After the financial crisis, all forms of risk were treated like the plague: apparent, undefined, and necessary to avoid at all costs. Corporate leadership cut back on operational costs in response to one of the most massive demand shifts in modern history. With the actual meltdown in the rear view mirror, losses eventually leveled off, which paved the way for profitability and renewed growth. In spite of this, operational cutbacks remained in place, including massive contractions in the labor force that put many trained professionals out of work. Rising unemployment and excessive cutbacks were eventually supplanted by the expansion of the contingent workforce into industries that economically, are better served by full-time employees. Initially, this expansion was a means to identify vital roles from the labor excess of the 1990’s and early 2000’s. However, it evolved into a mechanism for industries to avoid taking the risks associated with making full-time employment commitments.
With time, these low-level investments reduce productivity, growth, and innovation, which negatively affects the balance sheets. This reflects the lack of risk that corporate leadership is taking with their employment practices. Corporate leadership has failed to understand that people drive business. With that in mind, human capital, by nature, is volatile and always at risk. Human behavior is often unpredictable. Thus, basing labor decisions on predictive analytics can be a risk to employers and employees alike. Employers need to that automation should be focused on facilitating risk management, rather than directly managing it.
By the Numbers: Labor Mechanics
Corporate risk-taking has hit an all-time low. As a result, incremental innovation has become the norm, leading to the increased subdivision of labor to support deeper specialization in products and services. Matching this to a financially inaccessible higher education system that has not kept pace with the rate of subdivision in labor, along with the ever-present skills gap, compounds the issue. Aberdeen research found that 79% of companies feel there is a critical skills shortage in their talent pipelines and 58% of organizations acknowledge this lack of quality candidates as their most significant challenge in talent management. With corporate risk-taking way down from an innovation standpoint and employers running aground when sourcing quality talent, risk-taking as a means to discover high-quality talent is at an all-time low. Enter the contingent workforce as a means to try out the labor market before committing to candidates.
The contingent workforce is made up of part-time, self-employed, and unlicensed employees, as well as contract company workers, agency temp workers, direct-hire temp workers, on-call workers, and day laborers. On paper, the contingent workforce costs less and involves less risk than full-time employees do. However, from an engagement standpoint, the contingent workforce feels less loyalty to the organization, which generally results in higher turnover for positions atypically associated with contract employment.
Figure 1: Rate of Change of Contingent Employment, Non-Contingent Employment, and Total Employment 2006–2015
Figure 2: Hiring Trajectory 2006–2015
The good news is that employers appear to be waking up to the engagement problem. Aberdeen research found that employers by and large recognize that engagement is a critical issue in terms of driving performance metrics beyond just managing a schedule. Looking at data from the US Bureau of Labor Statistics, the US Government Accountability Office, the United Nations International Labor Organization, and the American Staffing Association, the labor market has shown some interesting trends that support the focus on driving improved engagement.
Figure 1 shows the rate of change in general hiring and contingent hiring year over year from 2006 to 2015. The graph almost makes hiring look like an indicator of how uneven the value distribution is inside industry. Prior to the financial crisis, industries that were pressured to outsource were pushed to minimize their US domestic bottom line, while the services sector was not adequately picking up the slack in full-time employment. In Figure 1, this is represented in that the rate of employment of contingent labor was rapidly growing while the rate of change in full-time employment was decreasing.
The financial crisis presented an inversion. The rate of change in contingent labor peaked in 2008–09, while the rate of change for full-time hiring plateaued. Immediately afterward, the rate of change in contingent labor dropped, while full-time hiring began to pick up. Full-time hiring was initially slowed by the contraction in operational spending, as industry moved back to strategically identifying what roles were actually needed. 2010–11 presented an anomaly, where both contingent labor and full-time employment simultaneously experienced growth in their rates of change. In 2010–11, industrial growth was lopsided as the rate of IPOs slowed, and companies either went private or stayed private. Privatization confined investment capital to fewer, high-value investors who contributed to the growing trend of managing tighter risk-taking and slower, more acutely planned growth. For labor, this bifurcated the two types of hiring in that full-time hiring came back for required competencies, while contingent hiring expanded to cover the risk of expansion.
Post 2011, the market is finally showing early signs of righting the ship. Contingent hiring is starting to slow down, while full-time hiring is growing. Correlating this with Figure 2, the actual trajectory of hiring from 2006 to 2015 shows that contingent hiring hit its peak when full-time hiring hit its trough between 2009 and 2010. Contingent labor practices hit a peak in 2011, representing a lag with respect to the changing trajectory in full-time hiring. Nevertheless, it began to decrease as full-time hiring picked up from 2013 to 2015. This means that contingent hiring as a substitute for inclusive, full-time hiring is showing signs of decreasing.
What This Means for HCM
Do we count out contingent hiring? Not by a long shot. Nonetheless, vendors have a choice as to whether they are going to follow the market or recognize emerging trends and push the good ones. Full-time hiring is still growing with respect to required roles, but the decrease in contingent hiring is as related to the return of full-time hiring as it is related to a continued contraction in risk-taking on the part of industry. For HCM vendors, this means that they should be recognizing that they serve two markets:
- The base market that will always have a need for contingent employees
- The expansion market that has used contingent employment as a substitute for taking risks on full-time employees
Contingent workforce management vendors should structure themselves around the first market, while networking within the broader workforce management and talent management suites to provide additional capabilities in support of a diverse workforce. In other words, the messaging isn’t that the contingent workforce is growing, so you should favor a contingent workforce management solution over traditional HCM suites. Rather, it’s that contingent labor always has the potential to be a part of your workforce, especially if you look to manage the risk of expansion — so why not be prepared?