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Temp Workers Driven Into Entrepreneurship

Posted by: John Tozzi on December 21, 2009

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.

Reader Comments

George Ronay

December 21, 2009 04:26 PM

Bingo. Having been laid off from a wine sales position last April, I joined forces with two other laid-off salesmen to form a "temporary-sales" agency for wineries - Initial responses to our concept have been very positive. You can lay off your sales staff - but you can't lay off the 50,000 cases of chardonnay still in your warehouse.

Carol Cross

December 21, 2009 04:33 PM

The "Temp Workers" scenario is not new and has always increased in the many recessions we have had in the last 30 years.

Franchising, also, grows in recessions when there are no good jobs to be had and franchisors, new and mature, take advantage of the subsidy of ineffective regulation to, themselves, survive in recessions.

The "working paper" provided by economists at the SBA's Office of Advocacy and George Mason University DOES AGAIN NOT separate out franchised small business establishments from independent small businesses when they talk about multi-unit employer establishments and job production and job loss.

The SBA appears to want to avoid an honest discussion about "small business" failure rates in any real terms that the Congress and prospective borrowers can understand.

The FTC, with the ineffective Franchise Rule, helps to obscure the failure rate of small businesses (said to be 50% at sometime within the first five years) from prospective franchisees and the SBA(?!

Our veterans and retired military are targets of the SBA Patriot Express Loan Initiative (2007) but will not be provided full disclosure of the risk of the investment because of the subsidy of the ineffective FTC Franchise Rule.

The Subsidy of BIG BUSINESS Franchising by the Federal Trade Commission Rule is again hidden in this SBA study that the SBA will use in preparing statistics to give to the policy makers in the Congress.

But, of course, nobody wants to take a good look at "franchising" and what this subsidy means to the the American peopple and to all of those prospects out there who will be "sucked into" buying a business of their own. (Read "Buying a Franchise! The Great Franchise Hoax -- A Business of Your Own" in a Google Search.

Domenick Celentano

December 21, 2009 05:31 PM

I have been wondering if the severity of the latest economic downturn has made some of the prior data used for analysis less relevant.

It is conceivable that after enough corporate upheavals, many people will take the route of "non employer" businesses. The internet and in particular Social Networking/Media makes this all the more feasible. Additionally many "employer" businesses (I love these new terms) are changing their business models to use more temps… their financial models depend on this.

Maybe it is time to take fresh look, shelve some of the data, take a six month hiatus and come back to see how things are really progressing.

Domenick Celentano
Silberman College of Business
Fairleigh Dickinson University


December 22, 2009 08:57 AM

I think this recession will have a lasting impact on workers. Rather a workforce it's clear that it's migrating to a flexiforce with many micro businesses being formed for temps and interims.

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What's it like to run your own company today? Entrepreneurs face multiple hurdles new and old, from raising capital and managing employees to keeping up with technology and competing in a global marketplace. In this blog, the Small Business channel's John Tozzi and Nick Leiber discuss the news, trends, and ideas that matter to small business owners. Follow them on Twitter @newentrepreneur.

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