Industry Profiles: Personnel Supply

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Industry Profiles: Personnel Supply

Overview

During the 1990s and into the early 2000s, the personnel industry achieved rapid growth in the United States, reaching approximately $56 billion in annual revenues by 2001. Much of this growth came as companies increasingly sought to downsize their full-time work-forces and to outsource specialized or peripheral work tasks. They turned to "temp" firms, which provided a ready pool of personnel, sometimes known as "contingency workers," who were able to work either for very short periods, sometimes just days, to fill in during a crunch time, or for longer periods spanning many months if the company had longer-term needs. An estimated 90 percent of all mid to large-sized U.S. companies hire temporary workers at some point.

Traditionally associated with general clerical and light industrial work, the personnel supply industry has evolved to embrace some highly specialized fields. While the major firms all still offer staff to perform general office duties, most have branched out into the more profitable specialized personnel services. In the early 2000s, leading agencies' temp pools included such professionals as lawyers, accountants, engineers, and nurses. Numerous smaller agencies serve the niche markets as well, and many firms focus exclusively on a particular market need. For example, offering computer programmers on a temporary basis. As of the late 1990s, there were an estimated 7,000 personnel supply companies of all types in the United States.

In early 2001, approximately 21 percent of all temporary and contract employees were administrative or clerical workers. Operators, fabricators, and laborers accounted for 17 percent, followed by those in the precision production, craft, and repair sector (12 percent). However, those in professional specialties and executive, administrative, sales or managerial roles together accounted for a full 31 percent of all temporary and contract workers. Between 1999 and 2001, U.S. Bureau of Labor Statistics figures showed declines in the number of manufacturing and administrative workers and a rise in the number of workers in sales, management, and technical roles.

In addition to providing temporary workers, personnel supply firms may also offer consulting services and human resources management services to their clients.

History of the Industry

The modern personnel supply industry didn't begin in earnest until after World War II, when small firms began to market short-term clerical help to companies that either didn't need a permanent employee to perform certain tasks or had short-term vacancies in their staffs due to vacation or illness. These firms found a vast untapped market for their services, and several grew quickly to become national, and later, international, leaders. Among the important personnel services to emerge in the early years were Kelly Services, Inc. of Detroit—better known in the 1950s and 1960s as "Kelly Girl" because its help pool was then almost exclusively female office workers—and Manpower, Inc. of Milwaukee.

Temporary agencies enjoyed quick growth in the 1970s and 1980s, with industry sales growing by more than 20 percent in some years. This growth coincided with the rising rate at which women entered the work-force, and the industry continued to employ a disproportionately high number of women in its ranks. Over the course of the 1970s, the industry's employment more than doubled, and by 1985 it had grown by another 60 percent. Even more dramatically, between 1985 and 1997, the industry's employment ranks nearly tripled, reaching 2.6 million by 1997, and annual revenues more than tripled from $15 to $47 billion.

Significant Events Affecting the Industry

While firms like Kelly began to develop non-clerical services as early as the 1960s, only gradually did a large market evolve for more specialized labor on a temporary basis. In the early 1990s, conventional clerical and light industrial work still accounted for half of the industry's sales. This changed quickly, however, as the U.S. business community began to embrace temporary staffing as a means to cut labor costs and improve efficiency well beyond simply having a "temp" come in to do data entry and filing. Corporate leaders realized they could reduce their overhead expenses—the business costs that aren't directly related to manufacturing a product or delivering a service—by relying on other firms to fulfill some of their recruitment and staffing functions. The flip side to the growing practice of downsizing at large companies was the rise in outsourcing tasks to more specialized contractors, and increasingly, personnel services were among the contractors.

This climate made for explosive growth in the U.S. personnel industry, with annual sales more than tripling during the 1990s. By 2000 the industry's annual sales increased to $63.6 billion, and then fell in 2001 to $56.2 billion in the wake of an economic recession.

The 1990s and early 2000s also marked an era of growing consolidation in the industry. The rate of mergers and acquisitions, both within the United States and around the globe, accelerated briskly as large firms bought out many smaller niche firms in order to broaden the scope of their services. In the period from 1994 to 1997 alone, estimates suggest that more than 900 mergers or acquisitions took place in the U.S. industry.

Key Competitors

Switzerland-based Adecco SA is the world's largest personnel service. The company's Adecco Staffing Division places more than 700,000 workers each day throughout the world in such industries as hotels, hospitals, and banks. The company's Ajilon Staffing and Managed Services Unit concentrates on professional staffing, providing workers in the legal, financial, and information technology sectors. Adecco's Lee Hecht Harrison career services division provides a variety of services including outplacement, career coaching, and leadership development. In addition, the company operates executive search firm Alexandre TIC and IdealJob, an e-human resources service that operates in several European markets. Adecco also is home to Olsten Staffing Services, which has provided staffing services in the United States for more than 50 years. In 2001 Adecco posted revenues of $16.4 billion.

Milwaukee-based Manpower, Inc. is the world's second-largest personnel service in terms of the number of employees it places. Manpower provides approximately 2 million workers to 400,000 clients worldwide, including almost all Fortune 500 firms. In 2001 its sales reached $10.5 billion, a slight decline from the previous year. Founded in 1948, Manpower staffs businesses in 61 countries through 3,900 franchises and corporate-owned branches. More than 80 percent of Manpower's revenues come from outside the United States. Geographically, France is the company's top market, accounting for about 36 percent of sales, followed by the United States (19 percent). Manpower also has a substantial presence in the United Kingdom and other European countries.

Founded in 1946, Kelly Services, Inc. offers a diverse staff of professionals and technical workers in addition to its well-known clerical labor pool. In 2001 the Troy, Michigan-based company placed approximately 700,000 workers through its 2,300 branch offices around the world. Among the professionals in its specialty ranks are accountants, attorneys, engineers, and scientists. With $4.3 billion in 2001 sales, almost 75 percent of Kelly's sales that year came from the United States. It also has services in Canada, France, Australia, New Zealand, Russia, and elsewhere in Europe.

Formerly Interim Services, Inc., Fort Lauderdale, Florida-based Spherion Corporation offers businesses around the world some 370,000 personnel. In 2001 the company posted revenues of $2.7 billion and operated more than 900 offices worldwide. In addition to U.S. locations, Spherion operated in Canada, Europe, Asia, and Australia. The company, which originated in Chicago as a train-cargo staffing service, was growing its outsourcing division in the early 2000s.

Industry Projections

The U.S. personnel industry experienced strong growth during the 1990s and early 2000s, and this was expected to continue well into the mid and late 2000s. According to the American Staffing Association, based on data from the Employment Policy Foundation, the demand for labor in the United States was expected to out-pace supply by 2006. After 2006 this variance was expected to widen continually into and beyond 2010. It likely will become more difficult for staffing companies to find the right temporary workers as time progresses because jobs requiring higher levels of education and skill are expected to increase, while manual labor and production jobs are expected to decline. According to the U.S. Bureau of Labor Statistics, personnel supply services will lead the way in creating new U.S. jobs through 2010. From 2000 to 2010, the industry is expected to grow a whopping 49.2 percent, creating 1.9 million new jobs.

Because most firms use temporary staff when they don't wish to make a long-term commitment, it follows that when the economy sours, employers first cut back on their use of temps. This makes the personnel supply industry highly sensitive to economic cycles, and thus general economic conditions hold considerable sway over the industry's future performance. However, the personnel industry can also benefit from economic downturns: after a period of cutbacks, many companies use temporary staff as a transition measure before their business is again growing quickly enough to support hiring permanent staff.

Global Presence

The personnel industry is highly internationalized, and most leading companies have significant international operations. Particularly in Europe, some of the world's largest personnel firms generate most of their business in markets outside their home country.

The United States is among the world's largest national markets for personnel supply. However, the industry has enjoyed exceptional growth in other places, especially in Europe. As a matter of fact, in terms of staffing penetration levels, the United States (2.40 percent) lags behind European countries like France (2.50 percent), the United Kingdom (3.20 percent), and the Netherlands (4.50 percent). These figures from the American Staffing Association are based on research conducted by McKinsey & Company, which estimates that penetration levels in the Netherlands could rise as high as 6.2 percent by 2010.

Employment in the Industry

In 2000 an estimated 2.7 percent of the entire U.S. labor force of 3.9 million people were engaged in temporary employment. Not surprisingly, since it's an industry centered around employment, it is one of the nation's largest industries in terms of employee count.

In addition to using temporary staff to simply fill in for a period, many employers contract with personnel services as a way to screen potential permanent employees while keeping their in-house recruitment expenses down. This arrangement enables the employer to test an employee on the job before offering a permanent position. This practice may result from either an explicit agreement with a personnel firm to find a suitable permanent employee or it may arise informally when an employer is pleased with a temp worker's performance. Many temporary agencies have policies to regulate the migration of workers from temporary status on their payrolls to permanent status on client payrolls, but in general they don't prohibit crossover. In fact, some encourage it, and the transition is usually easy.

Most of the world's large agencies perform one or more stages of screening to ensure they hire employees who will meet their clients' expectations. The minimal screening usually involves completion of a conventional job application form to collect such data as work history and educational background, followed by some form of personal interview with the applicant. Most firms also administer a variety of tests, some general and some job-specific, to better ascertain applicants' skills. Examples of such tests include general math and reading quizzes, typing tests, computer software proficiency exams, and job-specific questionnaires. The largest companies have developed custom software for evaluating candidates' aptitudes. When applicants lack the necessary skills, some agencies offer training services. In addition, once a worker has been placed in a position, most temp services perform some form of follow-up with the employer to determine whether it was a successful match.

Concerns have arisen over the social implications of having a large segment of the workforce employed on a temporary basis. While it serves as an efficient mechanism for quickly moving labor where it's needed, critics argue that the arrangement can short-change workers by depriving them of stability and, in some cases, the same level of compensation they would enjoy as permanent employees. Health insurance and other benefits are a particular issue, because not all temporary workers—even when they work full time—are given insurance, paid vacation time, or other benefits. This is mostly true of smaller temp agencies, however, and many of the leading firms do offer full benefits.