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The Misaligned Incentives of Temporary Work Agencies and their Client Firms
Umeå University, Faculty of Social Sciences, Umeå School of Business and Economics (USBE), Economics.ORCID iD: 0000-0003-1071-5774
Umeå University, Faculty of Social Sciences, Umeå School of Business and Economics (USBE), Economics.ORCID iD: 0000-0002-7295-7202
2014 (English)Report (Other academic)
Abstract [en]

This paper adds to the theoretical literature on the incentives of Temporary Work Agencies (TWAs). Using a principal-agent model with hidden action to analyse two main types of contracts between a TWA and a Client Firm (CF), the TWA is shown to potentially act against the best interest of the CF when helping to fill a vacant position. The results also suggest that the adverse effect of the incentive misalignment is larger when workers are leased rather than hired by the CF. However, this effect could potentially be offset by introducing a sufficient level of competition among TWAs. 

Place, publisher, year, edition, pages
Umeå: Umeå universitet , 2014. , 18 p.
Series
Umeå economic studies, ISSN 0348-1018 ; 896
Keyword [en]
temporary work agency, client firm, incentives, matching, contracts
National Category
Economics
Research subject
Economics
Identifiers
URN: urn:nbn:se:umu:diva-95356OAI: oai:DiVA.org:umu-95356DiVA: diva2:758819
Available from: 2014-10-28 Created: 2014-10-28 Last updated: 2016-08-17Bibliographically approved
In thesis
1. Essays on temporary work agencies and the economic analysis of law
Open this publication in new window or tab >>Essays on temporary work agencies and the economic analysis of law
2014 (English)Doctoral thesis, comprehensive summary (Other academic)
Abstract [en]

This thesis consists of an introductory chapter and four self-contained papers on temporary work agenciesand the economic analysis of law.

Paper [I] adds to the theoretical literature on the incentives of Temporary Work Agencies (TWAs). Using aprincipal-agent model with hidden action to model two main types of contracts between a TWA and a ClientFirm (CF), the TWA is shown to potentially act against the best interest of the CF when helping to fill avacant position. The results also suggest that the adverse effect of the incentive misalignment is larger whenthe worker is going to be leased instead of hired by the CF. However, this effect could potentially be offsetby introducing a sufficient level of competition among the TWAs.

Paper [II] uses individual-level data on young adults to estimate how the probability of being employed inthe Swedish temporary agency sector is affected by whether a partner or other family member has experienceof temporary agency work. The results show a significant effect from all peer groups of a magnitude thatcorrespond to the other most influential control variables. We also find that this cohort of the agency sectorhas a relatively high education level compared to the regular sector, and that there are predominately menworking in thissector.

Paper [III] analyses possible effects on total employment, and the distribution between agency work andregular contracts as a consequence of the implementation of the EU Temporary and Agency Workers Directive in Sweden. The analysis is based on changes in the compensation to agency workers in a calibratedextension of a Mortensen-Pissarides search model. Even though the results suggest a negative net effect ontotal employment, the implementation is shown to increase (utilitarian) welfare, and an increased transitionprobability from the agency sector into regular employment will increase welfare even further.

Paper [IV] focuses on settlement probabilities for different types of representation within the Swedish LabourCourt. Empirical estimates on a set of unjust dismissal cases show that private representatives are generallyless likely to reach a settlement than their union counterparts. The settlement probabilities converge following court-mandated information disclosure, which suggests that information asymmetry is an importantfactor in explaining differences in settlement behaviour. Privately instigated negotiations are therefore ingeneral insufficient for making cases with non-union representation reach the same settlement rate as caseswith union representation.

Place, publisher, year, edition, pages
Umeå: Umeå universitet, 2014. 23 p.
Series
Umeå economic studies, ISSN 0348-1018 ; 897
Keyword
temporary work agency, family work experience, young adults, Sweden, labour law, EU direc- tive, unemployment, unjust dismissals, negotiations, settlements, labour unions
National Category
Economics
Research subject
Economics
Identifiers
urn:nbn:se:umu:diva-95474 (URN)978-91-7601-152-2 (ISBN)
Public defence
2014-11-21, S213h, Samhällsvetarhuset, Umeå universitet, Umeå, 13:15 (English)
Opponent
Supervisors
Available from: 2014-10-31 Created: 2014-10-29 Last updated: 2014-10-30Bibliographically approved
2. Essays on Delegated Search and Temporary Work Agencies
Open this publication in new window or tab >>Essays on Delegated Search and Temporary Work Agencies
2016 (English)Doctoral thesis, comprehensive summary (Other academic)
Alternative title[sv]
Essäer om delegerad sökning och bemanningsföretag
Abstract [en]

Paper [I] models a game, where two temporary work agencies (TWAs) compete to fill a vacancy at a client firm (CF). They simultaneously choose how much effort to expend, based on their expectation of how good their opponent’s best candidate will be. I then show that this will make the TWAs overconfident, as the rational way of judging your own probability of winning is not looking at the opponents expected best, but comparing how much effort your opponent will expend.

Paper [II] examines the misaligned incentives in the temporary work agency sector, where we first look at pure recruiting contracts, that either require payment on delivery, or payment on some specified point in time. We then look at the incentives of recruit-and-rent contracts, where the worker is leased to the client firm. We assume that the better the worker, the higher the probability that the client firm is going to want to hire him/her. If that happens then the TWA will no longer get revenues from said worker, incentivizing the TWA to not always deliver the first match it finds, if it is too good. Lastly we look at how competition can dampen this perverse incentive.

Paper [III] models the waiting behavior that can occur if a TWA is contracted to find a worker for a specific time far in the future; the TWA will postpone effort. This behavior is modeled for two types of TWAs; one that is rational and plans ahead, and another that does not plan ahead at all, but instead only looks at the immediate future. I find that the one that only looks at the immediate future starts exerting effort earlier than the planner. After looking at optimal contracts under perfect monitoring and hidden action I provide two extensions. I first show that for the principal to want to delegate search to a rational TWA, the agent has to be better than the CF, by some factor, as it has to make up in efficiency what the principal loses in moral hazard, when the agent waits longer than the principal would like it to. Lastly I prove that it is profit maximizing for the principal to contract one agent and give it a deadline earlier than when the principal would need the worker, and then replace that agent with a competitor if the first one has not succeeded by that earlier deadline.

Paper [IV] estimates at the effect of family experience on relative transition probability into the temporary work agency sector. Using register data for all of Sweden we run a bias-reduced logistic regression, where we include various factors that affect the probability of young adults (aged 18-34) entering the sector. This paper ties in to the literature on occupational inheritance, as well as the literature on changing social norms. We find that having had a parent, sibling or partner in the TWA sector increases your probability of entering.

Place, publisher, year, edition, pages
Umeå: Umeå University, 2016. 18 p.
Series
Umeå economic studies, ISSN 0348-1018 ; 935
Keyword
delegated search, principal-agent, matching, transition probability, temporary work agencies
National Category
Economics
Research subject
Economics
Identifiers
urn:nbn:se:umu:diva-124596 (URN)978-91-7601-536-0 (ISBN)
Public defence
2016-09-09, S205h, The Social Science Building, Umeå University, Umeå, 13:15 (English)
Opponent
Supervisors
Available from: 2016-08-19 Created: 2016-08-17 Last updated: 2016-08-24Bibliographically approved

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