The Productivity Effect of Temporary Agency Work: Evidence from German Panel Data


  •  Corresponding author: Boris Hirsch, Chair of Labour and Regional Economics, Friedrich–Alexander-University Erlangen-Nuremberg, Lange Gasse 20, 90403 Nuremberg, Germany. Email:

  • We thank Elke J. Jahn and Claus Schnabel for many insightful discussions and valuable advice. We are further grateful to Jürgen Deinhard, Nathalie Galais, Sven Jung, Dario Pozzoli, Regina T. Riphahn, Thorsten Schank, Cynthia Sende, Judith Wüllerich and three anonymous referees for very helpful comments and suggestions. We also appreciate the comments received from participants of the IAB/LASER workshop ‘Increasing Labor Market Flexibility – Boon or Bane?’ in March 2011.


This study investigates the effect of temporary agency work on the user firm’s productivity. We hypothesise that using temporary agency work to enhance numerical flexibility and to screen job candidates may increase productivity, whereas temporary workers’ lower firm-specific human capital and spillover effects on the user’s permanent employees may adversely affect productivity. Other than the sparse existing literature on this issue, we exploit a large panel data set and control for time-invariant and time-varying unobserved heterogeneity by using the system GMM estimator. We find a robust hump-shaped effect of the extent of temporary agency work on the user firm’s productivity.