“TEMPORARY STAFFING IN INDIA-SOME ISSUES AND ANALYSIS”

ARINDAM BHATTACHARJEE FACULTY: HR/OB INC: AIZAWL.

E-mail:abhatt2006@yahoo.co.in Abstract: Temporary Staffing still has the negative connotations of precarious employment, but there is also another side of the coin, namely the positive dimensions of flexibility; outside access; lower employment; greater employability and increased labor mobility. This article focuses on some of the vital aspects on temporary staffing and its relative presence in the Indian labor market. Introduction Temporary staffing is an integral part of labor markets.It is the new buzz word in today’s corporate world. Temping or Interim Staffing as a concept is more than a decade old. While in some countries, for years corporate have used to this to create flexibility in their knowledge and labor costs, in the Indian scenario this concept is still nascent. One therefore sees a large mindset gap between the Indian and International HR fraternity. Part reason for this gap is the ambiguous labor laws of our country. While a permanent, full-time job is still the norm, changing market dynamics, shrinking public sector job opportunities and negative employment elasticity in the agriculture sector has meant that “temporary

staffing” is fast gaining ground in India among corporate and employees alike.

Box: Temporary Staffing in a nutshell Temporary staffing is a contractual labor market arrangement based on a three-party relationship between the temping firm, client and employee: The Temp firm and Client sign a service level agreement (overlap 1), the Associate and Temp firm have an employment relationship (overlap 2), and the Associate provides services to the client (overlap 4). Temporary workers are employed by staffing companies and sent to work on specific projects or for specified periods of time with their clients (i.e. companies requiring temporary staff). The worker may move from one client site to another depending on the staffing company’s clients. The temporary staffing company is responsible for the salary and benefits of the temporary workers, while the staffing company in turn receives payment from the client. The staffing company is the employer of record though some countries also assign some responsibilities to clients for the temporary staff used. The staffing company assumes responsibility for a) employee payroll, b) benefits, and c) all compliance. The clients are often responsible for compliance with government regulations that are related to worksite supervision and safety. The relationship between the client/employer and the temporary company is captured in a Client Service Agreement (CSA). The CSA establishes a three-party relationship whereby the staffing company acts as the employer of the temporary employees who work at the client's location. Under the CSA, the temporary company assumes responsibility for personnel administration and compliance with most employment-related governmental regulations, while the client retains the employees' services in its business and remains the employer for various other purposes. The temporary company charges a comprehensive service fee, which is invoiced concurrently with the processing of payroll for the worksite employees of the client.

Source: “Temporary Staffing Services Profile” study by UNCTAD/WTO   : “Temporary Staffing Services Profile” study by UNCTAD/WTO

In Labor markets in developed countries, temporary staffing constitutes almost 10 per cent of the labor force. A study by Lawrence Katz of Harvard University and Alan Krueger at Princeton University found that temporary staffing was responsible for 50 per cent of the reduction in unemployment in the US in the nineties. Globally, temporary staffing solutions company has more than $ 200 billion in revenues and employ close to half a million corporate staff. On an average, these staffing companies create one permanent corporate staff position for every 50 workers placed on assignment.
Box: Advantage Temporary /Contingent/Flexible Workforce As contingent workers become an essential part of the total workforce, more companies are adopting an integrated supply chain approach that cuts costs and boosts flexibility. The SLEEPER DEAL’ of 2006 in workforce management was Nike Inc’s multimillion dollar three-year contract with Kelly services to manage all of Nike’s contingent workers in the US. Nike brings in 3700 temporary workers a year as part of its global workforce of 28000.The drivers behind use of temporary labors stem from the complexity of the business, cyclical needs and expansive growth. Companies like BMW use temporary labor to deliver a new line quickly, but they also use temporary labor to take over production on an old line while the core workforce moves over to a new production process.BMW like most European Cos has a long history of using substantial number of temporary labor. In Europe and Japan, higher levels of contingent work initially emerged as a response to rigid labor laws, but are now part of a broader corporate strategy to become more responsive to market changes. In Japan, the percentage of part time and contingent employees in the workforce hit a record 33.4 percent in the third quarter of 2006. MAU based in Augusta, Georgia specializes in temporary labor for manufactures. Almost half of its clients are in the auto industry, where workforce flexibility is essential.

Source: “Temporary Staffing Services Profile” study by UNCTAD/WTO  

Temporary Staffing in India: An Overview Organized flexi-staffing in India has only been around for a decade or so, but it is definitely emerging as a force to be reckoned with. While there are around 100,000 flexi-workers in employment today, it is anticipated that this market will grow to between 10 and 12 million within the next five years. And while currently the Indian flexi-staffing market is valued at US$135 million that is expected to grow to $600 million by 2008. It is the single largest segment among all services, with a latent market size estimated at $2 billion. Those growth rates reflect the fact that, in this highly technologically advanced age, jobs are transformed or created faster than you can hit the “refresh” button. With geographical borders dissolving and governments reducing restrictions on the movement of workforces, the labor market has undergone a redefinition. The enormous movement of work to Asia is widening the gap between work to be done and available skills. Movement of work to India will also mean more fragmentation of jobs and work. The share of organized players in the flexi-staffing industry is expected to rise to between 35% to 40% by early next decade. The total market, including both organized and unorganized recruitment, could grow by 35%, thereby creating around 1.1–1.6 million temporary jobs. The industries expected to create most flexi-jobs include BPO services, engineering and healthcare — all of them involving high-end skills. The estimated figures to support the impending growth of the flexi-staffing industry are staggering. With the temping mode in India having the potential to grow explosively and further add to the country’s anticipated GDP growth of 7% per annum. As of now, most flexi-workers in India are on the payrolls of staffing

companies, though in reality they work for companies across most sectors of industry, including IT & ITES, retail, telecom, healthcare and manufacturing. Till recently, temporary staffing, or temping, was treated with skepticism by the labor market in India. People entering the labor market looked for "permanent" jobs, preferably in the government. But with the substantial growth in some sectors of the economy, like banking financial services and insurance, or BFSI, telecommunications, and the ITES and BPO, temping as a concept appears to be finding traction.
Reasons why employers use temporary staff Match peaks in demand Cover for holidays/sick leave Perform one-off tasks Cover for maternity leave Specialist skills Trial for permanent work Reduce wage costs perce ntage 63% 59% 39% 38% 21% 20% 6%

Source: “Temporary Staffing Services Profile” study by UNCTAD/WTO , from the UNCTAD website

According to a survey, the key factors in choosing temporary employment were: Reasons why people choose a temporary job Could not find a permanent job Gain work experience Work between jobs Work for different employers Flexible schedule Be able to quite Work for a short period Source: Deloitte and Touché Survey, CIET(2000)

percentage

39% 26% 13% 07% 06% 05% 04% Total=100%

The Case of Temporary Staffing in India vs. the Labor Market The Coming Employment Explosion 1. Low employment elasticity of GDP India’s labor force growth of 2% a year needs 8 million new jobs just to keep unemployment frozen where it is. With an employment elasticity of GDP of 0.15 and an Incremental Capital output Ratio (ICOR) of 3.75, 8 million jobs need a sustained GDP growth of 13.6% and investments of $125 billion. These numbers are practically impossible and we will not have massive job creation unless we raise our employment elasticity of GDP. 2. Demographics and the growing youth India is the only country in the world growing younger and more than 60% of our unemployed are youth. Current labor laws are biased against first -time job seekers and we will have a social catastrophe if the youth are not channelized into productive and self-esteem creating employment. 3. End of public sector job machine Public sector employment forms the majority of organized, formal employment. However, with an informal freeze or heavy slow down on recruiting and a tight fiscal situation, this sector is shrinking.

4. Negative employment elasticity of agriculture The employment elasticity of GDP for agriculture is negative i.e. we could increase production by reducing the number of people employed. This represents massive underemployment due to the lack of alternative in rural areas and is not expected to change soon. 5. Labor saving bias of manufacturing The expectations of huge job creation from manufacturing are at odds with the labor saving bias and capital intensity of manufacturing of the last few years. For e.g. Bajaj Auto produced 2.4 million vehicles last year with 10,500 workers; in the early 90s they made 1 million vehicles with 24,000 workers. Also Tata motors made 311,500 vehicles with 21,000 workers in 2004; in 1999 it made 129,400 vehicles with 35,000 workers. 6. Inability to afford social security There are no formal social security benefits and India’s demographics and fiscal situation will not allow them in the future (even paying 26% of the population below the poverty line a social security benefit equaling 50% of the per capital income would need 13% of GDP; close to total tax receipts). The best and only viable social security is massive job creation. 7. Low skill Levels The percentage of the Indian labor force with skills/ vocational training is among the lowest in the world at 5.06%. Poor skills reduce worker productivity and also make them less likely to fit into the service/ knowledge economy. More than 40% of the labor force is illiterate and only 5% are estimated to have the vocational skills for credible employment.

India’s Employment Environment 1. Changed role of government: The process begun in 1990 of deregulation, privatization and liberalization which changed the economic and financial landscape but the assumptions underlying the labor regulatory regime has not been updated. 2. Unorganized employment explosion: Unorganized employment is to be 93% of workforce. The explosion of the unorganized sector is largely to avoid irrational labor legislation but comes at the expense of benefits of the formal economy; credit access, training, benefits, etc. From a public policy perspective, the formal sector is more desirable because it offers better working conditions, improves employability, pays taxes and has higher productivity. 3. Internal and External competition Indian industry grew up in a protected environment but global competition and technological uncertainty have changed their habitat. 4. Offshore Markets/ FDI The globalization of supply chains and increased foreign investment offers a unique opportunity for India but needs an enabling environment of relevant and flexible labor regulations.

5. Nature of job opportunities

A majority of new jobs in the next decade will be entry-level jobs in service and manufacturing. This fits well with our young population but current labor laws are stacked against first time job seekers. 6. Effective and incentivized HR industry Temp staffing companies are particularly economically incentivized to keep people at work since any gap or delays in matching candidates and jobs represents losses. Conclusion: The rapid growth of contingent labor represents the determination of companies to align the workforce with rapid changes in business conditions. For a significant part of opinion and policy makers, temporary staffing still has the negative connotations of precarious employment. But there is another side of the coin, namely the positive dimensions of flexibility; outside access, lower unemployment, greater employability and increased labor mobility. Current temporary staffing laws in India favors a vocal minority (largely not poor, middle-aged men in organized labor) against the majority (young, old poor, lower skilled women, unemployed, unorganized and self-employed). The temporary staffing companies address the flexibility needs of workers and companies and create jobs. India’s progress will not be worthwhile unless she offer the majority of her people the strength and self-esteem that comes with a job.

References:

1. Peck, Jamie and Nik Theodore. (2003). Tempted out? Industry Rhetoric, Labor
Regulation, and Economic Restructuring in the Temporary Staffing Business

2. Introduction to Management ;( 2005) Icfai Center for Management Research. 3. Segal, Lewis M Sullivan, Daniel G. (1995);”The Temporary Labor Force
Economic Perspectives” (March 1).

4. Vedior HR Portal, (2006) Flexi Staffing in India: Drivers and Benefits; March 1. 5. Gaurav Choudhury; Temporary Staffing gains Ground: Tribune News Service;
New Delhi; August 28

6. Werger, Jeffrey B. Kalleberg, Arnel ;( 2006) “Employer’s Flexibility and
Employment Volatility”: an analysis of the U.S. personnel supply industry, (1971-2000); The American Journal of Economics and Sociology’ Jan 4.

7. Camtel Temporary Workers in Revolt ;( 2007) All Africa Global Media, May 25. 8.
What 10, 2007. to expect when you work with a Recruiter;

http://www.americanstaffing.net / statistics /economic 2006.cfm, Thursday, May

9. Staffing Industry Data Exchange Standards (SIDES), website. 10. http://www.UNCTAD.com
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