Shyamal Majumdar: Temporary jobs, lasting solution

THE HUMAN FACTOR

The largest private sector employer in the world is not a manufacturing giant or a multinational conglomerate, but a US-based staffing company, Manpower Inc, which employs 1.6 million temporary workers at its 3,900 offices, across the world.

Staffing companies typically employ temporary workers and send them to work on specific projects with companies who require temporary staff.

For instance, if a company needs extra accountants to help with the year-end audit, or if a retailer wants extra sales staff to cope with the peak selling season, they contact a temporary staffing agency, which will send suitable candidates to the client for the duration of the project. The worker moves from one client site to another.

According to a detailed study done by TeamLease, the staffing industry has created more jobs than any other industry in the US, accounting for one-sixth of the 13 million jobs created by the top 20 industries in the past decade.

Globally, more than 5 million people are employed as temporary workers by thousands of staffing agencies, which have a total annual turnover of around $ 140 billion, Of this, 52 per cent is accounted for by the US, 39 per cent by the European Union, 5 per cent by Japan, and 4 per cent by all other countries put together.

It's a pity that India's share in this is abysmal. According to independent estimates, Indian companies would hire at least 14 million temporary workers (3 per cent of the workforce) by 2008, if the laws are made flexible.

At present, the labour laws, mainly the Contract Labour (Regulation & Abolition) Act, prevent companies from outsourcing most core functions, or hiring workers on temporary contracts for more than 120 days. This means contract workers employed for more than 120 days would be entitled to permanent jobs with the company.

The impact is huge: the law restricts companies' ability to focus on core competencies by outsourcing non-core functions. Which is why studies like the one done by TeamLease has suggested that companies must be free to hire workers on temporary employment contracts, regardless of the duration of the contract.

In either circumstance, companies must not be compelled to provide permanent employment to workers hired indirectly through outsourcing or temporary contracts.

Consider the benefits: apart from helping companies respond better to the changing market conditions and creating more jobs, temporary staffing shifts employment from the unorganised sector to the organised sector.

This is important for India where the share of the organised employment in the total employment has fallen continuously to around 7 per cent in the late 1990s from around 8 per cent in the early 1980s. Private-sector organised jobs have stagnated at 8 million (2 per cent of the total) for decades.

As employees of a large staffing agency, temporary workers generally get better pay and benefits than they would have received as employees of a small-scale outsourcing supplier.

In effect, the workers get the benefit of being hired by a staffing company in the organised sector and allocated to various projects at the clients' locations, rather than working directly with smaller unorganised sector companies that outsource such work from the clients.

Also, temporary staff are hired even when the market is bad. Companies are reluctant to hire full-time employees during periods of market uncertainty, in order to minimise salary expenses as well as to avoid difficulties in terminating workers if the market declines.

By encouraging recruitments when market conditions are uncertain, temporary staffing helps workers get jobs, and companies to expand their headcount.

Data from several countries across the world would prove this. For example, in the US, the manufacturing sector is estimated to have hired only 0.57 million full-time employees between 1992 and 1997, while another 0.5 million temporary jobs were created in the same period, taking the total job creation in manufacturing to 1.07 million.

According to the US-based Employment Policies Institute, if temporary jobs had not existed, manufacturers would not have hired so aggressively, and production would have been lower by almost one-seventh between 1991 and 1997.

Or, take the example of Spain, which had one of the highest rates of unemployment in Europe, and responded by permitting temporary employment contracts.

As a result, Spain has been able to reduce by half its unemployment rate from 20 per cent-plus in the 1980s. Much of the newly-created jobs are for temporary workers, with the result that 33 per cent of the workforce in Spain are on temporary contracts, among the highest in the world.

Common sense suggests the temporary and contract staffing industry in India needs to be encouraged to provide better jobs for workers and to help companies operate flexibly. And the only way to do that is to amend the Contract Labour Act.