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Demand volatility and the lag between the growth of temporary and permanent employment

  • Sainan Jin
  • Yukako Ono
  • Qinghua Zhang

The growth rate of temporary help service employment is often considered to be a leading business cycle indicator, because the firing and hiring of temporary help workers typically lead that of permanent workers. However, few works in the literature focus on the mechanism that generates the lag between temporary and permanent growth. This paper investigates how demand volatility is related to the lag. Focusing on the relationship between a firm’s information extraction and their hiring/firing decisions, our simple model predicts that the average size of transitory demand shocks increase the lag while the average size of shocks that persist longer shortens the lag. Our empirical analysis based on cross-city variation finds supporting evidence to the above predictions, after controlling for city size and other city-specific demographic characteristics.

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Paper provided by Federal Reserve Bank of Chicago in its series Working Paper Series with number WP-07-19.

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Date of creation: 2007
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Handle: RePEc:fip:fedhwp:wp-07-19
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  1. Li Gan & Qinghua Zhang, 2005. "The Thick Market Effect on Local Unemployment Rate Fluctuations," NBER Working Papers 11248, National Bureau of Economic Research, Inc.
  2. David H. Autor, 2000. "Outsourcing at Will: Unjust Dismissal Doctrine and the Growth of Temporary Help Employment," NBER Working Papers 7557, National Bureau of Economic Research, Inc.
  3. Daniel S. Hamermesh, 1988. "Labor Demand and the Structure of Adjustment Costs," NBER Working Papers 2572, National Bureau of Economic Research, Inc.
  4. Victor Aguirregabiria & Cesar Alonso-Borrego, 2009. "Labor Contracts and Flexibility: Evidence from a Labor Market Reform in Spain," Working Papers tecipa-346, University of Toronto, Department of Economics.
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