What’s it: Temporary workers are those who are employed for a limited period. The company contracts them for a fixed term or on a project or task basis. Seasonal or casual workers fall into this category.
Companies usually use temporary employment contracts to provide legal protection when hiring short-term employees and explain that the position is temporary. The contract allows companies to avoid legal obligations and other negative consequences while hiring them.
Businesses may hire temporary workers as new permanent employees when they meet management expectations. Demonstrating a good work ethic, learning quickly, and regularly helping out are the keys to getting such an offer.
The use of temporary workers tends to increase at the first signs of economic recovery and decrease at the first signs of economic weakness. Businesses usually hire them to avoid the cost of hiring permanent employees. Demand will increase/decrease mainly at turning points of the economic cycle when companies doubt the next phase’s strength and sustainability.
Reasons the company hires temporary workers.
Hiring temporary workers allows companies to have a more flexible workforce and cost composition. Companies rely on these practices to sustain cost escalation when the recovery in market demand is unclear.
Thus, hiring temporary workers helps reduce overall staffing costs. Their presence can keep the company’s permanent employees productive but less stressful when faced with busy work due to increased demand.
Advantages of hiring temporary workers
Flexibility. If the firm’s demand is seasonal, then temporary workers provide flexibility for the company to maximize sales during the peak season. The company recruits them to hit the target.
Companies can also recruit temporary workers to carry out specific projects. When projects and contracts are completed, the company no longer bears the costs of recruiting permanent employees.
Selection. Companies can screen temporary employees who are skilled and according to their needs. They stand a better chance of hiring quality new hires.
Cost-effective. Temporary workers help save overhead costs, time, and hiring effort. Companies do not incur several expenses by hiring them, such as medical benefits, worker insurance, profit sharing, vacation time, and other benefits.
Factors affecting the demand and supply for temporary labor
Many factors influence the demand and supply of temporary workers. Companies employ them because recruiting, training, and firing permanent workers are more expensive. It is also to meet additional workers’ needs when operating activities increase or when running new projects. Also, their wages are usually lower than the wages of regular workers, thus saving costs.
Meanwhile, from the supply side, some workers like the flexibility of temporary work. They can adjust their work time and personal needs. They don’t have to be disappointed about losing their job if their employer gives them a tedious task. They can also learn or improve skills before seeking permanent employment.
Demand for temporary labor during the business cycle
The demand for temporary workers correlates with the business cycle. During turning points in business cycles, companies often doubt whether future economic contraction (or recovery) will persist or not. Therefore, they will not immediately fire (recruit) permanent staff during this period.
During the trough phase, businesses will prefer to hire temporary labor or increase overtime to increase output. It’s cheaper than hiring new workers. They will recruit permanent employees only if they are confident about the prospects for future demand.
Conversely, during the peak phase, businesses prefer to reduce temporary workers. Thus, when an economic contraction does not occur, there is an opportunity for them to increase production.
Long story short, temporary workers’ use tends to increase in the first signs of economic recovery. It will decline at the first signs of an economic contraction.