Is temporary employment a leading indicator?
Temporary employees are typically “marginal” workers. They’re the first to be dismissed as business conditions deteriorate because they tend to have lower productivity than permanent employees, and the firing costs are lower as well. As demand for workers increases, it should follow that temporary workers are the last hired as well. But when the economic outlook is uncertain, the pattern is more likely to be an increase in hours worked by existing employees, the hiring of low marginal cost temporary workers and, as economic uncertainty diminishes, the addition of workers to permanent payrolls. In this scenario, temporary workers provide employers with additional workforce flexibility.
