Effects of temporary hiring on the profits of Spanish manufacturing firms

Purpose – The purpose of this paper is to analyse the effect of the proportion of temporary workers on the profit‐to‐sales ratio (or price‐cost margin) of Spanish manufacturing firms in the 1990s. Design/methodology/approach – The relation between the proportion of temporary workers and the profit‐to‐sales ratio is estimated using the information provided by the “Encuesta Sobre Estrategias Empresariales” (Entrepreneurship Strategy Survey), a panel data set for the Spanish manufacturing sector carried out over the period 1990‐1999. The model is estimated in logarithmic first differences in order to remove fixed effects. To correct endogeneity problems, the instrumental variables method has been used. Findings – The outcomes show that the rise in the proportion of temporary workers reduces the price‐cost margin of Spanish firms. It also leads to a fall in labour productivity and in the hourly average wage, and to an increase in the total cost of production. Research limitations/implications – The dataset refers only to manufacturing industry. It would be interesting to extend the analysis, if possible, to the service sector of Spanish economy. Practical implications – The outcomes show that those policies oriented to reduce the high proportion of temporary workers (which has been over 30 per cent since 1990) by means of stimulating permanent labour contracts are expected to be positive for Spanish firms. Originality/value – This article is the first empirical work aimed at assessing the impact of the proportion of temporary workers on the profit‐to‐sales ratio.