Temporary Employment: A New Ugly Rearing its Head in Europe?
Temporary Employment: A New Ugly Rearing its Head in Europe?
Last week Clive Crook opined on some fallacies of labor reform, specifically related to the unions and through the Spanish experience. Labor reform is a highly contentious subject, given its close ties to welfare and politics. Based on Clive Crook’s article, I delved into global temporary employment using OECD data and noticed two things: (1) not only is it too ‘simple-minded’ to attribute labor problems to one or two broad agents (unions, in the case of Europe), but it’s impossible to compare one country’s problem to another; and (2) other global economies – Ireland being the most worrisome candidate – saw respective shares of temporary employment surge in recent years. To me, this highlights the fact that known labor issues are just the beginning – new problems are surfacing that will require attention in the future.
As highlighted by Clive Crook via Bentolila, Dolado, and Jimeno (or the Vox version), the cyclical aspect of Spain’s two-tier labor market – the two tier system consists of a large share of temporary workers ‘outside’ the permanent employment positions – can explain in part the boom in employment during the bubble and its crash during the recession. But that doesn’t explain the experience of the US. In 2005 (the last measured date for the US), temporary workers accounted for just over 4% of employment compared to 33% in Spain; however, like that in Spain, the US unemployment doubled during the crisis. What’s one country’s problem is not necessarily another country’s structural issue.
In contrast to other key players in Europe, the Spanish rate of temporary employment fell 8.4 ppt since 2005, where most of the drop occurred in 2009 and 2010. The crisis eradicated some of the inefficiencies of Spanish temporary employment by consolidating those industries that tended to favor temporary employment during the bubble, construction for one. More worrisome, though, is the trend in temporary employment in other European markets. The rate of temporary employment increased 3.5 ppt, 3 ppt, and 5.7 ppt in Portugal, the Netherlands, and Ireland, respectively, spanning 2005-2010.
The problem with Spain’s two-tier labor market is well known, while that in Ireland and Portugal, for example, is emerging. The 2002 OECD Employment Outlook Chapter 3 outlines some adverse impacts of temporary employment. Temporary employment is associated with higher wage gaps among the temporary and permanent employees, fewer health benefits, negative effects on well-being for individuals and families, and minimal job security. I haven’t read recent research to this point; however, those countries with outsized surges in temporary employment – Ireland, Portugal, Netherlands, Italy, Greece, and the UK are among the highest in the sample above – are likely to experience a drop in welfare relative to other countries, all else equal.
Another interesting aspect of the Spanish labor market on a relative basis is that while Spain has a large presence of temporary workers, these workers do have a relative advantage relating to claim of unfair dismissal than do other global workers. The implication could be, that as the share of temporary workers rise in Ireland, Portugal, or the Netherlands, for example, the employment becomes more volatile and reduces expected lifetime income, hence spending or growth. (Data from the OECD.)
I’m worried and just conjecturing here. But, not only have countries not reformed labor issues already in the pipeline – the Spanish two-tier labor issues date back to 1984 – we’re creating new ones. The Great Recession and forced austerity is likely a very big factor in the surge in Irish temporary
unemployment employment. This will bring with it unintended consequences that may require further reform (or alternative scenarios like exit from the EMU) at some point in the future
I think there’s something you’re missing about temporary employment across Europe here.
There’s a very large diference indeed between temp employment in Spain and the UK, just to take one example. And an even larger one between just about anywhere in Europe and the US.
Permanent employment in Spain (and Portugal, Greece, Italy, France to some extent, the Latin version of it essentially) means virtually complete employment protection. It’s damn near impossible to fire such permanent workers short of bankruptcy and sometimes not even then.
Temporary workers mean those on an employment contract lite which do not have such protections.
Temporary workers in the UK (and in many Northern European countries) are rather those doing known to be short term jobs. Filling in for someone on maternity leave, doing seasonal work, perhaps covering vacations etc.
These are very different situations and they really shouldn’t be compared in the way that you have done.
And with reference to the US it gets even worse. For by the Latin definition almost everyone in the US is a temporary worker: for just about everyone in the US is on a fire at will contract.
“Temporary” means different things in different places so really cannot be compared in the manner you are doing so.
Thanks, Tim. I boggled at these numbers too, when I first looked at the charts. Frankly, I thought they were labeled backwards.
But having read your comment, I realized that in the US, it is not that they have a tiny fraction of temporary employees, as the chart seems to show. Instead, almost all US employees are effectively temporary. When a company can reconstruct its way out from under a generation of pension obligations and seniority rankings, when layoffs (single or en masse) can be executed without cause, and when there are millions all competing for the same jobs, how is that not “temporary?”
Heh. Too early in the morning for me apparently. Didn’t read your whole comment or I would have realized I just wrote your summation over again.
Having said that — what would a country look like if all labour protections were removed, if all workers really were day labour? From up here in Canada it sometimes looks like the US is already there, but I know better. After all, people in the US can still get car loans and mortgages and credit cards — would that be possible if the labour market was completely “free?”
True, loans are a lot harder to get now, but frankly with falling wages and employment prospects so precarious, with (possibly) worse to come, because hiring or paying employees is not fiscally prudent in these tight economic times, why would any lender lend big money (a car, a house, a new computer) to most Americans? If prices are deflating, wages are also, and the competing wage-price spiral means that money lent now will be far less likely to be repaid, with or without interest. It is a puzzle.
Yes, temp employment. Here in the US, Microsoft appears to be the definition in the dictionary having been sued by the US governement at one point.
With that, Financial Armageddon had a nice counter to the celebrated jobs report Monday. http://www.financialarmageddon.com/2012/02/exceptable-jobs-report.html
Starting with Zero Hedge’s account: In January, the number of Part Time workers rose by 699K, the most ever, from 27,040K to 27,739K, the third highest number in the history of this series. How about Full time jobs? They went from 113,765 to 113,845. An 80K increase. So the epic January number of 141.6 million employed, which rose by 847K at the headline level: only about 10 % of that was full time jobs: surely an indicator of the resurgent US economy… in which employers can’t even afford to give their workers full time employee benefits.
I can’t imagin that our western equavalents are going to see something much different. After all it’s a globalized system.
Yep. I count as employed, because I have a part-time job.
They’re giving me 4 hours a week. The pay is part of my taxable income. To get there and home again is roughly 2 hours by bus. So I spend 6 hours a week at that job, earning a little less than minimum wage after taxes and expenses.
I wouldn’t stay there if my fellow employees weren’t charming. But my “job” is actually more like a once weekly social club. I have been applying for other positions, maybe even (gasp!) half time. But I am one of those vigorous, highly educated retired people who are expected to go out and work, i.e. nearly unemployable.
Thank you – you beat me to it. There is a HUGE difference in labor protections for permanent employees. Almost impossible to fire in Europe – thus you hire temps. In the US you can hire /fire far easier so temp workers really are usually just temps to get over a specific need or help out while hiring a full-timer.
Islam will change
“(1) not only is it too ‘simple-minded’ to attribute labor problems to one or two broad agents (unions, in the case of Europe), but it’s impossible to compare one country’s problem to another; and (2) other global economies – Ireland being the most worrisome candidate – saw respective shares of temporary employment surge in recent years.”
I don’t believe that I mentioned the US much. In fact I highlighted that the US has very few ‘temporary’ workers (not part-time – they are different) but experienced a surge in unemployment just the same. The implication is, that despite workers falling into a certain category based on contract, reality may imply a less permanent position when recession hits.
Furthermore, most of my text was devoted to highlighting the shift in temporary workers across time, rather than across country.