Do Firms Demand Temporary Workers When They Face Workload Fluctuation? Cross-Country Firm-Level Evidence

Abstract

The growth of temporary employment is one of the most important transformations of labor markets in the past decades. Theoretically, firms’ exposure to short-term workload fluctuations is a major determinant of employing temporary workers when employment protection for permanent workers is high. The authors investigate this relationship empirically with establishment-level data in a broad comparative framework. They create two novel data sets by merging 1) data on 18,500 European firms with 2) measures of labor-market institutions for 20 countries. Results show that fluctuations increase the probability of hiring temporary workers by 8 percentage points in countries with strict employment protection laws. No such effect is observed in countries with weaker employment protections. Results are robust to subgroups, subsamples, and alternative estimation strategies.