You make less money as a temporary worker, you may get smaller raises and you should expect to miss out on high-value extras like pension contributions or health benefits.
This is the personal finance side of the "job churn" that federal Finance Minister Bill Morneau is talking about. He was reported as telling an audience of Ontario Liberals last weekend that short-term contract work will continue and young adults should get used to it.
Young people reacted to the comments by heckling Prime Minister Justin Trudeau at a youth labour forum this week. They're right to be angry. Temporary work is second-class employment.
According to recent Statistics Canada numbers, temp workers earn roughly 75 per cent of what permanent employees do. The median weekly wage of permanent workers aged 25 to 54 in September was $962, while temporary workers earned $720.
Temporary work seems to be toughest on younger workers. Over the past two decades, permanent workers aged 15 to 24 had a cumulative, after-inflation gain of 14 per cent in median weekly wages and temporary workers had a 7-per-cent increase. These numbers contrast with those for the broader cohort of 25-to-54-year-olds, where temporary workers gained some ground on those with full-time jobs.
Working a temporary job – it's aptly called precarious work – also means people probably won't have company pensions or health benefits to cover dental bills, eyeglasses, prescription drugs and more. The benefits consulting firm Morneau Shepell says someone earning $50,000 in a permanent job might receive roughly $3,500 to $5,000 a year in value from the combination of contributions to a pension plan from an employer and company health benefits.
The difference between the median permanent and temporary wage for those 25 to 54 years old over a year amounts to nearly $12,600. Add the value of pension contributions and health benefits not received and the disadvantage of temporary work grows even larger. It gets still larger for people with health issues requiring significant spending on prescription drugs or other medical services not covered by provincial health care.
Mr. Morneau could have saved his government some grief by coming off as less accepting of temporary work. As we'll see, it's in the government's interest to have people working in permanent jobs instead of temporary work. But the minister has done us the favour of providing an honest view of a work force that he has to be familiar with from his days at Morneau Shepell (he resigned as executive chairman last fall, after the federal election).
Aside from Mr. Morneau, temporary work gets largely ignored. RBC Economics took a look at the millennial generation in a recent report that said young adults in the work force are no worse off than previous generations. The report said the unemployment rate for people in their early 20s didn't change from 1979 to 2015, and that millennials have comparable job security to what people had back in 1979. Hardly mentioned is the temporary-work trend that the Finance Minister says we should get used to.
Mr. Morneau mentioned the improvements to the Canada Pension Plan announced last summer as an example of how the government is adjusting to the permanence of temporary work. Increasing CPP payouts for the retirees of the future is smart policy, but it's far from the only adjustment that will need to be made.
For example, young workers and their families will have to deal with issues that include:
1.) Adult kids living at home: The trend is here to stay and parents must factor this into their retirement planning.
2.) Retirement saving: It's a more important goal for temporary workers than homeownership.
3.) Emergency funds: Having cash to cover a few months of expenses is crucial in case of a gap between contracts.
4.) Renting vs. owning: Job mobility is an overlooked issue in deciding whether to buy a house.
Governments will have to adjust to temporary work as well, notably because people working on contracts will typically pay less in taxes than permanent workers. If temporary workers can't save enough for retirement, they'll need more government help through programs like the guaranteed income supplement.
The temporary-work trend is bad for both personal and government finance.