Do temporary help agencies help? Employment transitions for low-skilled workers

We investigate the impact of working for a temporary help agency (THA) compared to being directly hired on the employment transitions of low-skilled male temporary workers aged 20 to 45. Using data from Spanish administrative records, we employ competing risk discrete-time duration models to analyze multiple temporary employment spells. Our analysis reveals the importance of accounting for short-duration dependence and workers’ unobserved heterogeneity. We find that, across all durations, agency workers are more likely to transition either to unemployment or to a new THA contract than their direct-hire counterparts. Transitions to permanent positions, although infrequent in our sample, are also more likely for agency workers. Our qualitative findings hold when unobserved heterogeneity is not controlled for. However, this model underestimates the effect of agency contracts on the risk of entering unemployment and overestimates the impact on the probability of re-entering THA. This suggests that positive self-selection plays a relevant role in explaining the higher persistence of THA employment, but not the associated higher risk of unemployment.