Employment protection and temporary work agencies

Employers who use temporary agency staff in contrast to regular staff are not affected byemployment protection regulations when terminating a job. Therefore, services providedby temporary work agencies may be seen as a substitute for regular employment. In thispaper, we analyze the effects of employment protection on the size of the temporary workagency sector in a model of equilibrium unemployment. We find that higher firing costsmay even reduce temporary work agency employment if agencies themselves are subjectto employment protection, a consideration which distinguishes our results from those forfixed-term employment arrangements.