I have been moving on the job market for quite a long time now: as an employee and as an employee in recruiting and HR consulting. And the longer I work here, I notice that there is a change or even a real shift on the job market, both internationally and in Germany. This was the reason for me to take a closer look at the topic and write down some reflections here. I have followed various sources - almost all of which can be found at the end of the article - and will provide an overview below.
The issue of temporary work/temporary employment itself is critical and does not like to be discussed publicly, neither by politicians nor by companies. Of course, the reasons for this are understandable: hardly any company likes to talk openly about the fact that it lacks qualified personnel and that there is budget pressure on all activities. Nevertheless, everyone knows about it, it is discussed behind closed doors, the phenomenon of temporary employment agencies as well as freelancers and temporary workers do not exist without good reason. In the following I will concentrate on Germany, which does not mean, however, that the topic is not also of great importance internationally.
Through digitalisation, automation, internationalisation, but also through fluctuations in the economy, the world of work is more exposed to change today than it was a generation ago. This applies to both employees and employers. In Germany, there are a number of other opportunities for companies to meet these challenges, either temporarily or long-term, in addition to traditional employment relationships with salaried employees.
The most widespread form of temporary employment is the hiring out of employees. Companies outsource tasks from their internal field and purchase resources from other companies, often temporary employment agencies, through service and work contracts.
Permanent staff, external employees - there are advantages and disadvantages for all sides. But how has the system of outsourcing developed in Germany in general?
The development in Germany
The first temporary employment agency in Germany was founded in Bremen in 1960. When the first Law on Temporary Employment (AÜG) was passed in 1972, the duration of the loan was still limited to three months. As part of Agenda 2010, the then Minister of Labour, Wolfgang Clement, abolished a number of regulations in the AÜG in 2003, which was intended to help make the labour market more flexible. While the number of temporary workers remained at roughly the same level between 2000 and 2003, the number of temporary workers almost tripled between 2003 and 2011 as a result of this change in the law. Overall, the situation has changed to a large extent since Agenda 2010.
Why do companies resort to external personnel?
There are many reasons why companies hire temporary employment and personnel service providers and include external personnel in their employee structures. Seasonal or cyclical fluctuations in order books can be one reason why companies bring in external workers during order peaks. If the volume of work decreases again, they can part with these people more quickly if necessary than would be the case with permanent employees.
Sick leave or maternity leave and parental leave are also often the reason why teams need to be strengthened at short notice and for a larger but limited period of time. Using a temporary employment agency is a practical solution.
For some companies, however, hiring a personnel service provider is a very holistic solution. The processes of procurement, deployment planning and administration of personnel are completely outsourced, so that even this department does not have to be staffed at all or only a few people are left to coordinate with the personnel service provider.
Increase of temporary employment agencies & freelancers
The landscape of temping agencies is vast, there is one for seemingly every industry, no matter how small, specialising in certain types of work, job levels and training backgrounds. In June 2018, there were almost 52,300 companies on the market in Germany that follow a temporary employment model, 11,700 of which operate on the basis of classic temporary employment contracts. All these companies employ just under 2% of the working population, i.e. 1.04 million people (moving annual average July 2017 to June 2018)). By comparison, in the UK, for example, temporary workers account for 5% of the total working population. In 2003, however, only 330,000 people in Germany were employed under the temporary employment model. These absolute figures thus show a tripling. The number of temporary employment agencies was also only 6950 in 2003, which means that it has almost doubled by 2017.
There is a strong dynamic in the temporary employment sector: In the first half of the year 777,000 new temporary employment contracts were concluded. However, this figure compares to another 776,000 temporary employment contracts that were terminated in the same period. Of the contracts existing in June 2018, only 32% had a duration of more than 18 months to date, and a good half of the employment contracts were for periods of between one and nine months.
The legal regulations with effect from 01.04.2017 state that, on the one hand, the equal pay principle must apply, i.e. the temporary worker must receive the same remuneration as the corresponding regular employee of the employment company. In addition, the maximum duration of the temporary employment contract was limited to 18 months. Whether this will ultimately lead to more temporary employment contracts being converted into permanent employment relationships or to more of these contracts being dismissed and even more of these contracts being created with a shorter duration of employment cannot be determined at this point in time. However, the increasing trend remains that many companies prefer to use external staff for as long as they can, rather than hire them themselves.
To a certain extent, freelancers (freelancers) can also be regarded as temporary workers, or at least as external employees. In case of acute need, i.e. often under time pressure and with a limited budget, a company hires a freelancer for a task, for a topic, who provides the agreed service at the negotiated conditions. However, the freelancer also bears the full social costs and the risk, e.g. in the event of premature termination of the cooperation, and not the company for which he/she performs the work. In this respect, it makes perfect sense to take a brief look at this group of workers too when we talk about shifts in the labour market.
At the beginning of 2019, 1.4 million freelancers were registered throughout Germany, which is an increase of 1.8% compared to the previous year. This is probably not only due to the fact that in our time people find it structurally attractive to generate and process work orders on their own responsibility and without a supervisor. As already described above, companies are moving away from the sole model of hiring employees on a permanent basis. The willingness of companies to distribute orders externally thus provides a good basis for many freelancers to secure their economic existence. In contrast to temporary workers, a large proportion of whom have little or no training, freelancers score points above all with their specialist knowledge and expertise, making them interesting for companies.
New developments in the temporary employment agency sector
In front of a personnel service provider like a temporary employment agency, which hoards unemployed people and then scatters them into different work assignments as required - that was the past. In the last twenty or so years or so, not only has the number of temporary employment agencies and personnel service providers increased enormously, but the range of the respective services and the way the companies function has also become increasingly diversified. Meanwhile, companies can fall back on new business-to-business solutions from their service provider, outsource entire business processes or e.g. project business (LINK) from their own structures. In this context, not only new service models have developed, but also new terminology. If the service provider handles the processes at the customer's site, this is called on-site management, for example. A service provider becomes a master vendor when he not only uses his own resources, but also includes personnel from other personnel service providers and coordinates all these employees.
Many personnel service providers have developed platforms on which their employees can participate inactively and, for example, select projects for their own deployment. In recent years, such platforms have also emerged for freelancers, which serve as a medium for placement, so that freelancers no longer have to advertise for themselves, but can access work orders via these platforms. Some personnel service providers are even pursuing a twin-track approach to the increased demand for qualified personnel among companies in recent years: one division uses the classic model of the external employee to provide personnel services, while the other division uses the freelancer for customer assignments.
The original idea of hiring out workers came from the USA to Europe and the rest of the world. Manpower, the first U.S.-based staffing services provider founded in 1948 and now the world's largest, had revenues of almost $22 billion in 2018. The USA is the world's largest contributor to the global turnover of the staffing industry with 31.1%. Second and third place are held by Great Britain and Japan with 11.6% and 10.1% respectively. This is followed by China and Germany with equal 8%, France with 4.7%, after which the figures fall steadily (figures from 2015).
Just as the industry has grown in Germany over the past 15 years, observers expect the growth to continue at a rapid pace. The forecast for the coming years cites sales of €35.1 billion in the current year, €37.2 billion in 2020 and €39.3 billion in 2021, which would mean growth of 10% between 2019 and 2021 alone. This forecast is based on the assumption that more jobs will be created in the temporary staffing industry - or even transferred from parent companies to the temporary staffing industry. What this means for the labour market as a whole remains to be seen.