Recent Developments in Temporary Employment: Employment Growth, Wages and Transitions

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1 Corell Uiversity ILR School Iteratioal Publicatios Key Workplace Documets 2015 Recet Developmets i Temporary Employmet: Employmet Growth, Wages ad Trasitios Eurofoud Follow this ad additioal works at: Thak you for dowloadig a article from DigitalCommos@ILR. Support this valuable resource today! This Article is brought to you for free ad ope access by the Key Workplace Documets at DigitalCommos@ILR. It has bee accepted for iclusio i Iteratioal Publicatios by a authorized admiistrator of DigitalCommos@ILR. For more iformatio, please cotact hlmdigital@corell.edu.

2 Recet Developmets i Temporary Employmet: Employmet Growth, Wages ad Trasitios Abstract [Excerpt] This report presets a broad picture of temporary employmet across the EU27 (Croatia is ot icluded). It maps the recet evolutio of temporary employmet, before ad after the ecoomic crisis, usig EU Labour Force Survey data for 2001 to The report calculates the wage gap betwee temporary ad permaet employees usig data from the 2010 ad 2006 waves of the Structure of Earigs Survey (SES), ad makes a iovative empirical aalysis of the wage gap withi compaies. It looks also at labour market trasitios of temporary employees ito permaet employmet ad o-employmet usig data from the EU Statistics o Icome ad Livig Coditios for 2006 to Keywords Europea Uio, temporary employmet, wage gap, labor market Commets Suggested Citatio Europea Foudatio for the Improvemet of Livig ad Workig Coditios. (2015). Recet developmets i temporary employmet: Employmet growth, wages ad trasitios. Luxembourg: Publicatios Office of the Europea Uio. This article is available at DigitalCommos@ILR:

3 Recet developmets i temporary employmet: Employmet growth, wages ad trasitios Coordiatig the Network of EU Agecies 2015

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5 Recet developmets i temporary employmet: Employmet growth, wages ad trasitios Wyattville Road, Loughlistow, Dubli 18, D18 KP65, Irelad. Tel: (+353 1) iformatio@eurofoud.europa.eu Web:

6 Whe citig this report, please use the followig wordig: Eurofoud (2015), Recet developmets i temporary employmet: Employmet growth, wages ad trasitios, Publicatios Office of the Europea Uio, Luxembourg. Author: Carlos Vacas-Soriao Research maager: Doald Storrie Eurofoud project: Labour market trasitios i turbulet times Luxembourg: Publicatios Office of the Europea Uio, 2015 doi: / ISBN: For rights of traslatio or reproductio, applicatios should be made to the Director, Europea Foudatio for the Improvemet of Livig ad Workig Coditios, Wyattville Road, Loughlistow, D18 KP65, Irelad. The Europea Foudatio for the Improvemet of Livig ad Workig Coditios (Eurofoud) is a tripartite Europea Uio Agecy, whose role is to provide kowledge i the area of social ad work-related policies. Eurofoud was established i 1975 by Coucil Regulatio (EEC) No. 1365/75, to cotribute to the plaig ad desig of better livig ad workig coditios i Europe. Europea Foudatio for the Improvemet of Livig ad Workig Coditios Telephoe (+353 1) iformatio@eurofoud.europa.eu Web: Europe Direct is a service to help you fid aswers to your questios about the Europea Uio. Freephoe umber (*): (*) Certai mobile telephoe operators do ot allow access to umbers or these calls may be billed. Cover image: Shutterstock

7 Cotets Executive summary Itroductio 1. Mappig temporary employmet over a decade 2. Determiats of temporary employmet 3. Characteristics of temporary employmet 4. Wage gap betwee temporary ad permaet employees 5. Employmet trasitios for temporary employees 6. Coclusios Bibliography Aex

8 Coutry codes EU Member States AT Austria FI Filad MT Malta BE Belgium FR Frace NL Netherlads BG Bulgaria HR Croatia PL Polad CY Cyprus HU Hugary PT Portugal CZ Czech Republic IE Irelad RO Romaia DE Germay IT Italy SE Swede DK Demark LT Lithuaia SI Sloveia EE Estoia LU Luxembourg SK Slovakia EL Greece LV Latvia UK Uited Kigdom ES Spai Other coutries AU Australia IS Icelad NO Norway CA Caada JP Japa RU Russia CH Switzerlad KR Korea TR Turkey CL Chile MX Mexico US Uited States of America Coutry groups EU15 Austria, Belgium, Demark, Filad, Frace, Germay, Greece, Irelad, Italy, Luxembourg, the Netherlads, Portugal, Spai, Swede ad the Uited Kigdom EU12 Bulgaria, Cyprus, the Czech Republic, Estoia, Hugary, Latvia, Lithuaia, Malta, Polad, Romaia, Slovakia ad Sloveia Abbreviatios used i the report CEE EU-LFS EU-SILC GDP HTI KIS LKIS LTI OECD SES cetral ad easter Europea Europea Uio Labour Force Survey Europea Uio Statistics o Icome ad Livig Coditios gross domestic product high-techology idustry kowledge-itesive services less kowledge-itesive services low-techology idustry Orgaisatio for Ecoomic Co-operatio ad Developmet Structure of Earigs Survey

9 Executive summary Itroductio This report presets a broad picture of temporary employmet across the EU27 (Croatia is ot icluded). It maps the recet evolutio of temporary employmet, before ad after the ecoomic crisis, usig EU Labour Force Survey data for 2001 to The report calculates the wage gap betwee temporary ad permaet employees usig data from the 2010 ad 2006 waves of the Structure of Earigs Survey (SES), ad makes a iovative empirical aalysis of the wage gap withi compaies. It looks also at labour market trasitios of temporary employees ito permaet employmet ad o-employmet usig data from the EU Statistics o Icome ad Livig Coditios for 2006 to Policy cotext Risig structural uemploymet ad global competitio i the 1980s led to demads for greater flexibility i labour markets, which resulted i reforms of employmet protectio legislatio. This i tur gave rise to a icreasig use of temporary employmet cotracts i the 1980s ad 1990s i may Europea coutries. I the past decade, this tred has cotiued i a umber of coutries, which have made reforms to employmet protectio legislatio desiged to ease the use of temporary cotracts. Some of these reforms raised cocers of labour market segmetatio i Europea labour markets, sice may coutries adopted two-tier reforms i employmet protectio legislatio, easig the use of temporary cotracts while leavig the regulatio of permaet employmet largely uchaged. Key fidigs Temporary employmet grew by 25% i the EU27 betwee 2001 ad 2012, compared with 7% for permaet employmet. It accouted for almost 4.5 millio of the 14.5 millio et icrease i the umber of employees ad pushed the temporary employmet rate from 11.2% to 12.8%. Polad, Germay, Italy, Frace ad the Netherlads accouted for much of the absolute icrease i temporary employmet levels i the EU27, while temporary employmet levels fell i a third of Member States, most otably i Spai. Both temporary ad permaet employmet levels fell at similar rates betwee 2008 ad 2012 i the EU, but the umber of temporary cotracts icreased ad the umber of permaet cotracts decreased i may Europea coutries durig this period. Agaist a backgroud of poor ecoomic prospects, employers are recruitig a much higher proportio of ew employees o temporary cotracts i the EU27 (up to 50% betwee 2010 ad 2012 compared with 40% i 2002). I 2012, this share was aroud 80% i Spai ad Polad. The likelihood of holdig a temporary cotract is higher for employees with lower educatioal attaimet, oatioals, part-time employees ad those workig i agriculture ad certai service sectors. It is much higher amog youger employees, although age, while a importat factor i predictig the icidece of temporary employmet, seems less relevat as a determiat i cetral ad easter Europea coutries tha elsewhere. Experiece of uemploymet icreases the odds of subsequetly holdig a temporary cotract, a situatio reiforced by the ecoomic crisis. O average, temporary employees i the 19 Member States with complete SES coverage ear wages that are 19% lower tha those of permaet employees. Temporary employees sustai a egative wage gap i all these coutries apart from Estoia; the gap is more tha 30% i Luxembourg, Polad, the Netherlads, Portugal ad Hugary. This wage gap is larger i coutries with higher temporary employmet rates, suggestig labour market segmetatio. The egative wage gap bore by temporary employees varies with the level of wages. It is highest at the bottom of the wage distributio but arrows as wages icrease, ad eve turs positive amog highly paid employees. 1

10 Recet developmets i temporary employmet: Employmet growth, wages ad trasitios Whe cotrollig for other factors that determie pay (such as educatioal attaimet ad ecoomic sector), the Europea average for the adjusted wage gap disfavourig temporary employees falls to 6%. This adjusted wage gap exists i all coutries except the three Baltic States ad Romaia, where the gap is positive. The gap exists eve amog short-teured employees across most coutries, idicatig that the lower wages for temporary employees are ot oly due to their shorter job teures. There is also a uadjusted egative wage gap related to temporary status withi the average compay i all coutries except Lithuaia. Nevertheless, this gap, at 14%, is lower tha the uadjusted overall wage gap of 19% oted above. The wage gap withi compaies is arrower i most coutries (especially i Frace, Greece, Polad, Spai ad Lithuaia). This meas that lower wages for temporary employees are due to both pay differetials withi ad betwee compaies, supportig the dual market theory statig that temporary employees are more likely to work i compaies payig relatively lower wages. Aalysis at the compay level suggests that the wage gap withi compaies arrows whe compaies are publicly cotrolled or employ high shares of wome, while it wides whe compaies employ a high share of temporary employees, perhaps reflectig iteral labour market segmetatio at compay level. Trasitio rates out of employmet are higher amog temporary tha permaet employees across all coutries. This gap wideed otably from the oset of the crisis. Trasitio rates from temporary to permaet cotracts for the EU as a whole declied from 28% betwee 2005 ad 2006 to 20% betwee 2011 ad The rate i the latter period was below 20% i Frace, the Netherlads, Spai, Greece, Italy ad Polad, all of which are coutries characterised by relatively high temporary employmet rates, agai suggestig labour market segmetatio. Coclusio The relative importace of temporary employmet cotiued to grow i the EU27 betwee 2001 ad This tred was ot uiversal across Member States but became more homogeeous from the oset of the crisis, ad temporary cotracts are icreasigly beig used by employers to recruit ew employees i the most recet years. Temporary employees geerally ear less tha their permaet couterparts. A egative gap disfavourig temporary employees emerges across most coutries eve whe cotrollig for other factors or whe restrictig the sample to shortteured employees. Several fidigs poit to the existece of labour market segmetatio i a umber of Europea labour markets. The wage gap teds to be larger i coutries with higher temporary employmet rates. Temporary employees also ear less tha their permaet couterparts i the same compay, although the size of the gap is smaller, idicatig that part of the total wage gap is due to pay differetials betwee compaies. This supports the dual market theory predictio that temporary employees are more likely to work i compaies payig lower wages ad explais why the total wage gap teds to be larger i those coutries with high temporary employmet rates. The fact that trasitios from temporary to permaet cotracts are less frequet i those coutries with a higher temporary employmet rate also poits towards labour market segmetatio. The study raises cocers about the career prospects of temporary employees, especially agaist the backgroud of the curret labour market situatio. Trasitios out of employmet are becomig more commo while those ito permaet employmet are becomig more difficult i recet years, which raises questios about the extet to which temporary cotracts facilitate career progressio. 2

11 Itroductio The growig importace of temporary cotracts is oe of the mai features characterisig may Europea labour markets for at least three decades. Accordig to data from the Orgaisatio for Ecoomic Co-operatio ad Developmet (OECD), the share of temporary cotracts icreased from 8.8% i 1980 to 14.2% i 2013 i Europe (that is, i those Europea coutries that are OECD members). The icrease seems more relevat i the Europea case sice temporary employmet icreased from 9.2% to 11.8% over the same period for all OECD coutries. Although the share of temporary cotracts amog all employees varies cosiderably betwee EU Member States, the EU average is comparable to that of other developed coutries (Figure 1). I 2014, 14% of employees aged over 14 years i the EU28 held a temporary cotract; this figure is roughly the same as that of Caada, Icelad, Switzerlad ad Turkey, lower tha that of Korea but much higher tha that of the USA, Australia or Japa. Figure 1: Temporary cotracts as share of total employees aged over 14 years, EU28 Member States ad other coutries, % Notes: Data refer to 2013 for Australia, 2005 for the USA ad 2004 for Mexico. Coutries are raked by temporary employmet share. Blue bars deote EU Member States; red bars deote o-eu28 coutries. Source: Eurostat for EU coutries ad OECD for o-eu coutries Temporary cotracts offer compaies the advatage of lower employmet adjustmet costs. Whe a temporary cotract is ot reewed, the costs may be effectively zero, while ope-eded employmet cotracts are usually associated with, sometimes sigificat, severace costs. Agaist the backgroud of growig structural uemploymet ad global competitio, demads for more labour market flexibility have led sice the 1980s to policy reforms i the area of temporary employmet i may Europea coutries. It was argued that the low severace costs of temporary cotracts would ecourage hirig by compaies. But while the research fidigs suggest that loose employmet protectio legislatio does icrease the variatio of employmet cotracts over the busiess cycle, evidece o the impact o employmet levels is far from coclusive. Followig reforms i employmet protectio legislatio, temporary 3

12 Recet developmets i temporary employmet: Employmet growth, wages ad trasitios employmet cotracts were icreasigly used through the 1980s ad 1990s i may Europea coutries (OECD, 2002; Europea Commissio, 2010). The expasio of temporary employmet has raised cocer about the isecurity ad employmet prospects of temporary employees. I additio, temporary jobs have bee associated with lower wages ad more difficultly accessig traiig opportuities ad beefits (Booth et al, 2002; OECD, 2002; McGover et al, 2004; Gash, 2008; Gebel, 2009; Europea Commissio, 2010). Moreover, the use of temporary cotracts may result i labour market segmetatio whereby a segmet of employees characterised by worse workig coditios, may of whom are o temporary cotracts, co-exists with a well-protected segmet of workers ejoyig better workig coditios ad career prospects. Opportuities to move from the former to the latter segmet may be limited (Boeri, 2010). However, temporary cotracts may provide greater flexibility for both employers ad workers. Employers ca beefit from a ehaced capability to adapt to fluctuatios i demad ad may use temporary cotracts as a cheaper way to scree ew hires. Some employees may prefer to hold temporary jobs that may require less commitmet ad allow for a better work life balace, or prefer temporary jobs that allow them faster access to the labour market (Tremlett ad Collis, 1999). Temporary jobs ca be a steppig stoe ito the labour market towards a more stable employmet cotract (Booth et al, 2002). Available data idicate that temporary employmet levels expaded i Europe durig the 1980s ad 1990s. This report aims to update this picture by mappig the evolutio of temporary employmet i the Europea Uio over the past decade, both before ad after the Great Recessio, usig maily Eurostat s EU Labour Force Survey (EU-LFS) microdata for the period 2001 to The report also describes the mai characteristics of temporary employees ad examies some of the most importat features associated with temporary cotracts, such as relative pay levels ad career prospects. Defiitio of temporary employmet Temporary employmet is a heterogeeous cocept. It may refer to fixed-term cotracts, o-call work, probatioary jobs, leave replacemets ad sometimes temporary agecy work. The full list of jobs that qualify as temporary employmet varies betwee coutries, ad iteratioal comparisos of temporary employmet may ot always compare like with like. Nevertheless, Eurostat harmoises the Labour Force Surveys coducted at atioal level i Europea coutries, ad the data should esure some degree of comparability betwee temporary employees across coutries. This report is based o data from Eurostat, which defies temporary employmet as follows: Employees with temporary cotracts are those who declare themselves as havig a fixed-term employmet cotract or a job which will termiate if certai objective criteria are met, such as completio of a assigmet or retur of the employee who was temporarily replaced. Scope of the report The aim of the curret study is to preset a broad picture of temporary employmet across the EU27 (Croatia is ot icluded due to lack of data), drawig o various Europea datasets. 4

13 Recet developmets i temporary employmet: Employmet growth, wages ad trasitios It cosiders temporary employmet amog employees oly, excludig other categories of workers such as family workers ad the self-employed. It does ot cover employees below 20 years of age because they represet a very small fractio of employmet i the EU due to the large proportio of their life spet i educatio. Moreover, they are typically excluded from the EU s mai employmet targets set withi core policy iitiatives such as Europe Temporary employmet rates are slightly lower as a result of excludig this tee segmet due to the high level of temporary cotracts amog this group. Elimiatig this group excludes may employees i appreticeship schemes. However, there is a good reaso for this. This report compares temporary ad permaet (or ope-eded) cotracts. I some coutries such as Austria ad Germay, appreticeships are programmes built ito the educatio system ad do ot really represet a substitute for permaet employmet. It therefore makes sese to exclude such cases as far as is possible with the data available. However, all employees aged 20 years or over who are i appreticeship schemes are icluded i the aalysis whe usig EU-LFS data. Structure of the report The report has six chapters. Chapter 1 describes the evolutio of temporary employmet i the EU sice the tur of the 21st cetury, lookig at patters i temporary ad permaet employmet levels ad temporary employmet rates. Chapter 2 idetifies the mai determiats of temporary employmet i terms of persoal, compay ad job characteristics. Chapter 3 explores some features of temporary cotracts, such as the reasos for holdig them ad their duratio. It also compares some aspects of workig coditios betwee temporary ad permaet employees. Chapter 4 presets a aalysis of the pay differetials betwee temporary ad permaet cotracts across coutries ad a wide rage of workforce characteristics, icludig the wage gap withi compaies. Chapter 5 examies the career prospects of temporary employees by comparig their labour market trasitios with those of permaet employees. Chapter 6 presets the report s coclusios. 5

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15 Mappig temporary employmet over a decade 1 This chapter examies the evolutio of temporary employmet i the EU27 over a decade, coverig the period 2001 to 2012, usig two pricipal measures: the temporary employmet level, which is the umber of employees holdig temporary cotracts; the temporary employmet rate, which is calculated usig the followig formula: 1 Temporary employmet rate = Number of temporary employees Total umber of employees (temporary ad permaet) Previous studies have highlighted the icrease i temporary employmet i Europe betwee the 1980s ad early 2000s. However, differeces i temporary employmet rates across coutries are sigificat, ad there is o commo growth tred towards higher levels i all coutries (OECD, 2002). The temporary employmet rate has icreased i the EU27 sice 2001, although the ecoomic ad fiacial crisis geerated great volatility. The rapid growth i the level of temporary cotracts betwee 2002 ad 2007 led to a strog icrease i the temporary employmet rate. The level fell sigificatly i the early stage of the recessio, hittig a cyclical low i Betwee the ad 2014, temporary employmet hovered aroud levels still well below the pre-recessio peak (Figure 2). Figure 2: Employmet levels ad temporary employmet rate, EU27, Employmet level idex (2001=100) Temporary employmet rate (%) Permaet Temporary Temporary employmet rate Notes: Data refer to employees aged years. Employmet levels have bee idexed with 2001 as the base year. The temporary employmet rate is plotted agaist the secodary axis. Source: EU-LFS ad authors ow calculatios 1 Respodets who do ot provide a respose to the questio o type of cotract are ot cosidered, therefore eutralisig the effect of the o-resposes (assumig that there is o bias i the o-respose categories). 7

16 Recet developmets i temporary employmet: Employmet growth, wages ad trasitios The first part of this chapter describes the patters i temporary ad permaet employmet levels across EU Member States, ad the secod covers temporary employmet rates. Germay, Spai, Frace, Italy ad Polad accout for more tha 70% of the temporary employmet cotracts i Europe, so special attetio is paid to them (see also Table A1 i the Aex). Temporary employmet levels Temporary cotracts accout for almost oe-third of the et employmet gais i the EU27 betwee 2001 ad 2012, cotributig almost 4.5 millio to the 14.5 millio et icrease i the umber of employees (Table 1). Although temporary employmet levels expaded across two-thirds of Europea coutries, the absolute gais i the EU27 are primarily attributable to five coutries: Polad (2 millio), Germay (1.1 millio), Italy (900,000), Frace (400,000) ad the Netherlads (300,000). However, Spai lost i et terms almost half a millio temporary jobs i the same period, while the UK lost almost 140,000. Table 1: Number of employees by type of cotract, i thousads, EU27 Member States Permaet Temporary.a. Permaet Temporary.a. Permaet Temporary.a. AT 2, , , BE 3, , , BG 1, , , CY CZ 3, , , DE 27,980 2, ,777 3, ,186 4, DK 2, , , EE EL 2, , , ES 8,689 3,841 11,755 4,570 10,846 3,369 FI 1, , , FR 17,786 2, ,618 3,124 19,251 3,252 HU 3, , , IE 1, , , IT 13,770 1,404 15,038 2,217 14,812 2,307 LT 1, , , LU LV MT NL 5, , ,514 1, PL 9,002 1,150 8,878 3,180 8,839 3,189 PT 2, , , RO 5, , , SE 3, , , SI SK 1, , , UK 21,267 1, , ,663 1, EU27 142,967 18, ,269 22, ,445 22, Note: There is a sigificat level of o-resposes o type of cotract (show i the.a. colum) i several coutries, which is typically higher at the begiig of the period. I such cases, the growth i temporary ad permaet employmet levels over the period is partially due to a reductio i the o-resposes category. Source: EU-LFS 8

17 Recet developmets i temporary employmet: Employmet growth, wages ad trasitios Temporary cotracts cotributed otably to icreases i employee levels over the decade i may coutries (Figure 3). I the Netherlads, Polad, Portugal, Slovakia ad Sloveia, temporary cotracts explai the growth i the aggregate employee level, agaist a backgroud of cotractio of permaet cotracts, except i the case of Slovakia. I Greece ad Latvia, treds i temporary employmet also domiate the picture but, i this case, due to reductios i temporary cotracts. Temporary cotracts are resposible for half of the growth i employee levels i the Czech Republic, Hugary, Irelad ad Italy, while they explai aroud a third of the icrease i Germay ad the EU27 as a whole. However, temporary employmet declied ad had a egative cotributio across a third of EU27 coutries. Figure 3: Cotributios of chages i permaet ad temporary employmet levels to employee growth rate i Member States ad EU27, % Permaet (cotributio) Temporary (cotributio) Employee level growth rate Note: Coutries are raked by the ratio of temporary employmet cotributio to the sum of temporary ad permaet employmet cotributios. The latter do ot always add up to the employee growth rate due to missig observatios o type of cotract. Source: EU-LFS The expasio i the temporary employmet level was much larger i relative terms, growig by 25% i the EU27 betwee 2001 ad 2012, tha the growth i permaet employmet, which grew by oly 7%. Temporary cotracts registered a higher growth rate tha permaet cotracts i two-thirds of Europea coutries. Nevertheless, these treds are clearly iflueced by the impact of the crisis, as show by Figures 4 ad 5. Temporary employmet grew more substatially betwee 2001 ad 2008 i the EU27 tha it did subsequetly, although the picture is mixed across coutries (Figure 4). This was the case i aroud half the coutries (those located to the right of the blue lie i Figure 4), especially Polad ad Irelad; permaet cotracts registered higher growth rates i the other half of Europea coutries, with temporary employmet cotractig i several. 9

18 Recet developmets i temporary employmet: Employmet growth, wages ad trasitios Figure 4: Growth rate of employmet levels, Member States ad EU27, BG ES Permaet employmet (%) LT RO LV UK EL EE BE AT FI FR SK MT EU27 SE SI DK CZ PT HU DE NL IT CY LU IE PL Temporary employmet (%) Source: EU-LFS From the oset of the crisis i 2008, temporary ad permaet employmet levels declied at a similar rate for the EU27 up to 2012, although the picture is more homogeeous across coutries tha for (Figure 5). Temporary cotracts expaded relatively more or cotracted less i most cases (those coutries to the right of the blue lie i Figure 5). Temporary employmet grew ad permaet employmet declied i more tha two-thirds of Europea coutries. This was ot the case i Greece, Portugal or Spai, however, where temporary cotracts suffered a sigificat declie i relative terms. I Spai, temporary employees suffered the heaviest burde of the labour market adjustmet, ad their et umbers were reduced by 1.2 millio (Table 1). 10

19 Recet developmets i temporary employmet: Employmet growth, wages ad trasitios Figure 5: Growth rate of employmet levels, Member States ad EU27, LU 5 DE CY MT Permaet employmet (%) ES PT BG BE SE PL IT EU27 FR FI CZ DK SI AT NL IE HU UK RO EE SK -15 LT EL -20 LV Temporary employmet (%) Source: EU-LFS Temporary employmet levels are more resposive to fluctuatios i ecoomic activity, almost aticipatig chages of directio i the busiess cycle (Figure 6). At the begiig of the 21st cetury, the burst of the dot-com bubble was quickly reflected i the growth rate of temporary cotracts, which moderated much earlier tha that of permaet employmet levels. Temporary cotracts the boomed from 2002 with the icipiet ecoomic recovery, while permaet employmet creatio was very cotaied. From 2005, the gap i the growth rates betwee temporary ad permaet employmet levels started to arrow, almost aticipatig the dramatic chage i the busiess cycle that was to come. With the oset of the fiacial crisis, temporary employmet levels declied i 2008 ad eve more so i Nevertheless, they quickly bouced back i 2010 respodig to a stimulatio i aggregate demad, i most EU coutries, before moderatig their growth rate i 2011 ad shrikig agai i 2012 oce austerity policies ad depressed ecoomic activity set i. 11

20 Recet developmets i temporary employmet: Employmet growth, wages ad trasitios Figure 6: Yearly growth rates i employmet levels ad real GDP, EU27, % Total o. of employees Temporary Permaet GDP Notes: Data for the period 1999 to 2001 refer to the EU15. GDP = gross domestic product. Source: EU-LFS The greater dyamism of temporary cotracts ca be explaied by the flexibility they provide to employers. Temporary cotracts allow employers to expad their workforce more quickly wheever the demad for their products or services starts to expad or they expect a improvemet i coditios before ecoomic fudametals are yet solid. I cotrast, employers may start reducig their workforce by ot reewig temporary cotracts whe there is ucertaity i the busiess eviromet. This is why the growig importace of temporary employmet may result i higher labour market volatility, especially whe there is labour market segmetatio (Dolado et al, 2012). Figure 7 presets a more straightforward picture of the busiess cycle dyamics of temporary employmet by focusig o those employees ewly recruited each year. The data cofirm the higher resposiveess of temporary cotracts to busiess cycle chages. They also show that the proportio of temporary cotracts amog employees takig up ew jobs icreased i Europe durig the period uder observatio. This icrease occurred across all age groups, except for those above 60 years (Figure A1 i the Aex). Despite the otable reductio i temporary employmet levels i 2008 ad 2009, employers recruited almost half of their ew employees o temporary cotracts i the years betwee 2009 ad 2012 (Figure 7). I Polad ad Spai, this proportio was close to 80% (Box 1). Whe quarterly data are used, the proportio of the total umber of employees i the EU27 with teures of up to 3 moths is greater tha 60% i the period from 2009 to 2012 (Figure A2 i the Aex). 12

21 Recet developmets i temporary employmet: Employmet growth, wages ad trasitios Figure 7: Levels ad share of temporary employmet amog short-teured employees, EU27, , , Number of employees (thousads) 13,000 12,000 11,000 10, Share of temporary employmet (%) 9, , Permaet Temporary Share of temporary employmet 40 Note: Short-teured employees are those with a job teure of up to 12 moths. It icludes ewly employed idividuals who were ot previously employed or who chaged jobs withi the previous 12 moths. Source: EU-LFS The ucertai ecoomic eviromet i Europe may explai why employers recruit a high proportio of temporary employees across may Europea coutries. Oce the recovery is more solid, it is to be expected that the share of permaet cotracts will icrease amog ew recruits. If a icreasig proportio of the iflows ito the labour market is takig place uder temporary cotracts, the temporary employmet rate will icrease i Europea labour markets. At the same time, temporary employees are more likely to exit the labour market due to o-reewal (or expiry) of their cotracts, which would reduce the temporary employmet rate. The fial effect of these labour market iflows ad outflows o the temporary employmet rate is a matter of empirical aalysis. Accordig to available data (see Figure 2), the temporary employmet rate for the EU27 has icreased from 2009, ad it may be expected to cotiue that way util a solid ecoomic recovery sets i. The ext sectio looks at the temporary employmet rates across coutries i the past decade. Box 1: Share of temporary cotracts amog short-teured employees i selected coutries The share of temporary cotracts amog short-teured employees has icreased progressively over the previous decade i all selected coutries apart from Spai (Figure 8). From the oset of the ecoomic crisis i 2008, this proportio has icreased i all coutries apart from Germay, reachig levels of aroud 80% i Spai ad Polad ad aroud 60% i the Netherlads, Frace ad Italy i

22 Recet developmets i temporary employmet: Employmet growth, wages ad trasitios Figure 8: Share of temporary cotracts amog short-teured employees i six Member States ad the EU27, % EU27 DE ES FR IT NL PL Note: Short-teured employees are those with a job teure of up to 12 moths. It icludes ewly employed idividuals who were ot previously employed or who chaged jobs withi the previous 12 moths. Source: EU-LFS Temporary employmet rates The icreasig prevalece of temporary cotracts i the EU27 over the past decade is reflected by the icrease i the temporary employmet rate from 11.2% i 2001 to 12.8% i 2012 (Figure 9). This was ot a uiform tred: the rate icreased i may Member States (by more tha 4 percetage poits i Polad, Irelad, the Netherlads, Italy, Cyprus ad Sloveia), but fell i 10. The crisis had a clear impact o the temporary employmet rate, reflectig the chages i employmet levels (Figures 4 ad 5). Betwee 2001 ad 2008, the temporary employmet rate i the EU27 icreased by 1.5 percetage poits agaist a backgroud of mixed rises ad falls across Member States. However, it remaied costat betwee 2008 ad 2012 for the EU27, while it icreased i most coutries. The developmets i the temporary employmet rate i Spai, Polad, Germay, Frace, Italy ad the Netherlads are importat i explaiig EU-level treds (see Box 2). Temporary employmet became sigificatly more commo over the past decade, maily i Polad, Germay, Italy, the Netherlads, Irelad ad Luxembourg ad Icelad outside the EU27 compared with previous decades. I other coutries, the more sigificat icreases occurred i earlier decades: for istace, betwee 1985 ad 1995 for Frace ad Spai, ad betwee 1995 ad 2001 for Belgium, Greece ad Portugal (ad Japa outside Europe). 14

23 Recet developmets i temporary employmet: Employmet growth, wages ad trasitios Figure 9: Temporary employmet rates over time i the EU27 Member States ad other coutries, 1985, 1995, 2001, 2008, 2012 RO LT EE BG LV UK AT MT SK LU BE DK CZ IE HU EL DE EU27 IT FI FR SE CY SI NL PT ES PL EU27 average (2012) US MX AU NO RU TR CH IS CA JP KR % Notes: Coutries are raked by the 2012 rate data refer to 1986 for Portugal, 1987 for Spai ad 1988 for Turkey; 1995 data refer to 1996 for Luxembourg ad Norway, 1997 for Filad, Hugary, Swede ad Caada, ad 1998 for Australia ad Switzerlad; 2001 data refer to 2003 for Korea; 2008 data refer to 2005 for the USA. Source: EU-LFS for the EU27 ad OECD for the rest (employees aged above 14 years) 15

24 Recet developmets i temporary employmet: Employmet growth, wages ad trasitios Box 2: Treds i the temporary employmet rate i selected coutries, The growth of the temporary employmet rate i the EU27 is drive largely by the six coutries depicted i Figure 10, which accout for most of the temporary cotracts i Europe. The EU27 rate grew from 2002, drive by the icreases i Germay ad the subsequet icreases i Italy ad Frace, which added to the effects of the ogoig developmets i Polad. 2 After peakig i 2007, the EU rate moderates followig the big reductio i the Spaish rate ad the largely costat behaviour i Germay ad Polad, ad despite the icreases across most Europea coutries durig the crisis period. Polad ad Spai stad out i terms of the magitude of their temporary employmet rate ad i the differet treds i these two coutries i the decade betwee 2002 ad Spai had the highest rate at the begiig of the period, but it started to declie from 2005, while Polad experieced a huge icrease i its rate betwee 2001 ad 2007 ad a stabilisatio ever sice. Figure 10: Temporary employmet rates i six selected Member States ad the EU27, % Source: EU-LFS DE ES FR IT NL PL EU27 Although the treds i temporary employmet described above are affected by chages i the ecoomic structure ad the impact of the ecoomic crisis, policy developmets i employmet protectio legislatio provide further cotext. Frace, Germay, Italy, the Netherlads ad Polad all adopted policy reforms betwee 2002 ad 2012 maily aimed at easig the use of temporary cotracts, while the opposite occurred i Spai, where temporary employmet had rise otably from the 1980s. Below is a summary of the mai reforms i employmet protectio legislatio i these coutries, based o iformatio provided i the LABREF (labour market reform) database for the period 2000 to I the Germa case, the sudde icrease i 2005 may be partially data-drive, due to the otable reductio i the umber of oresposes to the questio o type of cotract. 16

25 Recet developmets i temporary employmet: Employmet growth, wages ad trasitios Frace A ew type of fixed-term employmet cotract (cotrat à durée détermiée seior) was created i 2006, addressed at job-seekers aged 57 years or more who had either bee registered as a job-seeker for more tha three moths or had siged a persoal reclassificatio agreemet. Such cotracts could be for a duratio of up to 18 moths ad reewable oce. Germay Agaist the backgroud of the Hartz reforms, the age limit imposed for fixed-term cotracts (beyod which such cotracts ca be cocluded with employees without ay deadlie beig set or without a maximum time limit) was reduced from 58 to 52 years old i The maximum legth a short-term cotract could be used without givig ay reaso was exteded from two to four years i 2003 for ewly created eterprises durig the first four years after start-up. Italy The Biagi reforms itroduced ew forms of flexible employmet cotracts i 2003 such as o-call jobs (lavoro itermittete), job sharig (lavoro ripartito) ad supplemetary work (lavoro accessorio), while other existig cotracts (such as appreticeships) were made more flexible. I 2008, it was made possible to exceed the maximum duratio of fixed-term cotracts, with collective bargaiig beig assiged the task of determiig the terms of reewal of cotracts beyod the 36-moth time limit. The Netherlads The umber of cosecutive fixed-term employmet cotracts that ca be used to employ a youg employee (up to 27 years) was exteded i 2010 from three to four. I the case of youg people, temporary cotracts could oly be coverted ito a ope-eded cotract if cosecutive fixed-term cotracts exceeded 48 moths. 3 Polad The ie-moth time limit o fixed-term employmet cotracts was removed i 2002, util Polad s accessio to the EU (which required some restrictios o the use of fixed-term cotracts), while a idefiite umber of fixed-term cotracts was allowed with the same employer. 4 Apart from the employmet relatioships regulated by the Labour Code, the so-called civil law cotracts, which are temporary cotracts based o the Civil Code, have bee extesively used i Polad. Spai I 2001, limited compesatio for dismissal was itroduced for workers o temporary cotracts amoutig to eight days pay per year worked. I 2006, a ceilig was established o the umber of cosecutive fixed-term cotracts that ca be siged for the same job (two or more cotracts i a period of over 24 moths i the precedig 30 moths). Further chages were made i 2010: fixed-term cotracts for a specific job or services were limited to a maximum of three years, with the optio to exted for a further year through sectoral collective bargaiig; 3 4 This temporary measure expired o 1 Jauary 2012 ad, followig a evaluatio of its effectiveess, the govermet decided ot to exted it. I 2003, the rule whereby o more tha two cosecutive fixed-term employmet cotracts could be held with the same employer was reiserted i lie with relevat EU legislatio. I 2004, a rule was itroduced statig that if a fixed-term cotract is reewed for the secod time, it must be for a idefiite period. 17

26 Recet developmets i temporary employmet: Employmet growth, wages ad trasitios bidig temporary cotracts were to be reduced ad restricted to 24 moths for workers who were take o more tha oce by the same compay or group of compaies, eve if their job chaged (before this, there were o limits o duratio); compesatio for dismissal of employees was set to rise gradually for temporary cotracts (aually by oe day per year of service) from 8 days per year of service to 12 days as of 1 Jauary Summary Temporary employmet levels expaded sigificatly betwee 2001 ad 2012 i the EU27, growig more tha levels of permaet employmet (25% compared with 7%) ad cotributig almost 4.5 millio to the 14.5 millio et icrease i the umber of employees. This was ot a uiversal tred, sice temporary cotracts declied i oe-third of Europea coutries. Polad, Germay, Italy, Frace ad the Netherlads were resposible for much of the absolute icrease i temporary employmet levels i the EU27 over the past decade, while a substatial reductio occurred i Spai. As a result of these developmets i employmet levels, the EU27 temporary employmet rate rose from 11.2% to 12.8% betwee 2002 ad 2012, icreasig i almost two-thirds of Member States. The crisis had a clear ifluece o treds. The coutry picture was more mixed before the crisis, as temporary employmet levels had falle i almost oe-third of Europea coutries. From the oset of the crisis, temporary employmet levels icreased ad permaet employmet levels decreased i may coutries, resultig i growig temporary employmet rates across most Europea coutries. Temporary employmet levels are more resposive to chages i the busiess cycle tha permaet employmet, with growth moderatig before the oset of the crisis. Levels were severely affected by the employmet correctio that occurred i 2008 ad But from 2010, aroud 50% of employees who had take up their jobs withi the previous 12 moths did so o temporary cotracts, the highest proportio over the whole period. This proportio rose to aroud 80% i Polad ad Spai. Agaist a backgroud of poor ecoomic prospects, employers may prefer to use temporary cotracts for may of their ew hires. This situatio may cotiue util a solid recovery takes hold i Europe. 18

27 Determiats of temporary employmet 2 Several factors ca be idetified i the literature that may explai differeces i the temporary employmet rate across coutries. These factors iclude sectoral ecoomic structures, the competitive strategy adopted by compaies ad the employmet protectio legislatio. The literature uderlies the importace of the latter, sice may Europea coutries have liberalised employmet protectio legislatio for temporary cotracts i the past decades while leavig that of permaet cotracts relatively uchaged (Blachard ad Ladier, 2001; Dolado et al, 2002; Betolilla et al, 2008). These factors are determiats of temporary employmet at a more macro level ad are ot covered here because they are dealt with extesively by the specialised literature. Istead, this sectio looks at the determiats of temporary employmet at a micro level, that is, the idividual ad job characteristics more commoly associated with holdig a temporary cotract. The aalysis cosists of two complemetary steps: a descriptio of the temporary employmet rate across differet segmets of the workforce; a multivariate regressio aalysis to study which characteristics are associated with a higher likelihood of holdig a temporary cotract. Workforce characteristics associated with temporary employmet Age may be the most relevat determiat of temporary employmet. The relatioship betwee the temporary employmet rate ad age follows a U-shape: the rates are highest amog the yougest employees, decrease gradually util employees are i their fifties ad grow agai for older segmets of the workforce (Figure 11). The importace of age seems to have bee reiforced over the past decade, sice the temporary employmet rate icreased oly amog those employees below 55 years of age, ad especially amog the yougest. Nevertheless, temporary employmet levels expaded across all age groups ad particularly amog the oldest segmets of the workforce. But while permaet employmet levels declied for the youger age groups (causig a icrease i their temporary employmet rate), they grew more tha temporary employmet levels for the older segmets of the workforce (causig a fall i their temporary employmet rates). Figure 11: Temporary employmet rate, by age group, 2001, 2008 ad 2012, EU years years years years years years years years years years years years % Source: EU-LFS 19

28 Recet developmets i temporary employmet: Employmet growth, wages ad trasitios The fact that temporary employmet has a higher icidece amog the yougest segmets of the workforce does ot ecessarily mea that youger employees hold the bulk of the temporary cotracts i a coutry. That will deped as well o the employmet shares represeted by each age group. Figure 12 shows that employees i their tweties are the most sigificat group because they represet more tha 40% of the temporary cotracts i the EU27. However, the other groups also accout for substatial shares of temporary cotracts; the exceptio is those employees aged above 60 years, who represet less tha 5% of temporary employmet cotracts i the EU27. Figure 12: Distributio of temporary employmet amog age groups, Member States ad EU27, 2012 DE SI SE BE NL DK MT FR LU AT IE EU27 FI PL PT UK RO IT EE LT CZ SK ES EL CY HU LV BG % years years years years 60+ years Note: Coutries are raked by the share of the years age group over the total umber of temporary cotracts i each coutry. Source: EU-LFS Cosiderable cross-coutry differeces emerge. While the yougest segmet of the workforce (employees aged years) represets more tha half of the temporary employmet i Germay, Sloveia, Swede ad Belgium, it represets less tha a third i Greece ad Spai ad three cetral ad easter Europea (CEE) coutries (Bulgaria, Latvia ad Hugary). Employees aged years represet more tha 30% of temporary cotracts i several Mediterraea coutries (Cyprus, Greece, Portugal ad Spai), while employees aged over 50 years accout for more tha 20% of 20

29 Recet developmets i temporary employmet: Employmet growth, wages ad trasitios temporary employmet i Malta, the UK ad i several CEE coutries (Bulgaria, the Czech Republic, Estoia, Hugary, Latvia ad Slovakia). Temporary cotracts are preset across all groups withi the workforce (categorised by age, ecoomic sector, occupatio ad so o), although to varyig degrees (Table 2). There is oly a margial differece i the temporary employmet rate betwee me ad wome (Table 2a). However, employees with lower levels of educatioal attaimet have higher rates tha those with a medium or high level of educatioal attaimet. Eve more sigificat differeces ca be foud betwee atioals ad o-atioals, especially whe compared with foreig atioals from o-eu coutries. Table 2b shows that the temporary employmet rate is higher i the agriculture sector ad several service sectors, icludig accommodatio ad food service activities, arts, etertaimet ad recreatio, admiistrative ad support service activities, activities of households as employers, ad educatio. The rate declies with compay size, although the differeces are ot very large. Table 2c shows that the temporary employmet rate teds to be higher i lower-skilled occupatios. I additio, a higher proportio of part-time workers are employed uder temporary cotracts compared with full-time workers. Nevertheless, lookig at the distributio of temporary employmet, a more typical temporary employee is: a atioal; aged below 40 years; someoe with a medium level of educatio; either a ma or a woma workig full time. Temporary cotracts are well spread amog ecoomic sectors (despite the egligible share represeted by some of them), compaies ad eve occupatioal categories, although i the latter case, more tha half of temporary cotracts are cocetrated i professioal, service ad elemetary occupatios, take together. Table 2: Temporary employmet rates ad distributio of temporary employmet i the EU27, accordig to sociodemographic, compay ad job characteristics, 2012 (a) Sociodemographic characteristics Temporary employmet rate (%)* Share of temporary cotracts (%)** Geder Me Wome Age years years years years years

30 Recet developmets i temporary employmet: Employmet growth, wages ad trasitios Temporary employmet rate (%)* Share of temporary cotracts (%)** Educatioal level Low Medium High Natioality Natioal EU citize No-EU citize (b) Compay characteristics Temporary employmet rate (%)* Share of temporary cotracts (%)** Ecoomic activity (NACE Rev. 2) A. Agriculture, forestry ad fishig B. Miig ad quarryig C. Maufacturig D. Electricity, gas, steam ad air coditioig supply E. Water supply, sewerage, waste maagemet ad remediatio activities F. Costructio G. Wholesale ad retail trade; repair of motor vehicles ad motorcycles H. Trasportatio ad storage I. Accommodatio ad food service activities J. Iformatio ad commuicatio K. Fiacial ad isurace activities L. Real estate activities M. Professioal, scietific ad techical activities N. Admiistrative ad support service activities O. Public admiistratio ad defece; compulsory social security P. Educatio Q. Huma health ad social work activities R. Arts, etertaimet ad recreatio S. Other service activities T. Activities of households as employers U. Activities of extraterritorial orgaisatios ad bodies Compay size 10 or fewer employees employees employees >50 employees Usure (but > 10)