ILO study warns against over reliance on temporary employment

An over reliance on the use of temporary workers can lead to negative consequences for the productivity of individual firms and the economy, according to research published by the International Labour Organization (ILO).

Using temporary employment solely to reduce costs “can lead to complacency among businesses in terms of their competitiveness, or to them undercutting the responsible employment practices of other enterprises,” said a recent research brief of the study. It made use of data on over 72,000 private sector firms in 118 developing countries from 2006-2014.

The study acknowledged that temporary employment gives enterprises the flexibility to respond to changes in demand and allows them to replace temporarily absent workers or evaluate new employees before offering them an open-ended contract.

“Some firms employ temporary workers specifically to shield their core workers from any potential downsizing that may result from demand fluctuations or adverse shocks,” said the brief.

The positive short-term cost and flexibility gains achieved from employing temporary labour are often outweighed by longer-term productivity losses, the brief said. Losses can stem from:

• the lower productivity associated with the high turnover of temporary staff
• the negative spill over effects on the productivity of standard workers from using non-standard workers
• the high transaction costs involved in the management of a blended workforce (where standard and non-standard workers work side by side)

Some 7% of enterprises in developing and transitioning countries use temporary labour intensively, with more than half of their workforces employed on temporary contracts. The brief said it has spread to industries that did not previously rely on these arrangements, such as airlines and telecommunications, reflecting a shift in the organizational strategies of firms. Small enterprises are more likely to use temporary labour as they often do not have enough employees to meet temporary adjustment needs.

“Rather than being a natural phenomenon, temporary employment is the outcome of explicit decisions. While its use is influenced by considerations of cost saving, flexibility and technology issues, most critically it reflects a specific organizational choice made by enterprises.”