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The Effects of Temporary Services and Contracting Out on Low-Skilled Workers: Evidence from Auto Suppliers, Hospitals, and Public Schools

Author

Listed:
  • George Erickcek

    () (W.E. Upjohn Institute for Employment Research)

  • Susan Houseman

    () (W.E. Upjohn Institute for Employment Research)

  • Arne Kalleberg

    (University of North Carolina-Chapel Hill)

Abstract

We examine why employers use temporary agency and contract company workers and the implications of these practices for the wages, benefits, and working conditions of workers in low-skilled labor markets. Through intensive case studies in manufacturing (automotive supply), services (hospitals), and public sector (primary and secondary schools) industries, we define the circumstances under which these workers are likely to be adversely affected, minimally affected, or even benefitted by such outsourcing. Adverse effects on compensation are clearest when companies substitute agency temporaries or contract company workers for regular employees on a long-term basis because low-skilled workers within the organization receive relatively high compensation and employment and labor law or workers and their unions do not block companies from such substitution. Often, however, organizations only contract out management functions or utilize agency temporaries for brief periods of time, with little direct effect on in- house, low-skilled workers. Moreover, employers often use temporary agencies to screen workers for permanent positions. Because temporary agencies lower the cost to employers of using workers with poor work histories or other risky characteristics, agencies may benefit these workers by giving them opportunities to try out for positions they otherwise might not have had.

Suggested Citation

  • George Erickcek & Susan Houseman & Arne Kalleberg, 2002. "The Effects of Temporary Services and Contracting Out on Low-Skilled Workers: Evidence from Auto Suppliers, Hospitals, and Public Schools," Upjohn Working Papers and Journal Articles 03-90, W.E. Upjohn Institute for Employment Research.
  • Handle: RePEc:upj:weupjo:03-90
    Note: A revised version of this paper appears in Eileen Appelbaum, Annette Bernhardt, and Richard J. Murnane, eds. Low-Wage America: How Employers are Reshaping Opportunity in the Workplace (pp. 368-406). New York: Russell Sage Foundation, 2003. Please cite the revised version.
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    References listed on IDEAS

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    1. Abraham, Katharine G & Taylor, Susan K, 1996. "Firms' Use of Outside Contractors: Theory and Evidence," Journal of Labor Economics, University of Chicago Press, vol. 14(3), pages 394-424, July.
    2. Susan N. Houseman, 2001. "The Benefits Implications of Recent Trends in Flexible Staffing Arrangements," Upjohn Working Papers and Journal Articles 02-87, W.E. Upjohn Institute for Employment Research.
    3. Lewis M. Segal & Daniel G. Sullivan, 1997. "The Growth of Temporary Services Work," Journal of Economic Perspectives, American Economic Association, vol. 11(2), pages 117-136, Spring.
    4. Susan N. Houseman & Arne L. Kalleberg & George A. Erickcek, 2001. "The Role of Temporary Help Employment in Tight Labor Markets," Upjohn Working Papers and Journal Articles 01-73, W.E. Upjohn Institute for Employment Research.
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    Citations

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    Cited by:

    1. James Peoples & Bin Wang, 2007. "Privatization and Labor Cost Savings: Evidence from Health Care Services," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 35(2), pages 145-157, June.
    2. Annette Bernhardt & Rosemary Batt & Susan Houseman & Eileen Appelbaum, 2016. "Working Paper: Domestic Outsourcing in the United States: A Research Agenda to Assess Trends and Effects on Job Quality," CEPR Reports and Issue Briefs 2016-03, Center for Economic and Policy Research (CEPR).
    3. Matthew Dey & Susan Houseman & Anne Polivka, 2010. "What Do We Know About Contracting Out in the United States? Evidence from Household and Establishment Surveys," NBER Chapters,in: Labor in the New Economy, pages 267-304 National Bureau of Economic Research, Inc.
    4. Corinne Perraudin & Nadine Thevenot & Bruno Tinel & Julie Valentin, 2006. "Sous-traitance dans l'industrie et ineffectivité du droit du travail : une analyse économique," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00265959, HAL.
    5. Beckmann, Michael & Kuhn, Dieter, 2012. "Flexibility vs. screening : the performance effects of temporary agency work strategies," Working papers 2012/03, Faculty of Business and Economics - University of Basel.
    6. Annette Bernhardt & Rosemary L. Batt & Susan Houseman & Eileen Appelbaum, 2016. "Domestic Outsourcing in the United States: A Research Agenda to Assess Trends and Effects on Job Quality," Upjohn Working Papers and Journal Articles 16-253, W.E. Upjohn Institute for Employment Research.
    7. David Brady & Regina Baker & Ryan Finnigan, 2013. "When Unionization Disappears: State-Level Unionization and Working Poverty in the U.S," LIS Working papers 590, LIS Cross-National Data Center in Luxembourg.

    More about this item

    Keywords

    temporary; contingent; contract; workers; low-skilled; Houseman; Erickcek; Kalleberg; Upjohn;

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets
    • J45 - Labor and Demographic Economics - - Particular Labor Markets - - - Public Sector Labor Markets
    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects
    • J81 - Labor and Demographic Economics - - Labor Standards - - - Working Conditions
    • K31 - Law and Economics - - Other Substantive Areas of Law - - - Labor Law

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