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

We examine the effects of working for a Temporary Help Agency (THA) on transition rates for low-skilled temps to alternative states, using Spanish administrative data. Our analysis, based on the estimation of competing risk discrete-time duration models with multiple spells, reveals the importance of accounting for short-duration dependence. We find that a transition to unemployment or a (new) THA contract is more likely for agency workers than for direct-hire temps at all durations. The same holds for transitions to permanent contracts, though these are infrequent in our sample. The latter marginal effect of THA employment is procyclical. In contrast, the former effects increased during the Great Recession and are still high, which suggests that their increase in recent years is more structural than cyclical. When we control for worker unobserved heterogeneity, the marginal effect of agency contracts on the likelihood of entering unemployment increases and the effect on the THA reemployment probability falls. This suggests that the high persistence of THA employment is partially due to unobserved characteristics of agency workers, whereas their higher unemployment risk may be mainly due to the nature of their jobs