Employment Effects of the EU Temporary and Agency Workers Directive in Sweden

This paper analyses possible effects on total employment, and the distribution between agency work and regular contracts as a consequence of the Swedish implementation of the EU Temporary and Agency Workers Directive in a dual labour market Mortensen-Pissarides search model. The directive states that the basic working and employment conditions for agency workers should be equal to those for a comparable employee at the client firm, and that all parties should actively facilitate the transition from agency employment to employment directly at the client firm. Even though the results suggest a negative net effect on total employment, the implementation is shown to have a positive impact on overall welfare, and that an increased transition probability from the agency sector into regular employment would contribute even more.