Wage effects of labor market entry via temporary work agency employment - evidence for German apprenticeship graduates

In light of the remarkable number of young people who pass through a period of temp work at the beginning of their career the question arises whether labor market entry via temporary work agency (TWA) employment has any (persistent) effects on labor market outcomes. We investigate this issue using a unique dataset that contains information from the German apprenticeship system which is merged with the employment biographies of more than 8,000 apprenticeship graduates for the 1999-2007 period. We apply propensity score matching and the control function approach in order to analyze the wage gap and the medium-term wage effects of TWA employment. Our results point to a rather pronounced wage gap and persistent adverse wage effects. But we detect no significant wage disadvantage for graduates who switch to regular employment. An important percentage of graduates who enter the labor market via a temp spell does, however, not manage to permanently leave the TWA sector and thus has to bear persistent wage penalties.