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Private employment services’ contribution to more efficient labour markets James Gribben, Ciett Communications and Economic Affairs Advisor 0 Ciett at a glance • Founded in 1967 • Gathers 176,000 branches and employ more than 10 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 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 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 (%)1 5-year firm revenue growth volatility (%)2 5-year firm op margin volatility (%)2 60 25 4 50 20 3 40 15 2 30 10 20 5 1 1960 1970 1980 1990 2000 2010 1960 1970 1980 1990 2000 2010 1960 1970 1980 1990 2000 2010 Increase 1990-2010 vs. 1960-1979 32% 26% 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 50% 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% 0 20 40 60 80 (%) Besides the overarching topic of flexibility companies also use AW to hire permanent staff (extended trial period) Source: Morgan Stanley Research (interviews with 200 HR managers in the US and Europe) 1 Adaptation to change Companies using agency work accelerate faster out of downturn Germany: higher revenue growth when agency work is used Revenue growth 2009 – 2010 20 Using AW Not using AW 16% 15% 15 13% 13% 11% 11% 11% 10% 10 10% 10% 8% 6% 7% 8% 7% 5% 5% Service1 No export activities 5 6% 6% > 5% of revenue TOTAL 5% 0 Small (< 50 Medium and employees) large (> 50 employees) Company size Industry Sector With export activities Export activity No R&D spendings < 5% of revenue 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" 2011 1 Adaptation to change Agency work a key lever in creating flexibility Critical to managing seasonality and economic cyclicality ... Share of companies using AW to absorb activity fluctuations (%, 2009) 100 100 ... as well as allowing flexibility for workers who need it, i.e. sick or maternity leave 75% of companies are using AW to deal with fluctuations e.g. in demand Share of companies using AW to replace absent permanent staff (%, 2009) 80 87 65 80 Ø 76 69 60 49 60 49 Half of companies temporarily replace absent permanent staff with the help of AW 46 40 Ø 49 35 40 20 20 0 0 Netherlands Source: Ciett national reports Germany Switzerland Sweden Netherlands Sweden Germany Switzerland 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 = 101) 100 80 No job creation 54% 62% 60 100% No substitution 74% 8% 40 12% 20 26% 0 Total Internal flexibility Source: User organization survey, BCG analysis Not do the work Other external Hire permanent flexibility solution workers • 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 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 (%) AW penetration rate (%) 15 1.5 Unemployment rate TAW penetration rate Legal recognition of AW in Italy 1.0 10 0.5 5 0.0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Unemployment rate started to decline right after introduction of agency work work Source: OECD, Ciett national reports, GiGroup Regulatory changes in favor of AW 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, %) AW year-on-year growth (quarterly, %) 10 40 GDP AW Employment 5 20 0 0 -5 -20 Employment recovery AW recovery -40 01/1991 03/1991 01/1992 03/1992 01/1993 03/1993 01/1994 03/1994 01/1995 03/1995 01/1996 03/1996 01/1997 03/1997 01/1998 03/1998 01/1999 03/1999 01/2000 03/2000 01/2001 03/2001 01/2002 03/2002 01/2003 03/2003 01/2004 03/2004 01/2005 03/2005 01/2006 03/2006 01/2007 03/2007 01/2008 03/2008 01/2009 03/2009 01/2010 03/2010 -10 Agency work performs in line with GDP and starts significantly ahead of total employment Note: GDP YoY growth figures for 1995 estimated Source: federgon 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 (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) Senior workers (remain employed to get additional incomes) 2 Reducing structural & frictional unemployment Agency workers in South Africa are predominantly young Agency work provides needed opportunity for young people 60% Percentage of young people (<25) in 2009 50% 49% 47% 40% 40% 37% 33% 29% 30% 26% 25% 24% 20% 15% 16% 13% 9% 10% 7% 10% 11% 9% 6% 0% South Africa Netherlands Switzerland Belgium TAW Italy France Sweden 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 Poland Germany Driving down segmentation Agency work provides a stepping stone into employment Bringing people into employment reduces the segmentation of the labour market Population (%) 85% 65% Temporary agency worker Employed fixed-term 34% 47% 68% 16% 11% 66% 59% 50 70% 71% 100 50% Employed open-ended 0 France Netherlands1 % working before AW Previous situation of Aworkers Note: 2010 data if not otherwise stated 1. 2009 data Source: Ciett national reports 2009, 2010 Norway Sweden1 Switzerland % working after AW 65% Czech Republic 45% 3 Post situation of Aworkers Other Student Unemployed Inactive Reducing structural & frictional unemployment Stepping stone effect also applies in South Africa South Africa 2009 Other Temporary agency worker Unemployed Employed fixed-term Student Employed open-ended Findings • 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 • One year after beginning as agency worker 61% are in employment Inactive % 100 80 61% working 60 40 15% working 2 20 0 Previous Situation of Aworkers Source: APSO Post situation of Aworkers 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, 2010 % of respondents agreeing with the statement, 2010 100% 100% 92% 86% 85% 84% 82% 80% 80% 78% 80% 71% 77% 69% 59% 60% 90% 61% 60% 40% 40% 20% 20% 0% 52% 43% 40% DE IT 0% UK BE PL FR ES NL IT DE UK NL PL High perceived value of AW both to get into the labour market and find a full-time job Note: AW – agency work Source: Regards croisés sur l’intérim, l’Observatoire des Métiers et de l’Emploi, July 2010 BE FR ES 5 Providing decent work Reduction in illegal economy correlates with increase in AW Increase in illegal economy, decrease in AW in 2009 dues to the crisis Changes in the level of illegal activity ... ... correspond with changes of AW levels European average1 % Illegal economy 18 % Illegal economy2 % 19 AW 3 2.0 % AW 3 2 Germany 16 1 18 1.5 14 0 16 5 14 4 12 3 10 2 17 UK 16 1.0 18 15 14 1999/00 2003 Illegal economy 2005 2007 0.5 2009 AW penetration 1: 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, 1999/00, and 01/02 Source: Prof. Dr. Friedrich Schneider, Department of Economics, Johannes Kepler University of Linz, 2010 18 2 16 1.5 14 1.0 12 0.5 Ireland 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 R2 = 0.41 United Kingdom 4 3 Netherlands Japan 2 U.S.A. France Belgium Germany Austria Ireland Switzerland Finland 1 Sweden Norway Portugal Italy Spain Denmark Greece 0 5 10 15 20 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 2010: a (further) increase" by Dr. Friedrich Schneider Note: 2008 figures used in order to remove impact of crisis Source: Prof. Dr. Friedrich Schneider, Department of Economics, Johannes Kepler University of Linz, 2010 5 Providing decent work A sector committed to social dialogue Countries/ EUROPE Crosssectoral AW sector AW company (own staff) Austria Countries/ Rest of World Crosssectoral Denmark Finland Brazil France Chile2 Germany Colombia3 Japan4 New Zealand Italy Luxembourg Macedonia Netherlands Norway Poland Spain Switzerland UK - - - - - - - - () Peru3 - - - - South Africa - - - Portugal Sweden User companies Australia Mexico AW company Ireland AW sector Argentina Belgium User companies () 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 (20.123 law, art. 304 & 305). 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. Source: Eurofound & Ciett 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 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 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 AW1 A B 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 10.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 Need for appropriate regulation Results of regulatory efficiency index Significant differences between countries Right to: Contribute to labour market policies PrES Regulatory Index score 100 Provide services and to contract 89 80 60 40 20 Negotiate and social protection 93 30 86 85 83 27 24 19 20 Establishment 80 79 76 76 76 76 75 74 73 69 67 66 63 16 21 24 59 58 57 22 14 57 56 10 19 54 20 15 21 15 9 20 18 9 18 10 49 18 15 13 13 15 46 45 13 17 13 20 17 18 8 11 15 10 6 4 41 3 7 20 38 17 3 18 18 18 6 14 14 3 20 13 13 17 17 17 11 15 3 8 18 14 12 10 15 18 10 15 16 8 13 12 8 8 8 6 12 11 11 4 14 23 24 19 15 27 30 30 27 30 30 27 25 30 30 23 23 27 27 30 23 27 27 23 23 27 17 Ø 65 14 20 22 23 20 20 20 18 3 8 Note: Further clarification outstanding for Eastern European countries Source: National federations, BCG analysis Turkey Estonia Argentina Chile Greece Czech Republic Lithuania Luxembourg Slovenia Spain Ireland Switzerland Mexico Hungary Italy South Africa Poland Japan Austria France Germany Norway New Zealand Belgium Australia United Kingdom Denmark United States Sweden 0 Netherlands 6 2 6 Need for appropriate regulation 4 main types of environment where PrES operate Important sub-groups based on nuances of social systems Market type 1 Countries Europe Market driven Non-Europe 2 Social dialogue based Legislator driven 4 Emerging markets • 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 Western Europe • Netherlands • Switzerland, Austria, Germany • 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 Nordics • Sweden, Norway, Denmark, Finland • Historically low AW penetration and slow industry development • Unique Nordic social and economic system • Japan • Generally liberal economies but high value on security and social acceptance challenges Asia 3 • UK, Ireland Cluster characteristics Western Europe Mediterranean • France, Belgium, Luxembourg • Italy, Greece, Spain, Portugal, South Africa Eastern Europe • Eastern Europe Lat Am • Latin America Asia • 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 Need for appropriate regulation Labor markets performance is related to country clusters Labor Market Efficiency Index1 1.5 1.3 Market driven Social dialogue based Mean 1.0 0.9 0.8 0.8 0.7 Legislator driven 0.7 Emerging markets 0.5 0.5 0.5 0.5 0.4 0.3 0.2 0.1 0.1 0.0 -0.1 -0.1 -0.2 -0.2 -0.4 -0.4 -0.5 -0.6 -0.6 -1.0 Hungary Chile Spain Italy Belgium Poland France Luxembourg Greece Portugal Slovenia Mexico Czech Republic Germany Finland USA Austria UK Sweden Japan Canada Netherlands Australia Denmark Norway New Zealand 1. See appendix for methodology discussion Source: OECD, Eurostat -0.9 -0.9 -0.9 -0.9 Slovakia -0.8 -1.0 Switzerland 6 Right level of regulation allows AW to contribute to labour market Clear correlation between AW penetration and Regulatory Efficiency Index score AW penetration rate 20101 (%) 4 UK Netherlands R2 = 0.42 Germany 2 France Switzerland Japan Belgium Austria USA Legislator driven Sweden Social dialogue - CE 1 Spain Czech Republic Argentina 40 Norway Hungary Poland Chile 0 Italy Social dialogue - Nordics Denmark Social dialogue - Asia Emerging markets Slovenia Market driven Greece 50 60 70 80 90 100 PrES Regulatory Efficiency Index High correlation also within clusters representing different stages of maturity 1. Only 2009 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 Our global pledges to better labour markets Thanks! Questions? More info at: www.ciett.org [email protected]