Procrastinators and hyperbolic discounters: Transition probabilities of moving from temporary into regular employment

Temporary agency work (TAW) is believed to facilitate matching between firms and job searchers, which results in shortening the unemployment and job search duration. On the other hand, as firms hiring temporary workers have less incentive to train them, it is difficult for low-skilled temporary workers to find better jobs in the future. This study examines the effect of TAW experience on employment transitions in the Japanese labor market, focusing on individual time preferences. Investments in one’s career involve a trade-off between immediate costs and future rewards, and thus individual heterogeneity in time preferences may explain the behavioral patterns of the labor force in career choices. The results indicate that those who have a higher degree of impatience are likely to engage in the TAW sector. In addition, those who have held temporary jobs are less likely to move into regular job positions, but no significant wage differences are observed between those with the TAW experience and those without the TAW experience. The observed negative effect of TAW on the transition probability into regular employment becomes smaller or statistically insignificant, when time preferences are additionally controlled for. The combined findings suggest that the possible negative effect may be attributed to the difference in the time preferences between individuals with the TAW experience and those without.