Rising pay for temps may signal broader wage gains

Staffing agencies are charging companies more for temporary workers so far this year, a possible harbinger of a bump in salaries for permanent employees later in the year.

The billing rate at On Assignment Inc. in Calabasas, Calif., which places temporary staff primarily in information technology and health care, climbed 6.3 percent in the quarter that ended March 31 from the same time last year, the largest 12-month gain since 2008.

The increase was "surprising," said Tobey Sommer, a staffing analyst at investment firm SunTrust Robinson Humphrey Inc. in Nashville.

Temp agencies are typically the first to reflect shifts in wages because demand for their services is more immediate, prompting "real time" changes in fees, Sommer said.

By contrast, he said, employers calibrate compensation for permanent workers less frequently, meaning those adjustments can lag. He called the temp-labor market a "canary in the coal mine" for broader gains in wages.

The increases are starting in areas where demand is the strongest, such as information technology. "The logical next step is for bill rates to improve more broadly and ultimately be reflected in the wage gains of permanent employees," Sommer said.

On Assignment had "robust" revenue growth in its information-technology and engineering business during the first quarter, driven in part by higher contract rates, chief executive officer Peter Dameris said in an April conference call. "Exiting the quarter, demand for our services strengthened in all divisions," he said.

Agencies specializing in placing health-care workers also are starting to command higher fees. AMN Healthcare Services Inc., of San Diego, increased its rates twice as many times in the first four months of the year as in the first six months of 2010, Susan Salka, president and chief executive officer, said in a conference call early this month. Cross Country Healthcare Inc., of Boca Raton, Fla., expects to increase rates in the second half of the year, chief executive Joseph Boshart said.

Meanwhile, Robert Half International Inc., which specializes in finance and legal work, also is seeing a pickup. The Menlo Park, Calif., company increased pricing 2.4 percent in the first quarter from the prior year, chief financial officer Keith Waddell said.

"We're seeing higher pay rates in every single division sequentially," Waddell said. This is one of the precursors of "good things to come in staffing," he said.

Wage growth for temps is likely limited to workers whose skills are in relatively short supply, said Kathryn Kobe, director of price, wage, and productivity analysis at Economic Consulting Services L.L.C. in Washington. Nonetheless, the employment situation has started to improve enough to expect a pickup in overall wage gains by year end, she said.

Recent increases in the Wage Trend Indicator, an index created by Kobe and economist Joel Popkin for the Bureau of National Affairs, a private provider of economic data, indicate pay will climb.

The gauge points to about a 2 percent increase in the employment cost index by the end of the year, which would be the biggest gain since the first quarter of 2009, according to the bureau.

Through the first quarter, the index, a broad measure of compensation, posted a 1.6 percent year-over-year gain, according to Labor Department data.

"We're seeing enough forward momentum in the economy that we're expecting to see modest wage and salary gains," Kobe said.