Temporary contracts, employees' effort and labour productivity: the evidence for Italy

This paper discusses the thesis (recently pointed out by empirical evidence on Swiss data) that, if temporary contracts are utilised by firms as a tool to screen potential new employees and provide workers with a “stepping stone†into permanent employment, then temporary employees have an incentive to provide more effort than their permanent colleagues. After a theoretical discussion, the paper focuses on the econometrical analysis of this thesis in an institutional context, like the Italian one, in which permanent workers are rather protected and firms are likely to use temporary contracts mainly to adjust the workforce during the cycle. Data are drawn from ECHP (1996-2001) for Italy and from ISFOL-Plus 2005. The paper concludes by pointing out that a higher effort does not necessary mean higher labour productivity, and suggests the necessary public policies to improve productivity in labour markets characterised by a growing rate of temporary jobs.