Heterogeneity matters: temporary employment, productivity and wages in Italian firms

This study analyses the relationship between flexible employment, productivity and wages, along their distributions. We use an original firm-level dataset, which combines information on workplace characteristics from Rilevazione su Imprese e Lavoro (RIL) with the Analisi Informatizzata delle Aziende Italiane (AIDA) balance sheet information for the universe of Italian non-agriculture/financial corporations. We employ different quantile regression models to panel data and find, first, that use of temporary contracts is associated to a reduction in labour productivity and wages at each point in the corresponding distribution; and second, that the negative relationship between labour productivity and wages decreases in magnitude along the quantiles of the productivity and wage distributions, suggesting that low-productive/low-wage firms use temporary employment to permanently staff positions and to compress labour costs.