Temporary Agency Work and Firm Performance: Evidence from German Establishment-Level Panel Data

This paper empirically examines the impact of temporary agency work on firm performanceusing panel data from German establishments. Thereby, special attention is devoted to thequestion, whether there are performance differences between firms using temporary agencyworkers (TAWs) as a buffer stock (flexibility strategy) and firms using TAWs for screeningpurposes (screening strategy). While the theoretical discussion on this issue does not lead toclear-cut results, our empirical investigation provides the following results. First, we find aninverse U-shaped relationship between the share of TAWs and firm performance. Second, weobtain that firms following the screening strategy are significantly more productive than firmsfollowing the flexibility strategy. These results are found to be valid in both cross-sectionaland panel data settings, so they are robust to unobserved firm heterogeneity.