Is Temporary Employment a Stepping Stone for Unemployed School Leavers?

Many school-leavers enter the labour market via temporary employment. As employers could exploit the weak bargaining position of job starters, fixed-term contracts at the beginning of the labour market career are often criticized. However, temporary employment at this stage may as well act as a stepping stone into permanent employment. This is the case if it is easier to transit from temporary employment into permanent employment than from school to permanent employment. The paper investigates for a sample of Flemish school leavers whether a temporary employment spell at the start of the career has a positive or negative impact on the transition rate into permanent employment. Our analytical benchmark is the case of a direct transition from unemployment to permanent employment. Do individuals who start with fixed-term employment reach permanent employment more or less quickly? The fundamental problem in this type of study is that school-leavers who enter temporary employment are probably not a random group. They are likely to differ in their characteristics from school-leavers who do not enter temporary employment. If this is the case, simple comparison of transition rates for the two groups would not only capture the impact of temporary employment, but also the effect of the different characteristics. In order to control for selective participation in temporary employment, we use a large set of explanatory variables especially collected to study school-leavers. Furthermore we apply advanced statistical methods to test for the presence of selection in unobserved characteristics. Based on our statistical test, we conclude that given our data, there is no support for selection in unobserved characteristics. Simulation exercises give insight into temporary employment effects changing over time elapsed since school-leaving. In the short run temporary employment delays transition to permanent employment. But in the long run temporary employment acts as stepping stone and reduces the time required before reaching permanent employment. From this perspective fixed-term contracts at career entry appear as beneficial.

Göbel, Christian and Elsy Verhofstadt (2008), Is Temporary Employment a Stepping Stone for Unemployed School Leavers?, ZEW Discussion Paper No. 08-093, Mannheim.