help Employment).

CRS-11
The THS industry has been fueling aggregate employment growth for decades.
Most recently, it accounted for 9% of the net new jobs created in the nonfarm sector
between 1989, the last peak in the business cycle, and 1998.
Employment in the personnel supply services industry — of which 90% is in its
temporary help component — is projected to continue expanding at an above average
rate.
37 While total nonfarm jobs might increase at a 1.7% annual average rate between
1996 and 2006, the employment gain of personnel supply firms is projected to be
considerably larger at 4.3%. Past
38
experience suggests that temporary help agencies
will account for much of this growth.39
Staffing companies thus are expected to continue as a major contributor to job
growth into the next century. Employment in the personnel supply services industry
might rise, as a share of all nonfarm jobs in the economy in 2006, to 3% — a not
inconsequential figure. (For purposes of comparison, the construction industry is
projected to account for 4% of jobs in 2006; no single industry within the
manufacturing sector is estimated to reach 2%; eating and drinking places are
projected to account for 6.5%; and health services, 9%.)40
Reasons for Growth
Explanations for the growth in contingent work, including temporary
employment, typically have a demand rather than supply focus. Put another way, it
is more often thought that companies have increased their demand for contingent vis-
a-vis traditional work arrangements than that workers — due to changes in labor
force composition (e.g., more mothers working for pay) — have increased their
preference for short-term as compared to stable positions.41
Internationalization of product markets, industry deregulation, and technological
innovations are widely thought to have made the business environment increasingly
price competitive and product/service demand increasingly variable. A combination
of work arrangements arguably enables companies to more efficiently achieve the

37 In addition to temporary help supply and leasing services firms (SIC 7363), the personnel
supply industry (SIC 736) is composed of employment agencies (SIC 7361) which assist
employers seeking employees and workers seeking jobs (e.g., executive placement firms and
labor contractors).

38 Franklin, James C. Industry Output and Employment Projections to 2006. Monthly Labor
Review, November 1997. (Hereafter cited as Franklin, Industry Output and Employment
Projections to 2006).

39 Clinton, Angela. Flexible Labor: Restructuring the American Work Force. Monthly Labor
Review, August 1997.
Franklin, Industry Output and Employment Projections to 2006.
40
41 For estimates of the role of supply and demand factors, see: Golden, The Expansion of
Temporary Help Employment; and Laird, Karylee, and Nicolas Williams. Employment
Growth in the Temporary Help Supply Industry. Journal of Labor Research, v. 17, no. 4,
fall 1996.

CRS-12
staffing flexibility and labor cost savings believed necessary to operate successfully in
the changed economy.
Table 2. Employment Trends in the Temporary Help Industry
(numbers in thousands)
Employment in
Help supply as
Year
the help supply
Employment in the
percentage of nonfarm
services industry
nonfarm economy
employment
1982
417.0
89,544
0.5
1983
488.1
90,152
0.5
1984
642.6
94,408
0.7
1985
732.0
97,387
0.8
1986
836.5
99,344
0.8
1987
988.9
101,958
0.9
1988
1,125.9
105,209
1.1
1989
1,215.8
107,884
1.1
1990
1,288.2
109,403
1.2
1991
1,268.4
108,249
1.2
1992
1,410.6
108,601
1.3
1993
1,669.2
110,713
1.5
1994
2,017.1
114,163
1.8
1995
2,188.8
117,191
1.9
1996
2,352.4
119,608
2.0
1997
2,645.7
122,690
2.2
1998a
2,823.5
125,830
2.2
Source: U.S. Bureau of Labor Statistics.
Note: The data from the Current Employment Statistics (CES) survey include not only the
temporary or leased employees of staffing companies but also their employees who recruit, screen,
place, and pay the workers supplied on a contract basis to other firms. Under the Standard Industrial
Classification (SIC) system, the code for help supply service providers is 7363. Because the data
cover all jobs in the industry, they count individuals registered with more than one temporary agency
multiple times if the workers received payments from more than one agency. In addition, the CES
survey includes as workers in the help supply services industry those persons moonlighting as
temporaries whose primary jobs are in other industries.
Preliminary.
a

CRS-13
Greater flexibility in staffing can be achieved through such human resources
strategies as: (1) bringing on board workers directly or through temporary help
agencies when production must be increased to fill the more sporadic orders of
customers who no longer want to maintain sizable inventories and then letting them
go during slower periods in order to buffer a firm’s core workforce from dismissals,
and (2) contracting with individuals or business services firms having specialized skills
to perform tasks that may not be cost-effectively provided by a firm’s own
employees.42
Labor cost savings can be achieved through a reduction in non-productive time
(i.e., having “just-in-time” employment rather than a constant staff level) and through
the seemingly low wages and limited benefits of contingent compared to traditional
jobs. Reliance on market-mediated work arrangements (e.g., companies using
agency-supplied temporary workers and companies contracting out work to business
services firms’ employees) also can minimize hiring and firing costs associated with
direct employment relationships. Some analysts contend that firms have increased
43
their demand for THS workers precisely because the arrangement allows them “to
utilize labor without taking on the specific social, legal, and contractual obligations
that have increasingly been attached to employer status since the New Deal.”44
Temp-to-Hire or Permatemps?
Workers supplied by temporary help agencies afford a type of flexibility which,
it is suggested, has become more important to client firms over time — that is,
enabling them to try-out workers before extending permanent job offers. The THS
industry, in a sense, offers a risk-free recruitment channel for firms seeking new
employees.
Many managers claim that it has become more difficult in recent years to dismiss
poor performers, as an increasingly litigious society has combined with the erosion
of the legal doctrine of employment-at-will and the provision of various equal
employment opportunity laws. ... At the same time it has become more costly to
hire poor performers, liability concerns have reduced the value of references from
previous employers, as employers have become reluctant to offer negative
appraisals of former workers.45
The employment-at-will doctrine arose from common law. Under it, an
employer controls nearly all aspects of the work environment, including the authority
to terminate an employee at any time for any reason. S
46
ome assert that Congress and
Abraham, Restructuring the Employment Relationship.
42

43 Ibid.

44 Gonos, George. The Interaction Between Market Incentives and Government Actions, in:
Abraham and McKersie, New Developments in the Labor Market, p. 173. (Hereafter cited
as Gonos, The Interaction Between Market Incentives and Government Actions).
Segal and Sullivan, The Growth of Temporary Services Work, p. 129.
45
46 Hylton, Maria O’Brien. Legal and Policy Implications of the Flexible Employment
(continued...)

CRS-14
the courts have eroded the influence of the employment-at-will concept by prohibiting
specified criteria (e.g., age) from serving as the basis for firing decisions. Th
47
e
dismissal of an employee can have costly consequences if it is determined that the
action violates such federal laws as the Civil Rights Act, the Americans with
Disabilities Act, and the National Labor Relations Act. If, as alleged, expenses
associated with wrongful dismissal litigation have escalated over time, the ability to
preview workers supplied by temporary help agencies could have become more
important to firms seeking to avoid poor hiring decisions.
Very little evidence exists concerning the temp-to-hire explanation for the
growth in temporary jobs. A survey of former agency temporaries conducted for the
National Association of Temporary and Staffing Services showed that 29% of THS
workers obtained permanent positions based on their assignments at client firms.48
Although a survey of employers sponsored by the Upjohn Institute for Employment
Research found that 21% of businesses using agency temporaries did so to screen
them for permanent jobs, other reasons were much more frequently offered by
respondents for their use of temps. However, ove
49
r one-half of those companies that
increased their use of THS workers in the 1990s were motivated by a desire to fill
permanent positions: 24% did so to screen candidates for permanent jobs and 37%
did so because they found it difficult to find qualified workers on their own.
Others claim that the temporary help agencies themselves actually discourage the
transition of their employees into permanent jobs with user firms. Some agencies
charge client firms a fee if they hire the temporary worker within “x” days of an
assignment to deter firms from using temporary instead of permanent employment
agencies. Or, they may contractually prohibit user firms from offering and temps from
accepting permanent jobs for some period after completion of an assignment.50
It also is contended that another and perhaps more important obstacle to the
temp-to-hire pathway is resistance on the part of client firms who do not want agency
temporaries to think that user firms are under any obligation to offer them permanent
(...continued)
46
Relationship. Journal of Labor Research, v. 17, no. 4, fall 1996. (Hereafter cited as Hylton,
Legal and Policy Implications of the Flexible Employment Relationship).

47 Lee, Dwight R. Why is Flexible Employment Increasing? Journal of Labor Research, v.
17, no. 4, fall 1996; and Abraham, Restructuring the Employment Relationship.
48 Lenz, Edward A. Flexible Employment: Positive Work Strategies for the 21 Century
st
.
Journal of Labor Research, vol. 17, no.4, fall 1996. (Hereafter cited as Lenz, Flexible
Employment).
Houseman, Susan N.
49
Temporary, Part-Time, and Contract Employment in the United
States: A Report on the W.E. Upjohn Institute’s Employer Survey on Flexible Staffing
Policies. Kalamazoo, MI, W.E. Upjohn Institute for Employment Research, revised June
1997. (Hereafter cited as Houseman, Temporary, Part-Time, and Contract Employment).

50 Parker, Robert E. Flesh Peddlers and Warm Bodies: The Temporary Help Industry and
Its Workers. New Brunswick, NJ, Rutgers University Press, 1994. Hereafter cited as Parker,
Flesh Peddlers and Warm Bodies. (Hereafter cited as Parker, Flesh Peddlers and Warm
Bodies).

CRS-15
positions. Rather than subscribing to the temp-to-hire viewpoint, these observers
believe that market-mediated arrangements have flourished because they relieve user
firms of expensive legal obligations associated with traditional employment —
particularly those costs linked to the hiring/firing decision (e.g., mandated benefits
including UI and social security as well as voluntarily provided benefits including
pensions).
51 It is suggested that firms in recent years have chosen a human resources
strategy which uses THS workers on a regular, year-round instead of occasional
basis.52
The phenomenon of permanent temps is offered in support of this perspective.
While 35% of agency temporaries in 1997 were on their current assignments for less
than 3 months, according to BLS data, nearly 29% stayed on the same assignment for
one year or longer. Based on transitions over the 1983-1993 period, over one-half
of THS workers got permanent positions while over one-fifth were still in temporary
jobs one year later. And, among users of agency temporaries, 56% of firm
53
s
indicated that they seldom or never moved temps into permanent positions compared
to 43% who said they did so often, occasionally, or sometimes. These finding
54
s
suggest that a sizeable minority of individuals who work for temporary help agencies
may be characterized as permatemps, either in the sense of having a long-term
attachment to a particular client (non-employer) firm or to the temporary labor market
in general.
Proponents of the permatemp viewpoint urge changes in employment regulations
to better protect contingent workers, whom they regard as being trapped in a
secondary labor market characterized by high job turnover, low compensation, as well
as limited training and advancement opportunities. These changes typically include
requiring pay and benefit equity for contingent and traditional workers in comparable
positions, revising eligibility rules for UI and vesting requirements under the
Employee Retirement Income Security Act (ERISA), and reforming the National
Labor Relations Act. Advocates argue that those temporary workers and independent
contractors who are in long-lasting relationships with client firms should be
considered their employees and thus entitled to the same benefits and protections as
permanent employees. Some contingent workers have brought law suits and have
55
involved the U.S. Department of Labor in efforts to secure benefits denied them by
such client firms as Microsoft and Time Warner.56 In addition, permatemps have
begun to organize in order to give voice to what they believe is second-class
treatment in the workplace.57
Gonos, The Interaction between Market Incentives and Government Actions.
51
Parker,
52
Flesh Peddlers and Warm Bodies.
Segal and Sullivan, The Growth of Temporary Services Work.
53
Houseman, Temporary, Part-time, and Contract Employment.
54

55 Hiatt, Jonathan P. Policy Issues Concerning the Contingent Work Force. Washington and
Lee Law Review, v. 52, no. 3, 1995.
Bernstein, Aaron. When is a Temp not a Temp?
56
Business Week, December 7, 1998.
Bernstein, Aaron. Programmers of the World.
57
Business Week, December 7, 1998.

CRS-16
Other observers, in contrast, recommend that “barriers to the creation of
permanent positions” be removed by reasserting the employment-at-will doctrine or
by rolling back regulations thought to impede the free functioning of the labor
market.
58 At the least, they urge the preservation of staffing companies’ legal status
as the employer of temporary workers. Temp-to-hire proponents argue that actions
to dissuade firms from using agency temporaries by raising their cost vis-a-vis
traditional workers could hamper the development of superior job matches which
benefit firms, through improved productivity and lower labor costs, and workers,
through greater job satisfaction and longer job tenure.
Two-Tier Compensation Systems
Another explanation put forth for the increase in contingent jobs is that they
make it easy for firms to create two-tier compensation structures, which provide
otherwise identical workers performing the same jobs different wage and benefit
packages. A company may want to have different compensation systems for different
classes of workers because (1) some jobs involve incentive and management problems
that can be addressed through a particular pay structure (e.g., paying above-market
wages only to those workers in whom the firm invested greatly in recruitment and
training in order to curtail turnover); (2) some workers have varying preferences for
and therefore assign different values to the components of compensation (e.g., young
workers may prefer higher wages to receiving health benefits); and (3) some
incumbent workers (e.g., unionized employees within a firm’s workforce) have more
bargaining power than others. However, firms that provide health or pension benefits
to only some employees risk losing the income tax exemption associated with benefit
provision and firms that differently compensate similar employees performing the
same jobs risk morale and productivity problems.
There are two reasons to think that THS workers have been more frequently
utilized over time to establish two-tier compensation systems. The cost to employers
of providing benefits generally and health insurance particularly has increased relative
to wages in recent decades. Thus, the value to firms of reining in benefit expenditures
would have risen. In addition, the appearance of morale problems at companies that
had instituted two-tier compensation systems for their own employees coincided with
the timing of rapid growth in blue-collar temps.
This suggests that firms that found it difficult to pay new regular employees lower
wages than their established employees began to experiment with using lower-paid
temporaries to fill the new openings. The relatively large gap between temporary
and regular wages in the blue-collar occupations is also consistent with the notion
of blue-collar temporaries filling the bottom of a two-tier pay structure.59
Wages. Regardless of the different survey data examined, temporary workers
would seem to be attractive to firms based on their relatively low pay levels. In 1997,
according to data from BLS’ establishment survey, employees in the THS industry
averaged $10.18 per hour, or four-fifths of the $12.77 per hour averaged by
Lips, Brad. Temps and the Labor Market.
58
Regulation, spring 1998. p. 39.
Segal and Sullivan, The Growth of Temporary Services Work, p. 134.
59

CRS-17
production/nonsupervisory employees on private sector payrolls. The pay gap i
60
s
wider based on BLS’ survey of individuals in alternative work arrangements, with full-
time temps earning nearly two-thirds as much per week as full-time workers in
traditional jobs (median weekly earnings of $329 versus $510, respectively).
Such gross pay comparisons may be misleading, however. They may overstate
the cost-savings to firms using staffing companies if there are differences in the
personal characteristics of temps and employees of client firms that result in
productivity differentials. THS workers also may be concentrated in different
occupations and industries than permanent workers. Moreover, the gross wage gap
may not be evidence of employer discrimination against temporary workers.
One analysis estimated the hourly pay differential between temporary and
permanent workers after adjustment for a variety of wage-related characteristics. On
an unadjusted basis, the researchers calculated the wage rate of agency temporaries
to be 22% less than that of permanent workers in 1996. After taking into account
differences between the two groups in terms of age, race, sex, education, and
geographic location, the pay gap shrank to 14%. By controlling for certain job
characteristics (i.e., union and part-time status as well as broad occupational group)
in addition to the aforementioned personal characteristics, the wage disparity
narrowed further to 8%. Upon correcting for unobserved differences between the
two groups of workers (e.g., years of experience), the researchers estimated that
temporary status alone might reduce a person’s hourly wage by 5%.61
In another study, the researchers separately analyzed women and men employed
full-time in various work arrangements. They found that, in 1995, for women with
similar personal and job characteristics, the hourly wage of full-time temps was not
significantly different from that of full-time workers in traditional jobs. In contrast,
among otherwise equivalent men, those employed full-time by staffing companies still
earned about 8% less than men employed full-time in traditional jobs.62
In addition, gross wage comparisons may overstate the cost-savings to firms that
use temps because the reported pay levels do not reflect the premium that agencies
charge client firms. In 1995, for example, firms paid temporary help agencies 40%
more on average than temps received in wages. When client firms were asked t
63
o
compare the billed hourly rate for THS workers with the hourly wage rate of regular
employees in similar positions, 62% replied that the cost of temps was higher.64
Benefits. The cost-savings associated with the use of temps becomes more
apparent upon including the fringe benefit component of the compensation package.
Preliminary figures subject to revision.
60
Segal and Sullivan, The Growth of Temporary Services Work.
61
Economic Policy Institute and Women’s Research
62
and Education Institute, Nonstandard
Work, Substandard Jobs.
Segal and Sullivan, The Growth of Temporary Services Work.
63
Houseman, Temporary, Part-Time, and Contract Employment.
64

CRS-18
When client firms were asked to compare the billed hourly rate for agency
temporaries with the total hourly wage and benefit cost of regular employees in
similar positions, just 19% replied that the cost of temps was higher while 38% said
it was lower.65
Agency temporaries are much less often covered by either health or pension
benefits than traditional workers. In addition, they have lower coverage rates than
other workers in nonstandard jobs. (See Table 3.) Adjusting for differences in
personal and job characteristics between temporary and traditional workers does not
much diminish the gap in health and pension benefit receipt between the two.66
Temporary status thus reduces a workers’ access to two benefits regarded as key to
a person’s current and future economic and physical well-being.
Less than one in ten agency temporaries had employer-provided health benefits
in 1997, although more than one in four was eligible. According to unpublished BLS
data, the disparity between eligibility and participation chiefly seems due to health
insurance coverage through another source (e.g., a family member or individually
purchased policy), the cost of the employer’s health benefit plan, or the plan’s length
of service requirements.
Table 3. Persons in Alternative and Traditional Work Arrangements
with Health and Pension Benefit Coverage, February 1997
% with health
insurance coverage
% eligible
%
Through
for
eligible
current
employer
for
Work
employer
provided
% with
employer
arrange-
at main
health
pension
provided
ment
Number
Total
job
insurance
coverage
pension
Agency
1,300
46.4
7.0
26.0
3.7
10.5
temporaries
On-call
1,996
67.3
19.6
31.0
19.2
24.5
workers
Workers
provided by
809
81.7
50.2
68.7
35.6
45.9
contract
firms
Traditional
107,689
83.0
60.9
73.4
49.7
56.9
workers
65 Ibid.
Economic Policy Institute and Women’s Research & Education Institute.
66
Nonstandard
Work, Substandard Jobs; and Segal and Sullivan, The Growth of Temporary Services Work.

CRS-19
Source: Cohany, Sharon. Workers in Alternative Employment Arrangements: A Second Look.
Monthly Labor Review, November 1998.
The availability of health benefits through one’s own job is likely to be of greater
importance to contingent workers in single-earner than in dual-earner families where
a spouse may be eligible for employer-provided insurance. For example, in 1995,
fewer female THS workers who were married and in single-earner families with
children had health care coverage than married female temps in similar families with
dual-earners (53% and 68%, respectively). Being in a two-earner family did not
increase the likelihood that male temps would have health benefits as much as it did
among female temps. In addition, health insurance coverage rates were quite low for
married male temps both in single-earner (36%) and dual-earner (47%) families with
children.67
As shown in Table 3, pension coverage also is very low among THS workers.
Some 10.5% of agency temporaries were eligible for employer-provided pensions in
1997. An even smaller share, 3.7%, actually were included in plans. Although
Congress passed legislation intended to induce people to save for retirement on their
own, relatively few temps (11%) whose employers did not offer a pension plan have
individual retirement accounts.68
Policy Implications
Policies to address the contingent worker issue often are justified on the basis of
workplace equity. It is asserted that similarly endowed individuals who perform like
or comparable jobs within companies should receive equivalent hourly wages and
benefits as well as equal treatment under labor regulations regardless of their
employee-employer relationship. Others contend, however, that
69
[p]art-time discrimination does not begin to approach the policy concerns of race
or sex discrimination. Part-time status is not an immutable characteristic and the
differentiation is not stigmatizing or invidious.70
Parity advocates note, in response, that minorities and women are overrepresented in
some contingent work arrangements and therefore are more adversely impacted than
other groups by the disparate treatment employers accord part-time and temporary
workers for example.
67 Economic Policy Institute and Women’s Research & Education Institute, Nonstandard
Work, Substandard Jobs.
Unpublished BLS data from the 1997 alternative work arrangement survey.
68

69 For a discussion of “comparable worth,” see: CRS Report 98-278, The Gender Wage Gap
and Pay Equity: Is Comparable Worth the Next Step?, by Linda Levine.

70 Schwab, Stewart J. The Diversity of Contingent Workers and the Need for Nuanced Policy.
Washington and Lee Law Review, v. 52, no. 3, 1995. p. 929. (Hereafter cited as Schwab,
The Diversity of Contingent Workers and the Need for Nuanced Policy).

CRS-20
Another justification, which is provided for the extension of certain benefits to
contingent workers, is the effect on others due to their lack of coverage (i.e., the
externality argument). Firms that do not offer health benefits “create a spillover
burden on other health plans or on taxpayers because someone will pay for their
[employees’] coverage.”7 Someone includes companies that provide health benefits
1
to their employees’ family members who work at firms without plans. Someone also
includes benefit-providing companies as well as their employees who must pay more
for medical services marked up to cover the cost of giving uncompensated care to the
uninsured population (e.g.,employees of firms that do not offer health plans).72
Some proposals meant to gain fair treatment for contingent workers actually
extend to all workers with low earnings or few hours (e.g., changing the hours
threshold in the Family and Medical Leave Act or the quarterly earnings/hours
threshold in the UI program, raising the minimum wage, and expanding the Earned
Income Tax Credit). Other proposals (e.g., sick leave, vacation, or health insurance
eligibility on a pro rata basis; shorter vesting periods and portability for pensions)
would put contingent workers on more equal footing with traditional workers at
companies that provide discretionary benefits. Individuals in flexible work
arrangements at firms that fail to offer voluntary benefits would not be helped by
employment-based remedies unless, as some have suggested, all employers were
required to offer a government-prescribed basic benefit package.73
Instead of transforming discretionary into mandated workplace benefits, the idea
of loosening the historical connection between employment and benefit provision has
been embraced by diverse members of the public policy community. Their approaches
to accomplishing the detachment markedly differ, however. Some favor encouraging
people to self-insure their financial well-being later in life through establishment of
tax-favored individually owned investment accounts or to self-insure their physical
well-being through tax-favored treatment of health care expenditures for those who
lack employment-based coverage. Others support a government-financed system of
universal access to health benefits for example.
Some observers argue for a restrained policy response to the flexible work issue.
As noted at the outset of this report, estimates range widely as to the size of the
contingent labor force because a consensus definition is lacking. The appropriateness
of applying “across-the-board regulatory proposals” to the several different kinds of
employment relationships considered nonstandard has been questioned, as well.74
Another oft-raised caution involves striking a balance between the benefits of
extending the social welfare and regulatory systems to contingent workers against the
loss of staffing flexibility for firms and of jobs for workers who prefer nontraditional
71 Ibid., p. 930.

72 Handelman, Gwen Thayer. On Our Own: Strategies for Securing Health and Retirement
Benefits in Contingent Employment. Washington and Lee Law Review, v. 52, no. 3, 1995.
73 Economic Policy Institute and Women’s Research and Education Institute, Nonstandard
Work, Substandard Jobs.
Hylton, Legal and Policy Implications of the Flexible Employment Relationship.
74

CRS-21
employment.
75 Some also suggest that the expansion of the THS industry should be
viewed positively and encouraged because it, among other things, acts as a job
clearinghouse to help workers get the permanent jobs most want. In addition, little
76
information is available on some other components of the contingent labor force
including direct-hire temporaries. Nonetheless, continuing public discussion of this
issue shows a persistent effort to find a balance that will provide temporary workers
with adequate benefits and other opportunities without impairing the capacity of
private industry for job-creating growth
Schwab, The Diversity of Contingent Workers and the Need for Nuanced Policy.
75
Lenz, Flexible Employment.
76