Temporary Employment Contracts and Household Income

Abstract

It is widely accepted that temporary jobs tend to be associated with low pay which, in turn, will have negative consequences for household income. Evidence in support of such claims, however, is surprisingly thin. This study seeks to fill this void. In particular, it is both the first study to examine the consequences of temporary employment for workers’ household income within a multivariate framework, and the first to quantify the relative importance of the different channels through which temporary employment affects income. Fixed-effects regression and decomposition analyses are applied to longitudinal survey data from Australia, a country where the incidence of temporary forms of employment, and especially casual work, are very high by Western standards. As expected, workers in casual and temporary agency employment are found to live in households with lower average incomes. In contrast, employment on a fixed-term contract is not associated with living in a household with a significantly lower income. The estimated size of the income penalty, relative to households of comparable permanent employees, is about 5% for temporary agency workers and 12% for casual employees. These differentials, however, are not primarily the result of lower wages, but instead are due to the fewer hours worked by these groups. In the case of casual workers, lower annual individual earnings are partly offset by higher incomes of other household members. This compensatory effect, however, is relatively modest in size – the income gap with permanent workers remains substantial.