Employers "scared" of taking on permanent staff: executive

A broker works at Shanghai Stock Exchange in Lujiazui Financial Area in Shanghai January 9, 2007.

ZURICH (Reuters) - Employers burned by the cost of laying off workers in the last crisis are uneasy about taking on permanent staff amid faltering economic growth putting pressure on the current workforce, a staffing industry executive said on Thursday.

Demand for temporary workers often acts as a leading indicator for overall economic growth, as firms hire flexible workers at the start of a recovery and cut staff ahead of a downturn.

Staffing firms Randstad, USG People and Manpower have warned of slowing jobs growth in Europe as the region's debt crisis hammers consumer and business confidence.

"What has happened in this recession is that the psychology of hiring has completely changed," said David Arkless, president of global corporate and government affairs at Manpower Group.

In the past firms hired temporary workers at the start of a recovery and gradually took on more permanent staff. But now, even in sectors and companies that are growing, employers are mindful of the huge costs of downsizing in the last recession and reluctant to take on permanent staff, he said.

"Employers are saying this could kill my company if I do the wrong kind of hiring now and it turns into a double dip recession," said Arkless. "They are stretching the human element of their company to breaking point because they are so scared of hiring any more people right now."

Companies have increasingly relied on temporary workers as it is easier and cheaper to cut them than to lay off permanent staff.

Since the depth of the financial crisis the staffing sector has created 900,000 jobs in Europe adding to the already 3 million agency workers, according to the "Adapting to Change" report published by CIETT, an international confederation of private employment agencies.

LOOKING TO CHINA FOR GROWTH

Revenues at Adecco and Randstad fell some 30 percent during the last financial crisis and firms launched major cost cutting programs, scaling back on their own staff and closing branches.

Staffing firms that have been stung by messy price wars in the past are looking to compete in higher margin service sectors such as permanent placement, outsourcing, search and selection and reshoring.

Arkless said there was a huge potential for firms to tap growth in China, where flexible workers make up less than 0.5 percent of the 500 million strong workforce, compared to a 3.5 percent of the working population in Europe.

Manpower has grown its business in China over the last three years from 10 operations to a presence in over 100 cities, he said. While lower wages depress margins, Arkless said pay rates were on the rise.

"Over the last four years wages on average in China have risen at 20 percent a year. So it doesn't take too long -- not much longer than seven to 10 years -- until absolute wages are very similar in China."

Arkless said there was already a significant skills shortage in China, meaning firms were happy to pay premiums to agencies that can find workers to fill highly-skilled jobs.

"China is becoming one of the highest yield markets in the world outside of temporary services."

(Reporting by Caroline Copley; Editing by Jon Loades-Carter)