May data show employers are hanging on to contract workers since they remain wary of bringing on full-timers.

The good news for unemployed Americans is that companies seem poised to begin hiring. The bad news is that these are likely to be temporary jobs, often without health care and other benefits.

In a recession, contract workers are often the first to go. But often, they’re the first to be hired back, because in an uncertain environment, employers want to be flexible.

“I think it’s coming,” said Gary Chaison, professor of industrial relations at Clark University in Worcester, Mass. “We might be at the trough of the recession, and we might be heading into a time of large-scale hiring of contract workers.”

Since November, employers—reacting to the economic meltdown—have been shedding temporary workers at an alarming pace. The number of U.S. temporary help services workers dropped by 90,000 in November (on a seasonally adjusted basis) and fell by more than 70,000 every month until March, when the reductions suddenly began to slow, according to the Bureau of Labor Statistics. In April, 55,000 temp workers were cut. But in May, the number of temp workers fell by only 6,500.

The Cuts Were Too Deep

“In the last few weeks we’re seeing some stabilization,” said Bill DeMario, chief operating officer for Ajilon Professional Staffing, a recruitment firm in Melville, N.Y. “Companies are looking to bring in temporary workers for workloads where they had cut too deeply.”

It’s not that employers see a light at the end of the tunnel yet, but “they see that the tunnel is not pointing downhill into an abyss anymore,” DeMario said. They are hiring back temp workers, but often at a lower pay, he said.

BusinessWeek, working with Seattle’s PayScale, came up with a ranking of the highest-paid contract workers. Database administrators—the top-paid category on the list—earned an annualized salary of $80,300 and were paid 22.6% more than their permanent colleagues. Of course, permanent employees enjoy benefits and can more easily advance within the company.

“It’s a way to get in the door,” Chaison said of contract workers. “But it doesn’t have full benefits, and you could get caught in that second, lower-paid stream of workers that never has advancement or training.”

Strut Your Stuff

Sara Horowitz, founder and executive director of the Freelancers Union, said contract workers have few protections.

“You and I might have different reasons to claim discrimination,” Horowitz said. “A contract worker has no rights.”

But for people who have been unemployed for months or years, a temporary job is better than nothing. Employees who take temp work not only get a salary that is sometimes higher than what a permanent employee gets (though usually without comparable benefits), but they can gain valuable experience and set themselves up for a permanent job when the economy recovers.

“If somebody is out of work, what better way to network, display your skills, work ethic, and commitment to a position to an audience that maybe in a position to hire you,” said DeMario.

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