Private employment services contribution to more efficient labour markets. James Gribben, Ciett Communications and Economic Affairs Advisor

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1 Private employment services contribution to more efficient labour markets James Gribben, Ciett Communications and Economic Affairs Advisor

2 Ciett at a glance Founded in 1967 Gathers 176, branches and employ more than 1 million agency (TES) workers on a daily average (FTEs) Only association representing agency work: - at large (brings together 49 countries) - in its diversity (uniting 9 of the largest multinational staffing companies as well as hundreds of thousands of SMEs) Recognised as such by international organisations (e.g. ILO, European Union, OECD), key stakeholders (e.g. IOE, BusinessEurope, ITUC) and national governments Represents the full spectrum of HR services: temporary agency work, recruitment, interim management, executive search, outplacement, training

3 Key messages of Adapting to Change The world is undergoing fundamental structural shifts Globalization Volatility Demographic evolution Sectoral shifts New attitudes to work This brings a new set of challenges to the labour market Persistent high level of unemployment Stronger segmentation of the labour market Increasing mismatch between supply and demand of skills Unpredictability and lack of visibility New forms of labour contractual arrangements not well regulated nor organised The role of labour market intermediaries to enable change is crucial Private employment services industry offers solutions to these challenges Source: Ciett RfP, BCG/Ciett discussion

4 Rise in firm instability clearly visible Expectations-based Fundamental-based Market cap volatility Revenue volatility Operating margin volatility 5-year firm mkt cap growth volatility (%) year firm revenue growth volatility (%) year firm op margin volatility (%) Increase vs % 26% 5% 1. Weighted average across all firms, based on market cap 2. Weighted average across all firms, based on revenue Note: Based on all public U.S. companies

5 1 Adaptation to change Providing flexibility is main reason of use of PrES Main reasons to make greater use of AW Can respond quicker to business demands 76% Desire for greater flexibility 65% Can try out potential permanent hire 52% Desire to keep fixed cost low 35% Uncertainty over payroll taxes 9% Uncertainty over medical costs 4% Other 4% Besides the overarching topic of flexibility companies also use AW to hire permanent staff (extended trial period) (%) Source: Morgan Stanley Research (interviews with HR managers in the US and Europe)

6 1 Adaptation to change Companies using agency work accelerate faster out of downturn Germany: higher revenue growth when agency work is used Revenue growth 9 1 Using AW Not using AW 11% 11% 6% 7% 13% 1% 1% 5% 7% 5% 15% 8% 8% 5% 16% 1% 13% 6% 11% 6% Small (< 5 employees) Medium and large (> 5 employees) Industry Service 1 No export activities With export activities No R&D spendings < 5% of revenue > 5% of revenue TOTAL Company size Sector Export activity R&D expenditures Ability to react quickly results in higher revenue growth 1. Including construction and other sectors Source: IW Consult GmbH study "Zeitarbeit in Deutschland" 11

7 1 Adaptation to change Agency work a key lever in creating flexibility Critical to managing seasonality and economic cyclicality as well as allowing flexibility for workers who need it, i.e. sick or maternity leave Share of companies using AW to absorb activity fluctuations (%, 9) % of companies are using AW to deal with fluctuations e.g. in demand Ø 76 Share of companies using AW to replace absent permanent staff (%, 9) Half of companies temporarily replace absent permanent staff with the help of AW Ø 49 4 Netherlands Germany Switzerland Sweden Netherlands Sweden Germany Switzerland Source: Ciett national reports

8 2 Reducing structural & frictional unemployment Agency work ensures job creation Most companies would not have created jobs without agency work Alternatives to agency work Conclusions % of responses (total = 11) % 54% 8% No job creation 62% 12% No substitution 74% 26% 74% of companies do not consider hiring permanent workers an alternative to agency work In 62% of the cases there would be no jobs created: companies chose internal flexibility or not to do the work Total Internal flexibility Not do the work Other external flexibility solution Hire permanent workers Source: User organization survey, BCG analysis

9 2 Reducing structural & frictional unemployment Agency work helped reduce unemployment in Italy Regulatory changes in favor of AW and their positive impact on the level of unemployment Unemployment rate (%) 15 AW penetration rate (%) 1.5 Unemployment rate TAW penetration rate Legal recognition of AW in Italy Regulatory changes in favor of AW Unemployment rate started to decline right after introduction of agency work work Source: OECD, Ciett national reports, GiGroup

10 1/1991 3/1991 1/1992 3/1992 1/1993 3/1993 1/1994 3/1994 1/1995 3/1995 1/1996 3/1996 1/1997 3/1997 1/1998 3/1998 1/1999 3/1999 1/ 3/1 1/1 3/9 1/9 3/8 1/8 3/7 1/7 3/6 1/6 3/5 1/5 3/4 1/4 3/3 1/3 3/2 1/2 3/1 1/1 3/ PrES allow lower level of GDP growth needed to create jobs Analysis of longer time series for Belgium GDP / employment year-on-year growth (quarterly, %) 1 5 AW year-on-year growth (quarterly, %) 4 GDP AW Employment Employment recovery AW recovery -4 Note: GDP YoY growth figures for 1995 estimated Source: federgon Agency work performs in line with GDP and starts significantly ahead of total employment

11 3 Driving down segmentation The diversity of agency workers profiles increases labour market participation Students Workers reentering the labour market Workers looking for a permanent job First time entrants Flex Professionals Senior workers (make money to fund studies and/or vacations) (work as temps after period of unemployment/ maternity leave) (Second best choice but see AW a stepping stone) (enter the labour market and gain first work experience) (not looking for a permanent contract) (remain employed to get additional incomes)

12 2 Reducing structural & frictional unemployment Agency workers in South Africa are predominantly young 1% 9% 8% 7% 6% 5% 4% 3% % > < 21 1% %

13 Agency work provides needed opportunity for young people 6% Percentage of young people (<25) in 9 5% 49% 47% 4% 4% 37% 33% 3% 29% 26% 25% 24% % 1% 15% 16% 13% 7% 6% 9% 1% 9% 11% % South Africa Netherlands Switzerland Belgium Italy France Sweden Poland Germany TAW Employed Population Agency workers under 25 years strongly overrepresented in agency work vs. total labour market in all countries Source: Ciett national reports, Euromonitor, ILO Kilm

14 3 Driving down segmentation Agency work provides a stepping stone into employment Bringing people into employment reduces the segmentation of the labour market 5% 7% 11% 66% 59% 45% 68% 65% 16% 65% 34% 85% 47% 71% Population (%) 1 5 Temporary agency worker Employed fixed-term Employed open-ended Czech Republic France Netherlands 1 Norway Sweden 1 Switzerland % working before AW % working after AW Other Student Previous situation of Aworkers Post situation of Aworkers Unemployed Inactive Note: 1 data if not otherwise stated 1. 9 data Source: Ciett national reports 9, 1

15 15% working 61% working 2 Reducing structural & frictional unemployment Stepping stone effect also applies in South Africa South Africa 9 Findings % 1 8 Other Unemployed Student Inactive Temporary agency worker Employed fixed-term Employed open-ended If you are employed as an agency workers, you are more likely to have an open ended contract than still be an agency worker on year later. Situation before Agency work was 15% employment 6 One year after beginning as agency worker 61% are in employment 4 Source: APSO Previous Situation of Aworkers Post situation of Aworkers

16 3 Driving down segmentation Stepping stone effect largely recognised Is AW effective to find a first job? Is AW effective to find a permanent job? % of respondents agreeing with the statement, 1 1% 92% 86% 85% 84% 82% 8% 8% 71% 59% 6% 4% % of respondents agreeing with the statement, 1 1% 9% 78% 8% 77% 69% 61% 6% 52% 43% 4% 4% % % % UK BE PL FR ES NL IT DE % UK NL PL BE FR ES DE IT Note: AW agency work Source: Regards croisés sur l intérim, l Observatoire des Métiers et de l Emploi, July 1 High perceived value of AW both to get into the labour market and find a full-time job

17 5 Providing decent work Reduction in illegal economy correlates with increase in AW Increase in illegal economy, decrease in AW in 9 dues to the crisis Changes in the level of illegal activity correspond with changes of AW levels European average 1 % Illegal economy % AW % Illegal economy 2 19 % AW 3 2. Germany UK / Ireland Illegal economy AW penetration : Average of 16 countries, for full list see appendix 2. Measured as % of total GDP 3. AW penetration Note: Two year averages for 1997/98, 1999/, and 1/2 Source: Prof. Dr. Friedrich Schneider, Department of Economics, Johannes Kepler University of Linz, 1

18 5 Providing decent work Agency work contributes to the fight against undeclared work Countries with high agency work have lower levels of illegal economic activity TAW penetration (% of workforce) 5 4 United Kingdom R 2 =.41 3 Netherlands 2 1 U.S.A. Austria Switzerland Japan France Germany Ireland Sweden Finland Norway Denmark Belgium Portugal Spain Italy Greece 25 Illegal economy (% of GDP) 1 1. Calculated using the currency demand approach and the MIMIC method; for more information see "The Influence of the economic crisis on the underground economy in Germany and the other OECD-countries in 1: a (further) increase" by Dr. Friedrich Schneider Note: 8 figures used in order to remove impact of crisis Source: Prof. Dr. Friedrich Schneider, Department of Economics, Johannes Kepler University of Linz, 1

19 5 Providing decent work A sector committed to social dialogue Countries/ EUROPE AW sector AW company (own staff) User companies Austria Belgium Denmark Finland France Germany Ireland Italy Luxembourg Macedonia Netherlands Norway Poland Portugal Spain Sweden Switzerland UK ( ) Countries/ Rest of World Argentina Source: Eurofound & Ciett Crosssectoral Crosssectoral AW sector AW company User companies Australia Brazil Chile Colombia Japan 4 New Zealand ( ) Mexico Peru South Africa Notes 1) in the UK, cross-sectoral level refers to a single agreement between CBI and TUC rather than to collective bargaining as such. 2) Collective agreements are not allowed for agency workers (.123 law, art. 34 & 35). 3) There are no CLAs in these countries 1) in Japan, AW sector refers to a single agreement between Rengo and JASSA rather than to collective bargaining as such.

20 6 Need for appropriate regulation Key dimensions of PrES Regulatory Efficiency Index Assesses degrees of flexibility to operate and security for workers A Right of establishment 1. Legal recognition of the triangular work relationship in all countries 2. No limitation of services to be delivered (real private employment agencies) 3. No unjustified and disproportionate barriers to enter the market A B B Right to provide services/ to contract 4. Ability to offer the full range of labour contracts (no limitations or restrictions) 5. Removal of key restrictions on the use of AW 1 C Right to negotiate/social protection 6. AW recognized as a sector on its own 7. Ability to implement social protection for agency workers that can be capitalized and portable C D D Right to contribute to labour policies 8. Access to training for agency workers to be as broad and easy as possible 9. Existence of public-private partnerships in terms of employment services 1.PrES are committed and involved in the fight against illegal practices and unethical agencies 1. Sectoral bans, caps on number of agency workers, reasons of use, maximum length of assignment, obligations to consult trade unions, renewals Source: Ciett, BCG analysis

21 Netherlands Sweden United States Denmark United Kingdom Australia Belgium New Zealand Norway Germany France Austria Japan Poland South Africa Italy Hungary Mexico Switzerland Ireland Spain Slovenia Luxembourg Lithuania Czech Republic Greece Chile Argentina Estonia Turkey 6 Need for appropriate regulation Results of regulatory efficiency index Significant differences between countries PrES Regulatory Index score Right to: Contribute to labour market policies Negotiate and social protection Provide services and to contract Establishment Ø 65 Note: Further clarification outstanding for Eastern European countries Source: National federations, BCG analysis

22 6 Need for appropriate regulation 4 main types of environment where PrES operate Important sub-groups based on nuances of social systems Market type Countries Cluster characteristics 1 Market driven Europe Non-Europe UK, Ireland US, Australia, New Zealand Rapid AW development, with appreciable drop-off in the crisis Open regulatory environment with limited restrictions Liberal economies favoring flexibility over security 2 Social dialogue based Western Europe Nordics Netherlands Switzerland, Austria, Germany Sweden, Norway, Denmark, Finland Significant degree of AW penetration in relatively mature markets Moderately regulated, varying balances of flexibility and security Labor market organized and regulated by collective agreements between social partners Historically low AW penetration and slow industry development Unique Nordic social and economic system Asia Japan Generally liberal economies but high value on security and social acceptance challenges 3 4 Legislator driven Emerging markets Western Europe Mediterranean Eastern Europe Lat Am Asia France, Belgium, Luxembourg Italy, Greece, Spain, Portugal, South Africa Eastern Europe Latin America India, China Penetration depending on level of industry development, ranging from below to above average Highly regulated, weighted towards job security over flexibility Historically labor markets with high unemployment relative to Social dialogue peers Nascent industries with AW legally recognised only recently Regulatory policies still in development Economic policies and market dynamics still evolving

23 Switzerland New Zealand Luxembourg Poland Norway Denmark Australia Netherlands Canada Japan Sweden UK Austria USA Finland Germany Czech Republic Mexico Slovenia Portugal Greece France Belgium Slovakia Italy Spain Chile Hungary 6 Need for appropriate regulation Labor markets performance is related to country clusters Labor Market Efficiency Index Market driven Mean Social dialogue based Legislator driven Emerging markets See appendix for methodology discussion Source: OECD, Eurostat

24 Right level of regulation allows AW to contribute to labour market Clear correlation between AW penetration and Regulatory Efficiency Index score AW penetration rate 1 1 (%) 4 UK 2 France Germany Belgium USA Netherlands R 2 =.42 Switzerland Japan Austria Sweden Legislator driven 1 Czech Republic Chile Argentina Greece Spain Slovenia Italy Hungary Poland Norway Denmark Social dialogue - CE Social dialogue - Nordics Social dialogue - Asia Emerging markets Market driven PrES Regulatory Efficiency Index High correlation also within clusters representing different stages of maturity 1. Only 9 data available for Norway, Hungary, Slovenia, Greece, Austria, Czech Republic, Chile, Denmark Note: No penetration rates available for NZ, MX, TR, AU, EE and LT; Not included in correlation due to exceptional situation or data issues: ZA, IE and LU Source: National federations, BCG analysis

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