The Future of Payrolls Is Flexibility

Mort Zuckerman takes note of the dog in the manger of recent job reports:

The Obama administration and much of the media trumpeting the figure overlooked that the government numbers didn’t distinguish between new part-time and full-time jobs. Full-time jobs last month plunged by 523,000, according to the Bureau of Labor Statistics. What has increased are part-time jobs. They soared by about 800,000 to more than 28 million. Just think of all those Americans working part time, no doubt glad to have the work but also contending with lower pay, diminished benefits and little job security.

While there may be a kernel of truth in his explanation:

There are a number of reasons for our predicament, most importantly a historically low growth rate for an economic “recovery.” Gross domestic product growth in 2013 was a feeble 1.9%, and it fell at a seasonally adjusted annual rate of 2.9% in the first quarter of 2014.

But there is one clear political contribution to the dismal jobs trend. Many employers cut workers’ hours to avoid the Affordable Care Act’s mandate to provide health insurance to anyone working 30 hours a week or more. The unintended consequence of President Obama’s “signature legislation”? Fewer full-time workers. In many cases two people are working the same number of hours that one had previously worked.

Since mid-2007 the U.S. population has grown by 17.2 million, according to the Census Bureau, but we have 374,000 fewer jobs since a November 2007 peak and are 10 million jobs shy of where we should be. It is particularly upsetting that our current high unemployment is concentrated in the oldest and youngest workers. Older workers have been phased out as new technologies improve productivity, and young adults who lack skills are struggling to find entry-level jobs with advancement opportunities. In the process, they are losing critical time to develop workplace habits, contacts and new skills.

I don’t think it presents the complete picture. The great, largely untold story of the last several decades is the number of workers for whom total compensation has been falling.

The Obama Administration may have exacerbated the preference for temporary and/or part-time workers but it didn’t create it. Consider the graph above. That represents the growth in the number of temps from 2001 to 2012. Ebbs and flows obviously follow the business cycle but there’s one factor that jumps out of the graph: the number has always been growing. Even when the economy was shedding jobs at a furious rate the number of temps was increasing.

The reasons for that are clearly complex and include not only the PPACA but the many other regulations governing companies based on the number of full-time employees, the increasing dominance of large companies, and the lower total cost that temporary employees may represent.

The reality today is that the future of payrolls lies in flexibility and that will inevitably mean more temps and fewer full-time permanent employees. It might even be that in many sectors of the economy full-time permanent jobs will go the way of defined benefit pension plans and fully company-paid healthcare insurance. Policy needs to catch up with reality.

10 comments… add one
  • ....

    the increasing dominance of large companies, and the lower total cost that temporary employees may represent.

    When I was working for the Mouse, back in the days of the real estate bubble boom, they were looking to shed full-time workers for part-time workers to cut expenses, primarily healthcare. They weren’t able to do it because the UE-3 rate in Central Florida at the time was around 3% (!!), but they tried. In fact, I spent a good portion of time the last two and a half or three years there trying to provide explanations to show that the program (it was an actual program, not just a preference) actually HAD worked, despite the seeming top-line failure. In other words, we were arguing that things were much better than they would have been without the program. (The career arc of the management team that pushed the program depended on these rationalizations.) The Obama Administration picked up the same strategy by late 2009, I believe it was.

    Incidentally, the program was just a failure, despite all the rationalizations. There was too much competition for labor at that time. I’ve wondered how much things have change since the economy tanked. I’d be surprised if Disney hasn’t managed to up that part-time employment percentage considerably.

    So yes, this trend predates Obama. But like so many trends, it has gotten much worse during his term.

  • I think that this is a case in which you can’t blame him for it but it’s legitimate to blame him for not doing anything about it, exacerbating it, and not recognizing that’s what the outcome would be.

  • ....

    The reality today is that the future of payrolls lies in flexibility and that will inevitably mean more temps and fewer full-time permanent employees.

    This reminds me of my brief (unfortunately) career in construction, decades ago now. My first day on the job I was given the task of shoveling sand off of curbs in the development we were building. (The company did roads and related items, such as drainage systems.) The whole area had been clear cut, everything plowed under, and it looked like a scene out of Lawrence of Arabia. The roads had been laid out and the curbs put in, but no actual road surface otherwise.

    Consequently sand had blown over all the curbs, covering most of them completely. When given a shovel and told to clear them, I re-thought my life, but set to work. I’m not sure how much curb I cleared that day, maybe a couple of miles worth, but there was a lot I didn’t get done. At the end of the day, the supervisor (and highly skilled motor-grader operator) came back to the end of the site I was working on. He looked around at what I had done and said, “Jesus Christ!” I apologized for not getting more done and then he set me straight.

    “Son, you don’t understand. You see that machine way over there?” and pointed to a tractor with a giant round brush on the front. “When we need these curbs clean we’ll get that machine out and clear all of it in about an hour.”

    Since I looked confused he went on. “Look, I don’t really need you today. I’m probably not going o need you tomorrow, either. But Wednesday I’m going to need you, and I’m going to work your ass off. [He did, too.] In the meantime, I need you to look busy in case the owner of the company comes by with the developer. They don’t want to see guys just standing around doing nothing, so you have to look busy.”

    In other words, temporary workers for that would have been fine. But there was an agreement that (a) that wouldn’t really work logistically (even on a carefully managed site you never knew exactly when things would get busy, because of weather if nothing else), and (b) it wasn’t really fair to workers to tell them to show up now and again and break their backs but then cut them loose the other one-third of the time.

    Somewhere that agreement between labor and management broke down (I suspect as firms got larger), and it continues today. That’s also why firms LOVE them some illegal aliens as workers, because you can drive up to a Lowe’s or a Home Depot early in the morning and pick up a crew of whatever size you need that day, no questions asked. And pay them less than Americans on an hourly basis, too.

    Oddly enough, the cost of road construction hasn’t gone down. You can guess where the “savings” have been pocketed.

  • ....

    Schuler, if he knew the outcome he would have done it anyway. It’s all part of the plan to crush the middle class.

    Come on, after decades of doing things that are eroding the middle class, they have to realize at some point that more of the same is going to exacerbate things.

  • ....

    Incidentally, returning to a topic from last week, the brief time I spent doing construction (age 20) was also the time period in my life in which I slept the best. There’s nothing like hard sustained physical labor day after day to facilitate sleep. It was actually fun, although a day or two of it made me want to NOT do that for the rest of my life, LOL.

  • PD Shaw

    “I’m probably not going to need you tomorrow”

    Probably. That might be one thing that has changed. Use of software for better labor planning.

  • ...

    PD, given construction techniques at the time I don’t think it would have helped. Especially not with the gentleman mentioned above. He had built up a multimillion dollar construction company from nothing before selling the company and retiring. He was worth at least ten million dollars, and that’s in 1988 dollars.

    But after a few months of retirement he was miserable and was making his wife miserable, so she told him to go back to work. So he got a job as a site manager and motor-grader operator with a smallish company abd was quite happy to be working fifty to sixty hours a week again. I’m sure seeing things get built had something to do with it too.

    Incidentally, I worked the next two weekends. Awesome sleeping!

  • Jimbino

    It’s the old, infirm, incompetent, female, married breeders and the risk-averse who prefer full-time benefited jobs, and the young, healthy, enterprising, male, single non-breeder who wants out of that expensive nonsense.

    I’ve worked decades in hi-tech jobs, almost always on a limited-term contract that provided no benefits, whether vacation, sick-leave, health insurance and so on. For that “sacrifice” I earned double the pay that the captive employee sitting beside me earned.

    I hate SS, Medicare and Obamacare, along with the rest of the nanny-state benefits that exist to support the medical-hospital-pharmaceutical-insurance complex and to transfer wealth from producers to the indolent and breeders. I earned so much in hourly pay that I never could justify working more than 6 months per year in a contract that would put me in a marginal tax bracket (including FICA and state taxes) of around 60%.

    So what again is the problem with the growth of part-time work?

  • steve

    From Marketwatch. Haven’t had time to confirm on FRED.

    One interesting nugget in the June jobs report was the rise in the number of people who worked part-time.

    While it’s a number that flops around from month to month — the standard deviation is 287,000 — it jumped by 799,000, which was the largest one-month gain since January 1994. At the same time, there was a 523,000-person drop in full-time workers, the first decline since October.

    “It is unusual,” said Stuart Hoffman, chief economist at PNC Financial Services Group. But he said it could be noise. And he notes that most of the part-time rise in June was not in those who want to find full-time work but couldn’t, and instead in those who voluntarily opted to do so.

    One concern with the Affordable Care Act was that some small employers might opt to get around the 50-person work requirement by replacing full-time workers with part-timers.

    That said, over the past 12 months, 10,000 new part-time jobs have been created — versus 2.12 million full-time jobs.

    And looking at the survey of establishments, it was high-paying sectors that were creating jobs in June. “These are not McDonald’s, Mickey Mouse kind of jobs,” Hoffman said. “This is a better-quality jobs story.”

    Hoffman said he wouldn’t be surprised if the number of part-time workers comes back to more normal readings in July and August.

  • Ben Wolf

    @PD Keynes made the case in The General Theory that given wages are not downwardly flexible the only possible way to reduce labor costs is by reducing employment. This of course turned the classical school on its head as there was near-universal agreement that both output and wages would instantly adjust to maintain full employment, as many economists continue to believe.

    If employers are determined to reduce labor costs and we’re determined to allow it then it’s very unlikely the growth in part-time employment will stabilize; in fact it may well continue to grow relative to full-time positions.

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