The Cyclicality of the Stepping Stone Effect of Temporary Agency Employment

This paper investigates whether the stepping stone effect of temporary agency employment moves over the business cycle. Using German administrative data for the period 1985-2012 and an estimation framework based on the timing-events model, we construct a time series of in-treatment and post-treatment effects and estimate their relationship to the aggregate unemployment rate. We find evidence for a strong lock-in effect of temporary agency employment that is even more pronounced in tight labor markets. This suggests that firms do not use agency employment as a screening device when unemployment is low. Moreover, we find a noticeable countercyclical positive post-treatment effect indicating that workers might be able to activate networks established while being in treatment. We further document that the treatment effects are non-linear over the business cycle.