New forms of work appear to be spreading like wildfire as part of the dynamic evolution of labour markets. Or so popular wisdom has it. Is it true? Take temporary employment. It is seen by many as the archetypical new employment arrangement. Its proponents argue that it increases labour market flexibility by making it easier for employers to hire and fire workers in line with shifting demands, as well as making workers themselves more mobile and freer to combine work with other activities, like child-rearing or study. But opponents argue that there are costs to pay for this additional flexibility: temporary jobs are second-class, with substantially worse pay and working conditions than permanent positions.
Reflecting these concerns, the European Commission, while broadly encouraging more labour market flexibility as part of the EU single market, has nonetheless produced two directives – one addressed to individuals hired under fixed-term contracts and the other aimed at individuals hired through temporary work agencies – to ensure equal treatment of temporary and permanent workers with respect to working conditions and pay.
Faced with these differing views, it is vital to review the available evidence on temporary jobs, and a forthcoming report by the OECD does this in some detail. Here, we examine a selection of the typical assertions put forward about temporary work in a bid to deflate some of the popular myths and to nuance others in light of the evidence.
Temporary work is growing everywhere.
There is some truth in this assertion, but it needs to be heavily qualified. In the 13 OECD countries for which we have data back to 1985, the share of temporary employment in total salaried employment has, on average, risen by less than three percentage points in the 15 years to 2000. This is hardly a massive shift. Much of this increase reflects trends in just a handful of countries, notably France, Italy, the Netherlands and Spain. Nor is the same trend repeated everywhere: indeed, the share declined in five of the 13 countries, including the United States. (One reason for the low recourse to temporary work in the United States may be that US permanent positions are less rigidly protected than in Europe, for instance, so there is less incentive for employers to offer temporary contracts.) There are also major differences in the importance of temporary work across countries. Although a third of workers had a temporary job in Spain in 2000, less than one in ten did so in Austria, Belgium, the Czech Republic, Hungary, Iceland, Ireland, Luxembourg, Norway, Poland, the United Kingdom and the United States.
Temporary work is a source of job insecurity that traps people into bad jobs with few prospects.
Here, the available evidence applies to European countries only and it shows that there is in fact considerable movement of temporary workers into permanent jobs. Between one-third of them (in Spain and France) and two-thirds of them (in Austria, the Netherlands and the UK) can expect to move into a permanent job within two years, while only one in every five will still be employed in a temporary job two years later (though as many as one in two in Belgium and Spain).
Nonetheless, the evidence leaves open the possibility that a sizeable number of the workers holding temporary jobs at any given point in time can expect to spend a non-negligible period either working in temporary jobs or moving between temporary jobs, unemployment or inactivity.
Temporary work pays much less than permanent work.
This fact has to be qualified. True, the average wage gap between temporary and permanent workers is large, ranging from over 15% to over 45% (see graph), but it is important to adjust for the fact that the average profiles of temporary and permanent workers are rather different. For example, young people with less experience are more likely to be employed in temporary jobs than in permanent ones and this explains part of the wage differential.
Once adjustments are made for age, work experience, sector of employment and so on – in other words, when experience and skills are more similar – the wage gap between temporary and permanent workers narrows significantly, although it is still there and remains a source of worker dissatisfaction.
Temporary work gives entitlement to fewer fringe benefits than permanent work.
In most OECD countries it is not the temporary status of a job that prevents some individuals benefiting from fringe benefits like paid leave, health coverage or pension plans. In European countries, statutory key benefits apply to all, so that temporary workers are in principle entitled to the same benefits as permanent workers. However, eligibility conditions for some or all of these benefits often require some minimum contribution period of, say, a year or so, which may, in practice, exclude some temporary workers from the benefit system.
Many countries build minimum contribution periods into their national social security systems to, among other things, limit the scope for abuse. And in North America, most fringe benefits are voluntary and provided by employers, and temporary workers seldom benefit from them.
Temporary jobs are of a menial nature and offer poorer working conditions than permanent jobs.
According to survey data on individuals’ reported satisfaction with their job, temporary workers’ satisfaction levels are similar to those of their permanent counterparts. The gap in overall satisfaction with one’s job is quite small, averaging some seven percentage points.
This may be because, for many, temporary jobs are but an entry into more permanent careers, or a chance to escape unemployment, or perhaps, a better way to combine work with activities like caring for others or studying.
However, temporary workers do report that they are much less satisfied with pay and job security than permanent workers: the gap between average satisfaction levels being in these cases almost 9 percentage points and 30 percentage points, respectively.
Temporary work provides little opportunity for skill upgrading and career development.
Again, this has to be qualified. Apart from the fact noted above that many temporary workers do obtain permanent jobs within a few years, there is some evidence that employers train temporary workers in order to be able to select the most able of them for permanent jobs. In addition, temporary work agencies often offer skills training to workers on their books. But, in general, temporary workers are overall less likely to receive training from employers than permanent workers.
In sum, aside from a few well-publicised cases, on the whole, temporary work is not just all about precarious work. Nor is it necessarily an unsatisfactory or stigmatising experience for the workers involved.
Some temporary jobs offer scope for skills upgrading and career development. They may pay less and carry fewer fringe benefits than permanent contracts, and there is probably some scope for policy attention there. But mostly, temporary jobs are often just a springboard into better jobs and careers.
* We are very grateful to Paul Swaim for helpful comments and to Sébastien Martin for assistance with the data.
• OECD Employment Outlook, 2002, just published.
©OECD Observer No 231/232, May 2002