The Effect of Employing Temporary Workers on Efficiency: Evidence From a Meta-Frontier Analysis

Koangsung Choi,Daeho Lee,Chung Choe

doi:10.1177/21582440211058199

Koangsung Choi, Daeho Lee + Show 1 more

Open Access

https://doi.org/10.1177/21582440211058199

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Abstract

This study examines the impact of employing temporary workers on technical efficiency (TE) by employing stochastic frontier analysis (SFA) and meta-frontier analysis (MFA). These two statistical methods yield slightly different, yet empirically meaningful, results. SFA—the more conventional methodology for conducting efficiency analysis—confirms that firms with temporary workers show a somewhat lower level of TE; while MFA, which allows a comparison of TE across groups with heterogeneous technologies, reveals that firms hiring temporary workers are technologically less efficient and have a more pronounced relative gap in efficiency. With the application of MFA, it was observed that firms hiring only temporary workers come farther to the meta-frontier than their counterparts.

Highlights

Over the last few decades, the share of temporary workers in the workforce has soared; numerous issues relevant to the employment of temporary workers have been on the rise
The results from meta-frontier analysis (MFA) reconfirmed that companies only hiring permanent workers were more efficient than those with temporary workers, that is, temporary worker (0.9320) versus permanent worker (0.9609) groups
Higher efficiency was observed in technical efficiency (TE)*, which equals the product of TE and meta-technology ratio (MTR), that is, temporary worker (0.7581) versus permanent worker (0.7836) groups

Summary

Introduction

Over the last few decades, the share of temporary workers in the workforce has soared; numerous issues relevant to the employment of temporary workers have been on the rise. European countries hire temporary workers primarily to cut costs (Cahuc & Postel-Vinay, 2002), workers are evaluated, and less productive workers are offered short-term labor contracts In this approach, European countries use temporary employment to screen workers (Faccini, 2014). The reasons for using temporary workers vary, companies seek to reduce their labor costs and enhance internal employment flexibility through temporary employment It is unclear, whether the employment of temporary workers leads to positive firm performance in terms of revenue, profits, and productivity because despite the aforementioned positive effects, the use of temporary workers seems to have negative effects, such as increasing turnover rates, lowering job satisfaction, and demoralizing permanent workers

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