Temp Workers Driven Into Entrepreneurship

Companies are replacing full-time jobs with temp positions, and that drives some unemployed and temporary workers to start small businesses to create income.

Increases in temp hiring used to signal that full-time hiring would soon follow. That’s not so clear in this recession. From the lead story in today’s NY Times by Louis Uchitelle:

In the past, temps who do well have often been offered regular employment, with higher pay and benefits. Given the uncertainties about this recovery, companies are not doing that now, and temps, as a result, are less likely to spend as freely as regular employees or to qualify for credit, generating less demand than permanent employment would.

The Times story ends on an anecdote about Walter Latham, a Long Island man who used to earn $135,000 as a project manager for The Reserve mutual fund. He’s taking a temp job after being jobless for 14 months. His wife also works as temp at a health care call center. The couple have run through their savings. They both have side businesses: she sells jewelry, and he just launched a golf instruction Web site.

This jibes with the conclusion of a recent working paper by economists at the SBA’s Office of Advocacy and George Mason University. They found that people start to work for themselves in small businesses with no employees when unemployment is high. By contrast, people start employer firms when the economy is strong. “Nonemployer start-up rates seem countercyclical with respect to the labor market, while employer start-up rates move in line with the overall economic cycles,” the authors write. The first is a response to necessity; the latter is a response to opportunity.

Companies favoring contingent workers over employees is a long-term trend that the recession accelerated, as researcher Steve King has written in Small Business Labs. Even as the economy recovers, we may continue to see people starting non-employer businesses out of necessity if unemployment remains high and businesses resist hiring back to pre-recession levels.

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