U.S. businesses are hiring at a robust rate. The only problem is that three out of four of the nearly 1 million hires this year are part-time and many of the jobs are low-paid.
Faltering economic growth at home and abroad and concern that President Barack Obama's signature health care law will drive up business costs are behind the wariness about taking on full-time staff, executives at staffing and payroll firms say. Employers say part-timers offer them flexibility. If the economy picks up, they can quickly offer full-time work. If orders dry up, they know costs are under control. It also helps them to curb costs they might face under the Affordable Care Act, also known as Obamacare.
This can all become a less-than-virtuous cycle as new employees, who are mainly in lower wage businesses such as retail and food services, do not have the disposable income to drive demand for goods and services.
Employers say part-timers offer them flexibility. If the economy picks up, they can quickly offer full-time work. If orders dry up, they know costs are under control. It also helps them to curb costs they might face under the Affordable Care Act, also known as Obamacare.
This can all become a less-than-virtuous cycle as new employees, who are mainly in lower wage businesses such as retail and food services, do not have the disposable income to drive demand for goods and services.
healthcare coverage or incur penalties, was a frequently cited factor in requests for part-time workers. A decision to delay the mandate until 2015 has not made much of a difference in hiring decisions, they added.
"Us and other people are hiring part-time because we don't know what the costs are going to be to hire full-time," said Steven Raz, founder of Cornerstone Search Group, a staffing firm in Parsippany, N.J. "We are being cautious."
Raz said his company started seeing a rise in part-time positions in late 2012 and the trend gathered steam early this year. He estimates his firm has seen an increase of between 10 percent and 15 percent compared with last year.
Other staffing firms have also noted a shift.
"They have put some of the full-time positions on hold and are hiring part-time employees so they won't have to pay out the benefits," said Client Staffing Solutions' Darin Hovendick. "There is so much uncertainty. It's really tough to design a budget when you don't know the final cost involved."
Cautious strategy
The delay in the Obamacare employer mandate "confused people even further," said Bill Peppler, managing partner at Kavaliro, a technology staffing firm in Orlando, Fla. "When we talk to customers, I still don't think anyone has a handle on this."
Obamacare appears to be having the most impact on hiring decisions by small- and medium-sized businesses. Although small businesses account for a smaller share of the jobs in the economy, they are an important source of new employment.
Some businesses are holding their headcount below 50 and others are cutting back the work week to under 30 hours to avoid providing health insurance for employees, according to the staffing and payroll executives.
Under Obamacare, any employee working 30 hours or more is considered full-time. An effort to trim hours might have helped push the average work week down to a six-month low in July.
"As organizations and companies reduce the hours of part-time workers, they still have to replace the capacity, so they go out and hire additional part-time workers," said Philip Noftsinger, president of CBIZ Payroll in Roanoke, Virginia, which manages payroll for more than 5,000 small businesses.
Some large companies are also leaning more heavily on part-timers.
Wal-Mart Stores has been hiring more part-time workers, although it says the move is to ensure proper staffing when stores are busiest and is not an effort to cut costs.
Spokesman Kory Lundberg said the world's largest retailer promotes about 75,000 people from part-time to full-time work each year and is on track to do so again in 2013.
Similarly, a memo that leaked out from teen and young adult retailer Forever 21 last week showed it was reducing a number of full-time staff to positions where they will work no more than 29.5 hours a week, just under the Obamacare threshold.
In a statement, the company said the move will affect fewer than 1 percent of its U.S. store employees, and was taken to better align staffing with sales expectations—not to lower costs under the Affordable Care Act.
Some public school boards and local governments, including the city of Long Beach in California, are also cutting hours.
"The difference between 30 and 40 hours can be the difference between being able to make ends meet month-to-month," said Heidi Shierholz, a senior economist at the Economic Policy Institute in Washington.
"That contributes to reduced living standards for American families and translates into having less income to spend on goods and services, which holds back the economy."
Weak economy not helping
Obamacare is only one factor. The surge in part-time employment also reflects an economy that has struggled to maintain decent growth.
That has left business owners such as Jason Holstine, who owns a building supply store in Baltimore, Md., reluctant to take on full-time staff. Holstine said he was more concerned about budget policy in Washington than about Obamacare, given that federal government furloughs tied to across-the-board spending cuts led some of his clients to put home renovations on hold.
"We are still working in an environment that is very hard to forecast the near future and remains very cash-constrained," said Holstine. "We were always nimble, but we had to become more reactive. Using part-timers gives us more flexibility."
In a paper published last month, the San Francisco Federal Reserve Bank said uncertainty over fiscal and regulatory policy had left the U.S. unemployment rate 1.3 percentage points higher at the end of last year than it otherwise would have been. The jobless rate stood at 7.8 percent in December; it has since fallen to 7.4 percent.
"That's about 2 million jobs below where we should have been in 2012 because of policy uncertainty," said Keith Hall, a senior research fellow at George Mason University's Mercatus Center in Arlington, Va.
Economists and staffing companies are cautiously optimistic that part-time hiring and the low wages environment will fade away as the economy regains momentum, starting in the second half of this year and through 2014.
But businesses, accustomed to functioning with fewer workers, might not be in a hurry to change course. A study by financial analysis firm Sageworks found that profit per employee at privately held companies jumped to more than $18,000 in 2012 from about $14,000 in 2009.
"Private employers are either able to make more money with fewer employees or have been able to make more money without hiring additional employees," said Sageworks analyst Libby Bierman. "The lesson learned for businesses during the recession was to have lean operations."