Temporary employment, demand volatility and unions: Firm-level evidence

This paper investigates the effect of workplace unionization and demand volatility on firms' propensity to use temporary employment. Using Italian firm level data, we show that the impact of unionization crucially depends on the type of fixed term contracts considered and the degree of volatility. The presence of unions per se is found to increase the demand for non-training temporary contracts, while it does not affect the demand for training temporary contracts. We argue that this occurs because non-training temporary contracts are typically used as a buffer stock to cope with uncertainty, and the unions tend to encourage their use to protect insider workers. Training temporary contracts, on the other hand, do not lend themselves to this function, as they are more likely to be used as a screening device for future permanent positions. We also find that, as volatility increases, the unions become more concerned about the weakening of their bargaining power and tend to discourage the hiring of non-training temporary workers.