Theodore, Weber / SMALL MANUFACTURERS
short at least 20,000 people nationwide (Ackerman, 1997). Similarly, a National Association of Manufacturers’ survey of firms (Miller, 1998) with 500 or fewer employees reported that nearly 35% of 1,400 respondents cited “finding and keeping qualified employees” as their most serious problem (p. 13). In another recent survey (McGranahan, 1998), rural manufacturers reported that the “quality of available labor” was a major problem, especially among firms that paid below-aver- age wages (p. 6).
Shortages of qualified workers present challenges to large as well as small firms. Large firms, however, are better able to poach workers from their smaller competitors, suppliers, and customers. This practice is not new; larger companies have historically relied on their supplier bases as pools for new employees (Cappelli, 1999). The Big Three automakers, for example, commonly use their supplier bases to obtain trained and tested workers who can quickly be used in production or engi- neering operations (Smith, 1996). Employees often gain improved pay, benefits, and career ladders by re-employing with the Big Three.
The primary problem with this trickle-up arrangement is that smaller suppliers are stripped of their best workers. If they have invested time and resources in training, small companies may for- feit the benefits of this training to other firms (Lynch, 1993). As large customers move to replace their aging workers in the coming years, the raiding is likely to intensify and take place in faraway locales. Seattle-based Boeing, for example, recently sent recruiters to New England seeking machinists to help fill a $1.4 billion backlog in work orders. Allied Signal in Phoenix began recruit- ing in the Midwest after receiving complaints about poaching from several of its local parts suppli- ers (Siekman, 1998). Intensified poaching of workers has caused some smaller firms to move away from areas with concentrations of similar industries to regions with less labor market competition, such as rural areas and southern states (Kenney & Florida, 1993; Rubenstein, 1996; Smith, 1996).
Another way that hiring practices of manufacturers have changed in response to volatile product markets and labor shortages is the increased use of temporary staffing agencies (Cappelli et al., 1997; Peck & Theodore, 1998). Staffing agencies take on many of the responsibilities traditionally handled by human resource departments. These include recruitment, screening, hiring, payment of wages and benefits, and payment of employment taxes, such as unemployment insurance and workers’ compensation. Manufacturers may use temporary staffing agencies as a low-cost way to recruit for permanent employees, or more commonly, bring on workers who remain in temporary status for the duration of their employment. More than one third of temporary-help workers nation- wide are in the light-industrial sector of the economy, performing work as assemblers, hand pack- ers, and material movers in factories and warehouses (National Association of Temporary and Staffing Services [NATSS], 1999).
For most of the past 20 years, the use of part-time and temporary (what economists refer to as contingent) staffing arrangements in the United States has been viewed as an anomaly. Only recently has a consensus formed that contingent work is more than a short-run deviation from regu- lar business practices. Recent survey evidence indicates that contingent work has become institu- tionalized in the majority of U.S. businesses. According to the National Association of Temporary and Staffing Services, 90% of companies now use temporary help services (NATSS, 1999). A sur- vey by Olsten Corporation found that about 50% of manufacturers use blended workforces, employment systems designed to make use of temporary, outsourced, and part-time workers as well as independent contractors alongside full-time employees (“Fourty-nine percent of manufac- turers,” 1998).
The findings from several national employer surveys have shed light on many of the reasons behind the growing use of nonstandard employment arrangements (Blank, 1998; Houseman, 1999; Osterman, 1994, 1999). The most common reason why employers use temporary agencies is to staff peak periods or to handle short-term increases in demand for products or services. In addi- tion to managing workload fluctuations, employers hire temporary workers to fill in before a regu- lar employee is hired and to fill in for a regular employee who is ill, on vacation, or on family medical leave. The third most common reason why employers use contingent workers is to screen workers for regular jobs. But Houseman (1999) also found that a significant percentage of employ- ers use contingent workers on a more permanent basis to reduce wages and benefit costs across the board (see also Mangum, Mayall, & Nelson, 1985). Her survey revealed that the use of contingent
. . . contingent work is more than a short-run deviation from regular business practices. Recent survey evidence indicates that contingent work has become institutionalized in the majority of U.S. businesses.