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Temporary Employees as Real Options

Author

Listed:
  • Folta, Timothy B.
  • Foote, David A.

Abstract

Choosing between temporary services workers and long-term employees involves a tradeoff between flexibility and commitment. Temporary employees provide both a buffer against unforeseen shocks and a secondary internal labor market to preview employees prior to long-term hire. We use real options theory to diagnose why firms pay premiums for temporary employees and to examine situations in which firms might prefer temporary employees to permanent employees. We believe a real options perspective on temporary employment offers firms more effective management of their human capital decisions, whether to hedge against exogenous shocks or increase valitity and reliability in selection.

Suggested Citation

  • Folta, Timothy B. & Foote, David A., 1999. "Temporary Employees as Real Options," Purdue University Economics Working Papers 1123, Purdue University, Department of Economics.
    • Handle: RePEc:pur:prukra:1123
    as

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