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The Role of Temporary Help Agency Employment on Temp-to-Perm Transitions

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Abstract

This paper evaluates the impact of agency work on temporary workers’ posterior likelihood of being hired on a permanent basis. We use administrative data on two groups of temporary workers for whom we have complete work histories since they are first observed in 1998 until the year 2004. One group consists of workers employed through a temporary help agency (THA) at some point during the 7 year period under examination (treated group). The other group is composed of individuals employed as direct-hire temps at some point between 1998 and the year 2004, but never via a THA (control group). Using propensity score matching methods, we find that agency workers endure a lower likelihood of being hired on a permanent basis following their temporary assignment than their direct-hire counterparts. However, there are relevant differences for some groups of workers.

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Notes

  1. A similar point of view has been published in the Spanish press. For example, a 1999 story in El País entitled “Unions and the employers’ association urge the Ministry of Labor to act against pirate temporary help agencies” indicates that “it is necessary to shut down those intermediaries that do not comply with Labor Law” (El País, January the 18th, Monday, 1999). Similarly, the business newspaper Expansión published an article titled “The bad image of the THA sector” in 1998 according to which “Temporary help agencies do not generally offer enough training to their workers” (Expansión, November the 30th, Monday, 1998).

  2. This short span of their work arrangement inhibits workers and THAs from investing in the acquisition of specific human capital and, instead, promotes a cyclical pattern of unstable and primarily low-skilled employment (Autor and Houseman 2005; Jorgenson and Riemer 2000; Parker 1994; Pawasarat 1997). Indeed, agency temps are constantly starting new jobs where they have to carry out their duties with limited knowledge of the client company (see Cebrián et al. 2001; Muñoz-Bullón 2004), and their work arrangements typically last less than those of their direct-hire counterparts.

  3. See McDonald and Solow (1985) and work on signalling effects by Ma and Weiss (1993) and McCormick (1990).

  4. Also relevant to this study is the work by García-Pérez and Muñoz-Bullón (2005b), who examine the determinants of the duration of agency workers’ (un)employment spells in Spain. They find that it takes considerably less time for agency workers to exit unemployment; however, their risk of becoming unemployed is also higher than the risk borne by workers with indefinite-term or permanent work contracts. Their findings coincide with those of the literature examining THAs’ ability to facilitate unemployment-to-work and temporary-to-standard work transitions (e.g., Addison and Surfield 2006; Chalmers and Kalb 2001; Gray 2002; Houseman and Polivka 2000; Zijl et al. 2004). Other studies in this vein include Gaston and Timcke (1999) and Jyh-Jer (2003).

  5. In addition, agency work may bring about other concerns, such as typically low pay, lack of health insurance and pension benefits, their uncertain duration, and their lack of union protection (Kalleberg et al. 1997; Mishel et al. 1999).

  6. Some authors (e.g. Dolado et al. 2002) remark that, after the passage of the 1997 reform, the proportion of temporary workers has slightly declined in the private sector. However, recent re-estimations using the Labour Force Survey, which provides a better representation of the immigrant population, question that finding. See Toharia (2005) and Toharia and Malo (2000) for a detailed discussion on the usage of temporary contracts in Spain.

  7. The payroll bill is the income earned by THA temps on the assignment, excluding social security taxes and severance or sick pay.

  8. See, for instance, “MacTemps: Building Commitment in the Interim Workforce”, case number 9-497-005, Harvard Business School Publishing (1997).

  9. See Informe AGETT del Mercado Laboral 2006, pp. 16.

  10. Cebrián et al. (2001) provide a detailed description of THAs in Spain using a smaller sample from the Official Register of Contracts.

  11. See the Appendix for a description of the various types of temporary work contracts.

  12. These characteristics include the type of work contract, the level of education, and the type of occupation held by workers at each point in time during their recorded work histories.

  13. In Spain, the Public Administration can hire individuals as civil servants, who are selected on the basis of an entry exam and cannot be dismissed. Additionally, the Public Administration can hire workers on a temporary or permanent basis using fixed-term and indefinite-term contracts of the type recorded in the Official Register of Contracts. Unlike civil servants, these workers can be dismissed following the rules of the Workers’ Charter.

  14. Because we lack information from before 1998, treatment is defined as “the first time the individual contracts with a THA between 1998 (excluding this year) and the end of 2004”. In this manner, we guarantee that the regressors used to model the treatment outcome are either fixed over time (e.g., gender) or are measured just before signing the contract in 1998 and, therefore, unaffected by the treatment status.

  15. Otherwise, computations of average effects would have been prohibitively time-consuming.

  16. The control group consists of alike temporary workers unaffected by the program object of evaluation during the period of time being examined. As noted earlier, we do not include unemployed workers as they are likely to significantly differ from agency temps who were able to actually find employment. Specifically, because unemployment may serve as an adverse signal to employers and because the matching methodology cannot properly control for unobserved worker characteristics embodied in their unemployed status, restricting the comparison group to more alike temporary workers in direct-hire assignments guarantees a better comparison group and minimizes any heterogeneity biases.

  17. See Golden (1996), Morris and Vekker (2001) or Wenger and Kalleberg (2006) for analyses on the role of macroeconomic conditions on the growth of the THA industry in other countries.

  18. For an excellent overview of these two and other econometric approaches to the evaluation problem, see Heckman et al. (1999).

  19. We use the publicly available Stata command developed by Leuven and Sianesi (2003).

  20. This may result in individuals being used as a comparison group more than once. Should this happen, such individuals receive a weight that corresponds to the number of times they serve as a comparison.

  21. Some additional findings are also worth noting. For instance, we find that the ATT and ATE estimates are larger in absolute terms for workers with ‘practice’ or ‘training’ contracts. These contracts are commonly used by employers to train direct-hire university graduates for future permanent positions within the firm. Additionally, ‘practice’ and ‘training’ contracts require a component of on-the-job training less likely to be provided by THAs given that workers need to stay on the agency payroll for the agency to recoup the return to its investment (e.g. Muñoz-Bullón 2004). Likewise, the ATT and ATE estimates are larger in absolute terms for workers in Catalonia. Catalonia is one of the Spanish regions with lower unemployment rates. As a result, being an agency worker may be more stigmatized in Catalonia than in other Spanish regions with higher unemployment rates, such as Andalusia.

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Acknowledgments

We thank Luis Toharia for his comments and helpful data advice. The data were made available through the participation of Miguel A. Malo in a research project on temporary and permanent contracts directed by Luis Toharia and funded by the Spanish Public Employment Service and the Spanish Ministry of Employment. These institutions are not responsible for the results or opinions herein. Miguel A. Malo acknowledges the financial support provided by the Spanish Ministry of Science and Technology (research project SEC2001-0061), and Fernando Muñoz-Bullón acknowledges the financial support under CICYT SEC 2003-04028. This paper has benefited from valuable comments from participants at a CEPR workshop Temporary Agency Work: A New Source of Labour Market Flexibility? in Berlin (2005), the II World Conference Society of Labour Economists in San Francisco (2005), the Midwest Economic Association in Milwaukee (2005), the XXII Annual International Labour Process Conference in Amsterdam (2004), the II Workshop on Policy Evaluation in Seville (2006) and the Individuals in Temporary Agency Work Symposium in Nüremberg (2007).

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Authors and Affiliations

  1. Department of Economics, San Diego State University and IZA, 5500 Campanile Drive, San Diego, CA, 92182, USA

    Catalina Amuedo-Dorantes

  2. Departamento de Economía e Historia Económica, Universidad de Salamanca, Edificio FES - Campus “Miguel de Unamuno”, 37007, Salamanca, Spain

    Miguel A. Malo

  3. Sección de Organización de Empresas, Universidad Carlos III de Madrid, C/Madrid, 126, 28903, Getafe, Madrid, Spain

    Fernando Muñoz-Bullón

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  1. Catalina Amuedo-Dorantes
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  2. Miguel A. Malo
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Correspondence to Catalina Amuedo-Dorantes.

Appendix

Appendix

Table 7 Description of work contract denominations used in the analysis
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Amuedo-Dorantes, C., Malo, M.A. & Muñoz-Bullón, F. The Role of Temporary Help Agency Employment on Temp-to-Perm Transitions. J Labor Res 29, 138–161 (2008). https://doi.org/10.1007/s12122-007-9041-y

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