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The Misaligned Incentives of Temporary Work Agencies and their Client Firms

Author

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  • Westéus, Morgan

    (Department of Economics, Umeå School of Business and Economics)

  • Raattamaa, Tomas

    (Department of Economics, Umeå School of Business and Economics)

Abstract

This paper adds to the theoretical literature on the incentives of Temporary Work Agencies (TWAs). Using a principal-agent model with hidden action to analyse two main types of contracts between a TWA and a Client Firm (CF), the TWA is shown to potentially act against the best interest of the CF when helping to fill a vacant position. The results also suggest that the adverse effect of the incentive misalignment is larger when workers are leased rather than hired by the CF. However, this effect could potentially be offset by introducing a sufficient level of competition among TWAs.

Suggested Citation

  • Westéus, Morgan & Raattamaa, Tomas, 2014. "The Misaligned Incentives of Temporary Work Agencies and their Client Firms," Umeå Economic Studies 896, Umeå University, Department of Economics.
    • Handle: RePEc:hhs:umnees:0896
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    Cited by:

    1. Raattamaa, Tomas, 2016. "Essays on Delegated Search and Temporary Work Agencies," Umeå Economic Studies 935, Umeå University, Department of Economics.

    More about this item

    Keywords

    Temporary work agency; client firm; incentives; matching; contracts;
    All these keywords.

    JEL classification:

    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • J44 - Labor and Demographic Economics - - Particular Labor Markets - - - Professional Labor Markets and Occupations
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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