IDEAS home Printed from https://ideas.repec.org/a/inm/ormnsc/v47y2001i8p1046-1062.html
   My bibliography  Save this article

Contingent Labor Contracting Under Demand and Supply Uncertainty

Author

Listed:
  • Joseph M. Milner

    (John M. Olin School of Business, Washington University, St. Louis, Missouri 63130)

  • Edieal J. Pinker

    (William E. Simon School of Business, University of Rochester, Rochester, New York 14627)

Abstract

Firms increasingly use contingent labor to flexibly respond to demand in many environments. Labor supply agencies are growing to fill this need. As a result, firms and agencies are engaging in long-term contracts for labor supply. We develop mathematical models of the interaction between firms and labor supply agencies when demand and supply are uncertain. We consider two models of labor supply uncertainty, termed productivity and availability uncertainty, and study how each affects the nature of the contracts formed. These models reflect two major roles played by the labor supply agency. In the case of productivity uncertainty we find that it is possible to construct a contract that coordinates the firm and agency hiring in an optimal way. In contrast, we show that in environments characterized by availability uncertainty, optimal contracts are not possible. However, there is a large range of contract parameters for which both parties would benefit from a contract. We analyze these and discuss the trade-offs that should be considered in contract negotiation.

Suggested Citation

  • Joseph M. Milner & Edieal J. Pinker, 2001. "Contingent Labor Contracting Under Demand and Supply Uncertainty," Management Science, INFORMS, vol. 47(8), pages 1046-1062, August.
    • Handle: RePEc:inm:ormnsc:v:47:y:2001:i:8:p:1046-1062
    DOI: 10.1287/mnsc.47.8.1046.10233
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1287/mnsc.47.8.1046.10233
    Download Restriction: no
    File URL: https://libkey.io/10.1287/mnsc.47.8.1046.10233?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Katharine G. Abraham, 1988. "Flexible Staffing Arrangements and Employers' Short-Term Adjustment Strategies," NBER Working Papers 2617, National Bureau of Economic Research, Inc.
    2. Matthew J. Sobel, 1970. "Smoothing Start-Up and Shut-Down Costs: Concave Case," Management Science, INFORMS, vol. 17(1), pages 78-91, September.
    3. Bruce C. Greenwald, 1986. "Adverse Selection in the Labour Market," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 53(3), pages 325-347.
    4. Abraham, Katharine G & Taylor, Susan K, 1996. "Firms' Use of Outside Contractors: Theory and Evidence," Journal of Labor Economics, University of Chicago Press, vol. 14(3), pages 394-424, July.
    5. Berman, Oded & Larson, Richard C., 1994. "Determining optimal pool size of a temporary call-in work force," European Journal of Operational Research, Elsevier, vol. 73(1), pages 55-64, February.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Nasuh Buyukkaramikli & Henny Ooijen & J. Bertrand, 2015. "Integrating inventory control and capacity management at a maintenance service provider," Annals of Operations Research, Springer, vol. 231(1), pages 185-206, August.
    2. Andersson Joona, Pernilla & Wadensjö, Eskil, 2004. "Other Forms of Employment: Temporary Employment Agencies and Self-Employment," IZA Discussion Papers 1166, Institute of Labor Economics (IZA).
    3. Smirnykh, Larisa & Wörgötter, Andreas, 2013. "Why Do Russian Firms Use Fixed-Term and Agency Work Contracts?," IZA Policy Papers 54, Institute of Labor Economics (IZA).
    4. Saravanan Kesavan & Bradley R. Staats & Wendell Gilland, 2014. "Volume Flexibility in Services: The Costs and Benefits of Flexible Labor Resources," Management Science, INFORMS, vol. 60(8), pages 1884-1906, August.
    5. Eryn Juan He & Joel Goh, 2022. "Profit or Growth? Dynamic Order Allocation in a Hybrid Workforce," Management Science, INFORMS, vol. 68(8), pages 5891-5906, August.
    6. Techawiboonwong, Atthawit & Yenradee, Pisal & Das, Sanchoy K., 2006. "A master scheduling model with skilled and unskilled temporary workers," International Journal of Production Economics, Elsevier, vol. 103(2), pages 798-809, October.
    7. Susan Feng Lu & Lauren Xiaoyuan Lu, 2017. "Do Mandatory Overtime Laws Improve Quality? Staffing Decisions and Operational Flexibility of Nursing Homes," Management Science, INFORMS, vol. 63(11), pages 3566-3585, November.
    8. Evan Barlow & Gad Allon & Achal Bassamboo, 2020. "Worker poaching in a supply chain: Enemy from within?," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 41(5), pages 695-709, July.
    9. Alma M. dela Cruz, 2007. "Contractual Arrangements in Agriculture (Northern and Central Luzon Component)," Development Economics Working Papers 22626, East Asian Bureau of Economic Research.
    10. Marty Stuebs & Li Sun, 2010. "Business Reputation and Labor Efficiency, Productivity, and Cost," Journal of Business Ethics, Springer, vol. 96(2), pages 265-283, October.
    11. Dellaert, Nico & de Kok, Ton, 2004. "Integrating resource and production decisions in a simple multi-stage assembly system," International Journal of Production Economics, Elsevier, vol. 90(3), pages 281-294, August.
    12. Nasuh Buyukkaramikli & J. Bertrand & Henny Ooijen, 2013. "Flexible hiring in a make to order system with parallel processing units," Annals of Operations Research, Springer, vol. 209(1), pages 159-178, October.
    13. Pinker, Edieal J. & Larson, Richard C., 2003. "Optimizing the use of contingent labor when demand is uncertain," European Journal of Operational Research, Elsevier, vol. 144(1), pages 39-55, January.
    14. Dela Cruz, Alma M., 2007. "Contractual Arrangements in Agriculture (Northern and Central Luzon Component)," Discussion Papers DP 2007-21, Philippine Institute for Development Studies.
    15. Mustafa Akan & Bar{i}c{s} Ata & Martin A. Lariviere, 2011. "Asymmetric Information and Economies of Scale in Service Contracting," Manufacturing & Service Operations Management, INFORMS, vol. 13(1), pages 58-72, September.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Christopher L. House & Jing Zhang, 2012. "Layoffs, Lemons and Temps," NBER Working Papers 17962, National Bureau of Economic Research, Inc.
    2. Patricia Bielman & Denis Chênevert & Gilles Simard & Michel Tremblay, 1999. "Déterminants du recours au travail atypique : Une étude des travailleurs à statut précaire dans les organisations québécoises," CIRANO Working Papers 99s-36, CIRANO.
    3. Boockmann, Bernhard & Hagen, Tobias, 2001. "The use of flexible working contracts in West Germany: evidence from an establishment panel," ZEW Discussion Papers 01-33, ZEW - Leibniz Centre for European Economic Research.
    4. Katharine G. Abraham & John C. Haltiwanger & Kristin Sandusky & James R. Spletzer, 2017. "Measuring the Gig Economy: Current Knowledge and Open Issues," NBER Chapters, in: Measuring and Accounting for Innovation in the Twenty-First Century, pages 257-298, National Bureau of Economic Research, Inc.
    5. Malaki, Saha & Izady, Navid & de Menezes, Lilian M., 2023. "A framework for optimal recruitment of temporary and permanent healthcare workers in highly uncertain environments," European Journal of Operational Research, Elsevier, vol. 308(2), pages 768-781.
    6. Climent Serrano, S., 2004. "Utilización y conocimiento de la herramientas de medición y su relación con los costes de calidad en las empresas certificadas en la norma ISO 9000 de la Comunidad Valenciana/Use and Knowledge of the ," Estudios de Economia Aplicada, Estudios de Economia Aplicada, vol. 22, pages 369-389, Agosto.
    7. Susan N. Houseman, 2001. "Why Employers Use Flexible Staffing Arrangements: Evidence from an Establishment Survey," ILR Review, Cornell University, ILR School, vol. 55(1), pages 149-170, October.
    8. Pinoli, Sara, 2008. "Screening ex-ante or screening on-the-job? The impact of the employment contract," MPRA Paper 11429, University Library of Munich, Germany.
    9. Matthew Dey & Susan Houseman & Anne Polivka, 2010. "What Do We Know About Contracting Out in the United States? Evidence from Household and Establishment Surveys," NBER Chapters, in: Labor in the New Economy, pages 267-304, National Bureau of Economic Research, Inc.
    10. Alexandre Mas & Amanda Pallais, 2020. "Alternative Work Arrangements," Annual Review of Economics, Annual Reviews, vol. 12(1), pages 631-658, August.
    11. John A. Holmes & Traci L. Mach, 2008. "The use of alternative employment arrangements by small businesses: evidence from the 2003 Survey of Small Business Finances," Finance and Economics Discussion Series 2008-45, Board of Governors of the Federal Reserve System (U.S.).
    12. Heywood, John S. & Siebert, W. Stanley & Wei, Xiangdong, 2006. "Examining the Determinants of Agency Work: Do Family Friendly Practices Play a Role?," IZA Discussion Papers 2413, Institute of Labor Economics (IZA).
    13. John S. Heywood & W.S. Siebert & Xiangdong Wei, 2011. "Estimating the Use of Agency Workers: Can Family-Friendly Practices Reduce Their Use?," Industrial Relations: A Journal of Economy and Society, Wiley Blackwell, vol. 50(3), pages 535-564, July.
    14. Jae Song & David J Price & Fatih Guvenen & Nicholas Bloom & Till von Wachter, 2019. "Firming Up Inequality," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 134(1), pages 1-50.
    15. Yaofeng Fu & Ruokun Huang & Yiran Sheng, 2017. "Labor Contract Law -An Economic View," Papers 1702.03977, arXiv.org.
    16. Michael Waldman, 1990. "A Signalling Explanation for Seniority Based Promotions and Other Labor Market Puzzles," UCLA Economics Working Papers 599, UCLA Department of Economics.
    17. Dermot Leahy & Catia Montagna, 2006. "'Make-or-Buy' in International Oligopoly and the Role of Competitive Pressure," Dundee Discussion Papers in Economics 197, Economic Studies, University of Dundee.
    18. Carolyn Pitchik, 2008. "Self-Promoting Investments," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 164(3), pages 381-406, September.
    19. Susan N. Houseman & Arne L. Kalleberg & George A. Erickcek, 2003. "The Role of Temporary Agency Employment in Tight Labor Markets," ILR Review, Cornell University, ILR School, vol. 57(1), pages 105-127, October.
    20. James Spletzer & Elizabeth Weber Handwerker, 2015. "The Role of Establishments and the Concentration of Occupations in Wage Inequality," Working Papers id:7427, eSocialSciences.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:inm:ormnsc:v:47:y:2001:i:8:p:1046-1062. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Asher (email available below). General contact details of provider: https://edirc.repec.org/data/inforea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.