Flexibility vs. screening: The performance effects of temporary agency work strategies

This  paper  empirically  examines  the  impact  of temporary agency  work  strategies on firm  performance  using  panel  data   from  German   establishments.  Thereby,  special attention is devoted  to  the  question,  whether  there  are  performance differences  be- tween establishments  using  temporary  agency  workers  (TAWs)  as  a  buffer  stock (flexibility strategy) and  establishments testing  TAWs  for permanent positions (screening  strategy). Theoretically, there  are  good reasons  for using  one strategy as well as adopting the  other. On  the  other  hand,  however,  both  strategies may  also be associated  with  serious  drawbacks  to  be borne  by  the  establishments. Our  empirical analysis  suggests  that establishments following the  flexibility strategy perform  signifi- cantly   worse  than   establishments following  the  screening  strategy. Hence,  we  con- clude  that employers  act  in  their own interest, if they  credibly  consider  temporary workers  for  permanent  jobs  instead of implementing a  system  of first-  and  second- class employees.