Domestic outsourcing and worker outcomes : evidence from staffing firms

The rising incidence of alternative work arrangements, such as outsourcing, raises important questions about worker outcomes in such non-standard labor contracts. We study this question in the Netherlands, a country with a rapid rise in flexible labor contracts, using administrative employer-employee data from 2006-2019. To identify the causal impact of outsourcing, we take advantage of a legal arrangement called "patrolling", where workers hired by one firm are placed on a staffing firm's payroll while maintaining their job duties at the original firm. We find that outsourced workers experience worse labor market outcomes compared to a matched control group. These include persistently lower employment probability, lower hourly wage growth, a lower incidence of permanent contracts, and strikingly reduced pension contributions. This suggests that outsourcing erodes employment protection and job quality and leads to long-term scarring of labor market outcomes.