Do Temporary Help Agencies Help? Employment Transitions for Low-Skilled Workers

The effects of working for a Temporary Help Agency (THA) on low-skilled workers’ transition rates to alternative states are examined using Spanish administrative data. Our approach is based on the estimation of competing risk discrete time duration models with multiple spells, and reveals the importance of accounting for short duration dependence. We find that having a THA contract rather than a direct-hire temporary contract increases the probability of entering unemployment or another agency job at all durations. It also makes transitions to permanent employment more likely, but these are very infrequent. While the latter positive effect of THA employment is procyclical, the effect on the probability of entering unemployment (or another agency job) increased during the recession relative to the expansion, and has remained high during the recovery. Our main conclusions do not qualitatively change when we control for worker unobserved heterogeneity. Yet, when we do not, we underestimate the effect of THA employment on the likelihood of entering unemployment and overestimate its effect on the THA reemployment probability. This suggests that the first effect may be mainly attributed to the nature of THA jobs, while worker unobserved heterogeneity contributes to the second