What’s Behind the Decline in Temp Help Employment? Reflections from the SIA Executive Forum

Last week, I had the opportunity to attend the Staffing Industry Analysts Executive Forum North America in Miami. It was a great conference—thought-provoking sessions, insightful hallway conversations, and a real sense that the industry is in the midst of a period of change.

One of the most widely discussed topics was the recent decline in the temporary help industry. After a significant surge during the recovery from the pandemic, the number of temp help workers has dropped sharply. In fact, by March 2022, the share of temp help employees in total U.S. employment hit an all-time high. But since then, the sector has contracted—rapidly.

That pattern is unusual. Historically, temp help employment tends to decline during or just ahead of a recession. But this time, the downturn has occurred outside of a traditional economic slowdown, and without a clear consensus explanation.

As always, when a labor market shift lacks an obvious cause, lots of potential explanations surface—probably more than are truly accurate. Below are a few hypotheses, broken into short-term and long-term perspectives.

Short-Term Explanations (2022–2024 Decline)

1. The boom and the cool-down: During the peak of labor shortages in 2021–2022, staffing agencies played a critical role in helping firms ramp up quickly. As the economy cooled and hiring pressures eased, many employers reduced their reliance on temporary workers, reverting to more stable internal teams.
2. Churn moved in tandem: Temporary help employment could also be impacted by labor market churn, which is measured by quits and job openings. Churn tends to fall during recessions—but like temp help employment, it’s fallen significantly in the last two years without a recession. Lower quits reduce the urgency for replacement hiring, diminishing the need for temp workers and agencies.

?

Long-Term Structural Explanations

1. Persistent labor shortages since 2017-2018: Ironically, a tight labor market may discourage temp hiring. When qualified workers are hard to find, they can more easily become employees.
2. Manufacturing slowdown: Temp help is historically concentrated in manufacturing, a sector that has seen softness in recent years.
3. Regulatory pressure and reclassification risk: Laws like California’s AB5 and other state-level efforts have intensified the risks of misclassifying workers. Companies that once used staffing agencies to avoid providing benefits now face legal and reputational risks. Courts and regulators are increasingly asking whether temporary and contract workers are effectively full-time employees in disguise.
4. A shift in employer behavior and expectations: For decades, staffing growth was partly fueled by a clear employer incentive: reducing labor costs by minimizing benefit obligations. This approach—while economically efficient—drew criticism and was rarely embraced publicly. In recent years, changing societal expectations and rising ESG scrutiny may be forcing companies to reconsider. Some employers may be moving away from heavy reliance on temp staffing and opting to hire workers directly. Regular employment offers greater transparency, helps avoid reputational risk, and signals a stronger commitment to responsible labor practices.
5. Shift Toward SOW and Alternative Workforce Models: Many companies are moving away from traditional temp staffing in favor of Statement of Work (SOW) arrangements and other flexible models. Unlike hourly temp roles, SOW contracts focus on defined deliverables, helping companies reduce legal risk and clearly distinguish contracted services from employment. At the same time, firms are increasingly turning to freelancers, remote contractors, and digital platforms to meet workforce needs. This shift toward diversified, project-based staffing solutions is reducing reliance on traditional staffing agencies.

?

Additional Thoughts

1. Immigration enforcement could reshape the industry: Increased efforts to crack down on undocumented labor may hit parts of the staffing industry that have quietly relied on workers without legal status. These enforcement efforts may be bad for noncompliant staffing firms but good for those that play by the rules.
2. AI could keep staffing firms profitable despite the decline in demand. Even if demand for temp workers declines costs may decline as well. AI may help staffing firms reduce internal costs. Many roles within staffing companies, especially recruiting, sourcing, screening, and scheduling—are highly automatable.
3. Could AI Indirectly Boost Temp Staffing Demand? If AI significantly automates the labor market it will become much less tight. Companies may feel less pressure to lock in permanent hires and become more comfortable using temporary help again. In this way, AI might indirectly create more space for flexible staffing models to return.

In sum, it has been a tough couple of years for the staffing industry, as reflected in stock prices. But you wouldn’t know it from the energy at the conference. Staffing companies are staying busy and adapting—shifting to higher-skill roles, offering broader services like payroll, onboarding, and compliance support, automating internal operations with AI for recruiting, screening, and scheduling, embracing project-based work such as Statement of Work (SOW) models, targeting new sectors, improving the candidate experience, and pursuing mergers and acquisitions to gain scale or enter niche markets.