Temporary Workers: How Temporary Are They?

This paper studies the effect of production volatility on the duration of temporary contracts. A simple theoretical model is developed, in order to depict the choice of contract duration made by a firm recruiting temps to deal with activity peaks. Assuming that the hiring of a new temp is associated with selection and training costs, longer contracts have an option value in view of greater uncertainty. The model has two testable implications. First, production volatility positively affects contract length. Second, the shortage of alternative employment opportunities negatively affects contract length. Using data on Italian temporary workers, both implications are confirmed by the econometric analysis. Since contract duration turns out to be a good proxy of the precariousness of temps, it is precisely in more volatile sectors that temporary workers -in a sense- are not so “temporary”.