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August 1997, Vol. 120, No. 8
Many businesses are redefining the structure of their firms by moving toward flexible staffing. In these firms, persons who formerly were hired directly are being replaced with purchases of services. Such market-mediated arrangements could include outsourcing or contracting out of various functions, utilizing temporary workers, or even leasing an entire work force to meet all labor needs. To the extent that this is happening, some employment that, in the past, was counted in the industry of the business site is now being counted in the services industry. The result distorts time series and can lead to faulty analysis about job trends in an industry. This has been of particular concern in the manufacturing industries.
Much research has been done to explain the shift from direct hires of permanent workers to contingent workers. Flexible work arrangements have been used as a means to meet fluctuations in demand for the firms product, to supplement staff due to absences from work, and to reduce labor costs.1 Some studies indicate that firms purchase services to avoid unionism.2 Other studies cite increased competition and profit maximization as factors that lead to increased use of flexible staffing arrangements.3 Still others show that more companies are taking advantage of greater economies of scale achieved by service firms or the specialized skills they offer.4
This article focuses on business services and engineering and management services, two industry groups that provide flexible labor services and have been adding employees more rapidly than the overall U.S. nonfarm economy.5 (See table 1.) Occupational employment and output of these service industries, as well as inputs of business services and engineering and ma-nagement services to the production process of other industries, will be analyzed to see whether their trends provide information that might be of value in future research regarding the causal factors in the shift toward market-mediated work arrangements.
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1 See for example: Katharine G. Abraham, "Restructuring the Employment Relationship: The Growth of Market-Mediated Work Arrangements," in Katharine G. Abraham and Robert B. McKersie, eds., New Developments in the Labor Market: Toward a new Institutional paradigm (Cambridge, MA, The MIT Press, 1990); Katharine G. Abraham, Flexible staffing arrangements and employers short-term adjustment strategies, NBER Working Paper No. 2617 (Cambridge, MA, National Bureau of Economic Research, June 1988); Katharine G. Abraham and Susan K. Taylor, "Firms use of outside contractors: Theory and Evidence," Journal of labor Economics, July 1996, pp. 394424; Richard S. Belous, The Contingent Economy: The Growth of the Temporary, Part-Time and Subcontracted Workforce, (Washington, National Planning Association, 1989); Sharon R. Cohany, "Workers in alternative employment arrangements," Monthly Labor Review, October 1996, pp. 3145; Susan N. Houseman, "New institute survey on flexible staffing arrangements," Employment Research (W.E. Upjohn Institute), Spring 1997, pp. 14; Garth Mangum, Donald Mayall, and Kristin Nelson, "The temporary help industry: a response to the dual internal labor market," Industrial and Labor Relations Review, (Cornell University), July 1985, pp. 599611; and Lewis M. Segal and Daniel G. Sullivan, "The temporary labor force," Economic Perspectives (Federal Reserve Bank of Chicago), March/April 1995, pp. 219;
2 See Abraham, Flexible staffing arrangements; Belous, The Contingent Economy; and Thomas A. Kochan, Harry C. Katz, and Robert B. McKersie, The Transformation of American Industrial Relations (Basic Books, 1986).
3 See Belous, The Contingent Economy; Cohany, "Workers in alternative employment arrangements"; Audrey Freedman, Human Resources Outlook 1992, Report No. 985 (Washington, The Conference Board); and Mangum and others, "The temporary help industry."
4 See Abraham, "Restructuring the Employment Relationship"; Abraham and Taylor, "Firms use of outside contractors;" Cohany, "Workers in alternative employment"; Mangum and others, " The temporary help industry"; and Segal and Sullivan "The temporary labor force."
5 Standard Industrial Classification Manual, 1987 (Executive Office of the President, Office of Management and Budget, 1987). Industries are grouped according to standard industrial classification codes (SIC). Services is composed of all 2-digit industries from 70 through 89. Business services, major group 73, is composed of eight basic industries: Advertising (SIC 731); credit reporting and collection (SIC 732); mailing, reproduction, and stenographic services (SIC 733); services to buildings (SIC 734); miscellaneous equipment rental and leasing (SIC 735); personnel supply services (SIC 736); computer and data processing services (SIC 737); and miscellaneous business services (SIC 738). Engineering and management services, major group 87, is composed of four basic industries: engineering and architectural services (SIC 871); accounting, auditing, and bookkeeping services (SIC 872); research and testing services (SIC 873); and management and public relations services (SIC 874).
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