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Stability versus Flexibility: The Role of Temporary Employment in Labour Adjustment

  • Shutao Cao
  • Danny Leung

In Canada, temporary workers account for 14 per cent of jobs in the non-farm business sector, are present in a range of industries, and account for 40 per cent of the total job reallocation. Yet most models of job reallocation abstract from temporary workers. This paper evaluates the importance of temporary workers in job reallocation in a multi-sector model with costly labour adjustment and temporary workers. The calibrated model captures some features of job reallocation in Canada. The paper shows that the adjustment cost parameters for permanent workers are underestimated if temporary workers are ignored. It also shows that when a shock occurs where permanent workers bear the brunt of reallocation (e.g. the 2005-2008 commodity price boom and the appreciation of the Canadian dollar), aggregate adjustment costs are underestimated if temporary workers are not accounted for.

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File URL: http://www.bankofcanada.ca/wp-content/uploads/2010/11/wp10-27.pdf
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Paper provided by Bank of Canada in its series Working Papers with number 10-27.

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Length: 46 pages
Date of creation: 2010
Date of revision:
Handle: RePEc:bca:bocawp:10-27
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  1. Alonso-Borrego, César & Fernández-Villaverde, Jesús & Galdon-Sanchez, Jose Enrique, 2004. "Evaluating Labor Market Reforms: A General Equilibrium Approach," IZA Discussion Papers 1129, Institute for the Study of Labor (IZA).
  2. Varejão, José & Portugal, Pedro, 2006. "Employment Dynamics and the Structure of Labor Adjustment Costs," IZA Discussion Papers 1922, Institute for the Study of Labor (IZA).
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