Temporary employment agencies in Saxony are increasingly going bust

From Ulrich Wolf & Tobias Winzer

Dresden. In view of the current stagnating economic development and the shortage of skilled workers, the business model of temporary employment agencies is coming under pressure. As figures from the Saxony Employment Agency and the State Statistical Office show, the number of personnel service providers is declining. The number of insolvencies in the sector is expected to reach a record level this year.

As of June 2023, there were still exactly 785 temporary employment agencies in Saxony. The number of companies has been in constant decline since 2017. The industry reached a high in 2012, when the employment agency counted 966 temporary employment agencies in the state. The business model, in which the employee is provided to the hirer for a fee, seemed to be flourishing at the time.

Already twice as many insolvencies as in 2023

The subsequent decline can be explained by mergers and age-related business closures on the one hand, but also by insolvencies on the other. According to figures from the State Statistical Office, there were already 14 bankruptcies among temporary employment agencies in the first half of 2024. By comparison, there were seven in the sector last year as a whole. Similarly high figures to this year were last reported in 2013 and 2014, with 19 insolvencies each.

Companies generally use temporary work to cover peaks in demand. It can also be a bridge to a permanent job for young people without work experience, the long-term unemployed, people with disabilities or the low-skilled. At the same time, temporary work has a bad reputation because many people who work in temporary employment only receive low wages.

Dresden-based HR Success Management GmbH is one of the personnel service providers that recently became insolvent. Ralf Hage from the law firm DMP-Solutions, who is overseeing the provisional insolvency as administrator, sees a shortage of labor as the main reason for the increase in bankruptcies in the industry. However, in his specific case, a "drastic slump in orders in recent months" was the main cause of the insolvency.

Nicolas Rebel from the Dresden office of the international commercial law firm White & Case reports that the shortage of skilled workers plays a major role for temporary and agency work companies. Their recruitment leads to a "considerable amount of time and work". Potential employees do not show up for job interviews or simply do not show up at the agreed start date. This behavior is probably mainly due to the fact that the temporary workers "often only see their job as an interim solution"; they therefore do not identify with the respective employers. Rebel manages the assets of the insolvent Montageservice Berthold GmbH in Großröhrsdorf in the district of Bautzen. According to him, this bankruptcy was triggered by a "short-term and unforeseeable slump in orders".

Leipzig-based commercial lawyer Tobias Hohmann, who is responsible for the insolvency of Chemnitz-based Albrecht Service Holding GmbH, also sees personnel services companies increasingly affected by bankruptcies. In many sectors, it is "almost impossible to find suitable personnel" and fluctuation on the labor market has reached record levels. In addition, managing directors of affected companies told him that political decisions are also making business more difficult, such as the maximum temporary employment period of 18 months that has been in place since 2017.

Only every 50th Saxon is still a temporary worker

Figures show that with the decline in temporary employment agencies, fewer and fewer people are working for personnel service providers. According to the latest projections from the employment agency in May 2024, 33,100 women and men are working in temporary employment in Saxony. That is 3,000 fewer than a year ago. This means that every 50th employee in Saxony currently works in temporary employment. Temporary work had its highest number of employees in 2017, when there were around 52,000 temporary workers in Saxony. The employment situation continued until 2018, before there were significant declines in recent years. Most temporary workers are employed in the transport and logistics sector, for example by parcel service providers or freight forwarders.

Frank Vollgold, spokesman for the employment agency in Saxony, says that the economic risks and uncertainties are high as a result of the war in Ukraine and its effects. "This is not only having an impact on companies' reluctance to hire, but is also leading to a decline in employment in some sectors - including temporary work." He describes temporary work as an "early indicator of developments on the labor market". If companies have no order peaks to process with flexible personnel due to the weakening economy, temporary workers have less to do and temporary employment agencies have less business.

Wolfram Linke, spokesman for the German Association of Personnel Service Providers, also cites the shortage of skilled workers as a reason for the industry's problems. "In addition to a possible decline in demand from client companies, the increasing shortage of skilled workers, from which temporary employment agencies are also suffering, may also be the cause," he says. The companies are primarily positioned regionally. "If demand stagnates locally at a customer, the temporary employment agency through which the customer requests external employees suffers first and foremost. So if there is an economic crisis in Saxony, the local temporary employment agencies are also inevitably affected."