Staffing Services Industry Under Fire

The Clinton-era Workforce Investment Act of 1998 (WIA) has done more to harm the staffing (employment) services industry in Michigan and the United States than anything since FDR’s New Deal. And yet, this federal statute is due to be reauthorized next year by Congress and shortly thereafter by the Michigan Legislature and Governor.

In fact, since 1998, the state has facilitated this federal intrusion into state labor markets by accepting $62.5 million in annual WIA money. WIA funding enables Michigan to operate 104 local labor exchange and training centers, called “one-stops,” or “Michigan Works” in this state. In addition, the state encourages the use of federal tax credits and state grant programs to entice and subsidize large companies to engage in Michigan Works recruiting on behalf of large companies.

How did the state get into this predicament? Why is this traditionally private business activity being threatened? The short answer is: Congress invented a new labor entitlement when it passed WIA in 1998. All adult workers in America became entitled to use WIA-financed, one-stop career centers. (The U.S. Department of Labor actually handed out grants to states as far back as 1994 to establish the one-stop “infrastructure” nation-wide.) This is an entirely new governmental role where government one-stops are used to recruit ordinary, working adults seeking job upgrades and advancement in their careers. Michigan Works one-stops are now directly competing with the private sector for the state labor market and their role in this is growing.

In fact, the states of Florida, Kentucky, and Washington have equivalent or worse intrusions, and Massachusetts, Utah, Pennsylvania, Wisconsin, Minnesota, New York and California are gearing up for comparable market interventions. Michigan just happens to be one of the more sophisticated state workforce regime-builders.

The staffing services industry in the United States is a $66 billion annual business, employing 2.2 million people daily, through thousands of service outlets. Although many people think staffing services as simply a placement service for temporary workers, 72 percent of temporary employees actually move into permanent positions, according to the American Staffing Association.

Currently, about 500-600 private staffing services companies are responsible for 2000-2500 branch offices across Michigan, and most are at risk. Indeed, the foregoing high and low estimates are offered because it is evident that the recent recession and the federally financed Michigan Works state system is severely damaging the industry. Many companies have been put out of business. The Michigan Association of Staffing Services reports that the association lost half its membership in the last year due to the economic downturn and state competition by Michigan Works.

Last January 2002, Douglas Stites, CEO of Capital Area Michigan Works in Lansing, met with owners and managers of staffing services. He informed them that in their three-county capital area, Michigan Works would be engaging in a “direct outreach” strategy to the customers of staffing companies, and potential customers. The local one-stops would offer “free” recruiting and training services. In addition, targeted companies could apply for the federal Work Opportunity Tax Credit, the Welfare to Work Tax Credit, and various other state grants and subsidies. In effect, the federal and state government would pay companies to accept state-sponsored recruits.

Staffing services owners and managers are in a real bind because if they complain loudly about the negative effects of WIA and Michigan Works, they run the risk of alienating current and potential clients.

Staffing services owners and managers were astonished to learn in January that the Capital Area board would double its $400,000 marketing budget in 2001-2002 to $800,000 in 2002-2003. This budget finances the rental of local billboards, the distribution of tens of thousands of brochures, and the purchase of radio and television advertising—to promote this rather costly “free service.”

In the age of privatization, it is more than a little curious that a state agency would seek to socialize an industry sector. Quite obviously, it is time to take another hard look at Michigan’s participation in this destructive federal “workforce” program. In the end, Michigan ought to “just say no” to federal workforce financing, as well as any back-door takeover of the staffing services industry.

(Kimble Ainslie is an editorial writer for the National Post in Toronto, Canada, and President of Nordex Research International, with offices in London, Ontario, and Tallahassee, Florida. Nordex is a public policy analysis and survey research company.)