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Temporary Employment Contracts and Household Income

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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 relatively 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. 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, is very high by Western standards. Contrary to expectations, employment on a fixed-term contract is associated with significantly higher household incomes than permanent workers. In contrast, workers in casual and temporary agency employment are indeed found to live in households with lower average incomes than permanent workers. The estimated size of the income penalty is about 11% for temporary agency workers and 20% for casual employees. These differentials, however, are not primarily the result of lower wages, but instead are mainly 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, while not small, is still insufficient in size to fully close the income gap to permanent workers.

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Notes

  1. Mention could also be made of Tomlinson and Walker (2012) who used panel data for the UK and Germany to look at the association between being an “outsider” in the labour market and experiencing poverty, where the group of outsiders included workers without permanent contract. However, the category of employed outsiders also contained permanent workers who lack certain benefits, and hence the study does not allow direct inferences regarding the link between temporary contracts and poverty.

  2. Additionally, income has been investigated in studies concerned with cross-country differences in the consequences of labour market segmentation, and more specifically the divide between insiders and outsiders (Häusermann and Schwander 2012; Schwander and Häusermann 2013). However, these studies identify labour market outsiders not by an individual’s current employment situation, but by membership of a social group that has an increased risk of being in atypical employment and/or unemployed.

  3. The extent to which contract type is intergenerationally transmitted may also depend on the age composition of the workforce. In Australia, casual employment is strongly concentrated among the young: 48% of casual employees in our sample are younger than 25 years, compared to 12% of permanent workers. In contrast, fixed-term contract and agency workers are more evenly distributed across age groups (with 17% and 25% respectively being younger than 25 years), making the transmission of contract type from parent to child more likely.

  4. Cases generally receive zero weights when they reside in non-private dwellings or in very remote areas of Australia, which were both not part of the original HILDA Survey sample. (For more information on the construction of weights in the HILDA Survey, see Watson 2012).

  5. The taxation estimation routines in the HILDA Survey are described in detail in Wilkins (2014).

  6. The differences in mean income from other household members across contract type are, in part, a consequence of differences in working hours provided by these members: On average, co-residents of permanent workers work a total of 37.6 h per week in all jobs, those of fixed-term contract workers work 37.8 h, those of casual workers work 49.6 h per week, and those of agency workers work 34.0 h. However, these differences attenuate when considering differences in household size: Average working hours per co-resident adult are 23.5 for permanent workers, 23.9 for fixed-term contract workers, 24.9 for casual workers and 21.2 for agency workers.

  7. For a detailed analysis of the long-term labour market pathways followed by temporary workers in Australia that uses the HILDA Survey data see McVicar et al. (2019).

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Acknowledgements

This paper uses confidentialised unit record file data from the Household, Income and Labour Dynamics in Australia (HILDA) Survey. The HILDA Survey Project was initiated and is funded by the Australian Government Department of Social Services and is managed by the Melbourne Institute of Applied Economic and Social Research. This research was also supported under the Australian Research Council’s Discovery Projects funding scheme (Project # DP160103171).

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  1. Melbourne Institute of Applied Economic and Social Research, University of Melbourne, Melbourne, VIC, 3010, Australia

    Inga Laß & Mark Wooden

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Appendix

Appendix

See Tables 5 and 6.

Table 5 Descriptive statistics of sample
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Table 6 Blinder–Oaxaca decomposition of gap in equivalised disposable household income between permanent and temporary workers (extended specification)
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Laß, I., Wooden, M. Temporary Employment Contracts and Household Income. Soc Indic Res 147, 111–132 (2020). https://doi.org/10.1007/s11205-019-02147-3

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