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Abstract
In this paper we use a very large matched database on firms and employees to analyze the use of temporary agencies by low earners and its impact on their employment outcomes. Our results show that, while temp workers have lower earnings than others while working at these agencies, their subsequent earnings are often higher—but only if they manage to gain stable work with other employers. Furthermore, the positive effects seem mostly to occur because those working for temp agencies subsequently gain access to higher-wage firms, and they persist over time.
Introduction
Do labor market intermediaries in general, and “temp” agencies in particular, help unskilled workers with limited work experience transition to more stable and higher wage jobs? Earlier research on the impact of temporary help agencies for this population was generally positive. However, recent research by Autor and Houseman (2005, 2007), using data from a random assignment experiment, has raised questions about the robustness of the early research, and especially on whether any positive effects of temp agency employment persist over the longer run. Other researchers have continued to find positive effects for low earners of temp employment, among other efforts by a range of labor market “intermediaries” such as unions and various not-for-profit placement agencies.
In this paper we contribute to the ongoing discussion about temp agencies and low-wage workers in a number of ways. We do this by using a very large scale matched database on firms and employees that enables us to establish a broad set of facts about the workers who use temp agencies, and the firms to which they transition. The dataset has several key features that we use throughout the study. The first of these is that it is longitudinal in both firms and workers. A second key feature is that we estimated fixed personal characteristics that are unobserved in many studies. We also directly estimate the premium (or discount) that different firms pay observationally equivalent workers.
Our analysis begins by estimating the impact of temp employment for initially low earners on their subsequent earnings. We then examine whether workers who work for temp agencies eventually transition to firms that pay higher wage premia than do workers who find firms on their own. This is followed by a consideration of the extent to which these firm characteristics can account for any observed improvements in the earnings of these workers. Finally, we examine the long-term stability of the employment and earnings outcomes for low-wage workers engaged in temp work, relative to those who are not.
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The nonpartisan Urban Institute publishes studies, reports, and books on timely topics worthy of public consideration. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders.
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