US jobs created look poor in both quality and quantity
By Christopher Swann in Washington
Published: March 9 2004 20:03 | Last Updated: March 9 2004 20:03
Job creation figures in the US may have struck many economists as dismal over the past few months. But even as job quantity dominates the political agenda, the quality of the few jobs being created has also caused concern.

Of 290,000 private-sector jobs created since April 2003, most - 215,000 - have been temporary positions, according to last week's employment figures. Private-sector employment would have fallen last month without the creation of 32,000 temporary jobs in the professional and business services sector.

About 4.3m Americans are also forced to accept part-time positions because they have failed to find full-time work - 1m higher than the January 2000 number.

The recent data show that US companies remain reluctant to commit themselves to hiring new permanent staff. Economists note wryly that US companies are happy to flirt but remain unwilling to walk to the altar.

"It is slightly depressing to think that even the poor job-creation figures we have had have been flattered by temporary positions," says Drew Matus, US economist at Lehman Brothers. "A lot of what we have been getting is lower-quality jobs."

The prevalence of such stop-gap job hiring casts doubt on President George W. Bush's ability to benefit from an economic feel-good factor ahead of November's presidential election. It also helps explain why wage growth is only just managing to keep pace with inflation, at about 2 per cent.

Companies are becoming more aware of the attractions of temporary staff, says John Challenger, chief executive of Challenger, Gray and Christmas, an agency that helps find new jobs for dismissed workers.

"Not long ago companies were quite willing to have workers 'on the bench', so that they were available in case demand picked up," he says. "Having overdone the hiring at the end of the 1990s, there is a greater appreciation of the need to keep workforce levels 'just in time'."

Technology has made it easier for companies to recruit quickly when they urgently need to expand output, he says. "Companies are trying to think of staff more like inventory, keeping things to a minimum."

The appeal of temporary staff also stems from the soaring cost of the benefits enjoyed by permanent workers. In 2003 the cost of these benefits rose 6.3 per cent - most than twice the 2.9 per cent rise in cost of wage growth.

Benefits now cost about a third of total cost of remuneration. This can often be enough to offset the disadvantages to temporary workers, who initially lack company-specific knowledge and are usually paid higher wages to offset their lack of work security.

"This surge in benefits costs has certainly worked against hiring permanent workers, since companies just do not want to lock in these benefits at the moment," said Richard Berner, chief US economist at Morgan Stanley.

Some economists even suspect that Mr Bush's tax incentives for business investment, which allow for 50 per cent depreciation in the first year on most business equipment, may have temporarily helped tilt the balance in favour of spending on equipment instead of new permanent workers. This incentive is due to expire at the end of this year but may have contributed to the 15.1 per cent growth rate of business investment in the final quarter of 2003.

"On the margin this may help explain why companies have been keener on investment than permanent hires," said Nigel Gault, director of US research at Global Insight, the economic consultancy. But the most important benefit of temporary workers is that they can easily be dismissed if business conditions turn sour.

"There remains a sense of caution among executives," says Jan Hatzius, US economist at Goldman Sachs. "They feel things are better but have seen enough false dawns that they are not yet totally convinced that things will stay better."

Most economists continue to believe that as confidence in the recovery builds, and the opportunities to enhance efficiency become more scarce, companies will once again start to increase their permanent staffing levels.

The lingering fear, however, is that the weak labour market itself could start to undermine the economic recovery, unless hiring picks up soon.

Last month Alan Greenspan, the Federal Reserve chairman, told a congressional panel that US businesses continue to work off the "stock of inefficiencies that had accumulated in the boom years".


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