Temporary Employment, Demand Volatility, and Unions: Firm-Level Evidence

Abstract

This article investigates the effect of workplace unionization and product market volatility on firms’ propensity to use temporary employment. Using Italian firm-level data, the authors show that volatility has a positive impact on the share of temporary contracts. The baseline estimates for the impact of unions are inconclusive, but a clear pattern emerges when a specification including an interaction term with volatility is used. This approach allows a richer characterization of the impact of workplace unionization, which is positive for low levels of volatility and negative for high levels. The authors discuss various direct and indirect mechanisms to explain this novel finding. Furthermore, they find that these effects hold only for cases in which the employer does not provide training for temporary workers, whereas temporary contracts with training provisions are not affected by unions, volatility, and their interplay.