Identifying the Substitution Effect of Temporary Agency Employment

Abstract

This paper fills a gap in the literature by investigating whether temporary agency employment substitutes regular employment. To take into account the interaction between the two employment forms, we identify a SVAR model with correlated innovations by volatility regimes. We show that a positive shock to temporary agency employment increases overall employment, but also leads to substitution of regular jobs.

Keywords: temporary agency employment, substitution effect, Germany

JEL Classification: C32, J21, J41